Banking sector: new rules ahead

“It’s not a drastic change, it’s not enough to really protect consumers,” said John Lowford, executive director of the Center for Public Interest.

Banks have already begun sending notifications of some of the changes they will need to make when the rules take effect on June 30, such as notifications when the account balance falls below $ 100 and new rules limiting liability to $ 50 for lost or stolen credit cards, except in cases of gross negligence.

The new rules also reduce to 56 days after the first complaint to the bank, before someone can pass the question to one of the outside experts. Previously, the rules allowed for a 90-day period after a second-tier bank’s decision, but lack of transparency on the timing of banks meant that the actual average time before a matter could be referred to a higher court was about 130 days.

Since the Ministry of Finance issued an initial consultation paper on change in late 2013, concerns about high-pressure tactics and increased sales in the industry have also increased. The new rules now make it clear that banks cannot “put undue pressure” on the sale of a product or service, and that these products and services must be “relevant” to the person and their financial needs.

Relationships that remain transactional

But while the new structure is forcing banks to improve their policies, it is unclear how applicable and effective the new rules will be.

“It doesn’t really change the fundamental relationship between banks and their customers, which is always a transactional one,” said Renee Kimmett, an intern at the Center for the Protection of Public Interest.

The rules do not go so far as to establish a fiduciary obligation to act in the best interests of the client, as some securities laws do, she said.

The amendments also do not include financial product development rules used in Australia, the United Kingdom and the European Union, which require banks to develop products for the relevant target market and ask in the early stages of product development whether this is appropriate.

These rules are especially useful for protecting consumers who are offered products and services through push notifications, without the opportunity to ask questions about the product and its suitability to achieve their goals, explains Rene Kimmet.

The Financial Consumers Agency of Canada (FCAC), which is responsible for protecting the interests of the bank’s customers, said the new rules should address many of the problems with sales tactics they have expressed. mystery shoppers. The document states that approximately 15% to 20% of mystery shoppers considered product recommendations to be inappropriate, for example when offering premium credit cards that were not accompanied by consumer habits or income issues. In general, the results of secret purchases were worse for visible minorities and aborigines.

For its part, the banking industry supports the changes introduced by the new structure, said in a statement the spokesman for the Canadian Association of Bankers Mathieu Labreche.

“Banks spend a lot of time, effort and resources to ensure that customers receive products and services that suit them and that they have agreed to. Banks undertake to adhere to consumer protection measures. »

Two competitors for complaints

In addition to the framework itself, critics such as Rene Kimmett also point out that although the timing of grievances has improved, the problem remains that Canada has two external grievance redress bodies from which banks can choose. , which creates a kind of competition between the two organizations, which are trying to keep banks as customers by making decisions against them.

The federal government has made a campaign promise to create a single external body to deal with complaints and has reintroduced this commitment in the federal budget this year, but has not yet set a deadline for the change.

The new rules also do not protect consumers from unfair prices, says Duff Konaher, co-founder of Democracy Watch, a Canadian human rights organization.

“The rules are not very comprehensive on ending abuse and discrimination, and nothing is being done to stop (excessive pricing). »

According to Duff Konaher, in addition to better control by the FCAC itself, a much more effective action by the federal government would be to fulfill the Liberals’ campaign promise to expand the FCAC’s powers to verify bank charges and change. if they are excessive.

“It was promised, and it was a huge promise, because for the first time, the ruling party promised to give the regulator the power to review prices and make changes. »

Asked about plans to set up a single complaints body and introduce expanded powers, the finance ministry official reaffirmed budget commitments without providing further details and said the government regularly reviews the financial sector structure and consumer protection.