Banking sector: new rules to come

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

Banks have already started sending out notifications about some of the changes they will need to implement when the rules take effect on June 30, such as alerts when an account balance drops below $100 and new rules capping liability at $50. for loss or theft. credit cards, except in cases of gross negligence.

The new rules also reduce to 56 the number of days after a complaint is first filed against a bank before someone can escalate the problem to one of the external advisers. Previously, the rules allowed for a 90-day period after the bank’s second-tier resolution, but the banks’ lack of transparency about the timeline meant that the actual average time before the issue could be taken to a higher court reached approximately 130 days. days.

Since the Department of Finance sent out an initial consultation paper on the changes in late 2013, concerns about high-pressure sales tactics and upselling in the industry have also increased. The new rules now specifically state that banks cannot “impose undue pressure” to sell a product or service, and that those products and services must be “appropriate for the person” and their financial needs.

A relationship that remains transactional

But while the new framework forces banks to improve their policies, it is unclear how enforceable or effective the new rules will be.

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

The rules don’t go as far as establishing a fiduciary duty to act in the client’s best interests as some securities laws do, he notes.

The amendments also do not incorporate the financial product design rules used in Australia, the United Kingdom and the European Union, which require banks to design products for an appropriate target market and to ask earlier in the development of a product if it is appropriate. .

These rules are particularly useful to protect consumers who are offered products and services through push notifications, without having the opportunity to ask questions about the product and its suitability to achieve their goals, explains Rene Kimmett.

The Financial Consumers Agency of Canada (FCAC), which is charged with protecting the interests of bank customers, said the new rules should address many of the concerns about sales tactics it raised in late May in a report with the collaboration of mystery shoppers. The paper noted that around 15% to 20% of mystery shoppers found product recommendations inappropriate, for example by offering premium credit cards that were not accompanied by questions about spending habits or income. Overall, mystery shopping outcomes were worse for visible minority and Aboriginal customers.

For its part, the banking industry supports the changes brought about by the new framework, Canadian Bankers Association spokesman Mathieu Labrèche said in a statement.

“Banks spend a lot of time, effort and resources to ensure that customers receive products and services that are right for them and that they have consented to receive. Banks undertake to respect consumer protection measures. »

Two competitors for handling complaints

Beyond the framework itself, critics like Rene Kimmett also point out that while complaint-handling time has improved, the problem remains: Canada has two external complaint bodies that banks can choose from, creating a kind of competition between the two organizations, which try to keep the banks as clients while decisions are made against them.

The federal government made a campaign promise to establish a single external body to handle complaints and recommitted to it in this year’s federal budget, but has not yet given a timetable for implementing this change.

The new rules also do nothing to protect consumers from unfair prices, notes Duff Conacher, co-founder of Democracy Watch, a Canadian advocacy organization.

“The rules are not very comprehensive in stopping abuse and discrimination, and do nothing to stop (excessive prices). »

According to Duff Conacher, aside from better enforcement by the FCAC itself, a far more effective action by the federal government would be to fulfill the Liberals’ election promise to increase the FCAC’s powers to scrutinize prices charged by banks and impose changes. if they are excessive.

“It was promised and it was a great promise, because it is the first time that a government party has committed to giving a regulatory agency the power to review prices and impose changes. »

Asked about plans to create the single complaints body and enact enhanced powers, a Finance Ministry official reiterated the budget commitment without providing further details, saying the government regularly reviews the financial sector framework and consumer protection. financial consumers.