From: XXXX Sent: February-21-14 9:47 PM To: Consumer Code / Code consommateur Subject: Canada's Financial Consumer Protection Framework: Consultation Paper Jane Pearse Director, Financial Institutions Division Financial Sector Policy Branch Department of Finance Canada Thank you for consulting with Canadian banking clients on this important topic. Here is my submission to your consultation paper. Establishing a Comprehensive Set of Principles for Consumer Protection I agree generally with the suggested principles subject to the following: 1. Financial institution stewardship of the consumer's interest: Banks should be required to act in the best interests of their clients when they are providing information or advice on financial products or services. The language of "should consider" is extremely weak. Providing information is not enough - the principle should focus on actions taken. 2. Disclosure - Banks should be required to provide information on the lowest cost options for a certain purpose and to do so every time information is provided. Here is an example: I deal with XXXX. The bank has been promoting a Bank the Rest program as a way to automate savings, which works by rounding up to the nearest $5 every time you use your debit card to pay for a purchase and depositing the extra into a savings account. The bank provides information on why it is "right" for you, and that the usual account fees apply. The problem is that debit card puchases cost $1 each. This is not the most cost-effective way to automate savings - automatic transfers between accounts are free. It is misleading for the bank to promote this program without telling people these facts - which I have pointed out to them. 4.1 Addressing the Needs of Seniors and Vulnerable Canadians Vulnerable populations have particular difficulty navigating the complexities of financial products, investment issues, and tax implications because it is extremely complex and this group is more likely to have limited knowledge. However, seniors are a particularly vulnerable group because of their shorter time horizon for investments and their limited income - they have neither the time nor the money to recover from loss. As a general rule, I strongly recommend that you do not rely in any way whatsoever on financial literacy efforts in trying to protect vulerable populations in the context of a consumer code of conduct for financial institutions. The research I have read, in the fields of behavioural and financial economics, provides strong evidence that human beings do not act as "rational" economic actors in areas involving complex decisions or saving for the future. 4.3 Supervisory Powers for Accountability and Enforcement It is not clear to me that FCAC's powers go beyond monitoring for complaince with voluntary practices. If a Consumer Code of Conduct is to be effective, it must be mandatory. The FCAC should have the power to order compensation for loss. It would be practical to set a minimum standard of the loss so that this would be a remedy only in cases of serious loss. It is important to inform clients of the independent recourse available. I have spoken to people who had tried for months to figure out who had supervisory responsibility for bank actions, and they had no idea there was independent oversight. Is this information included in the basic information provided when clients open accounts or sign loans? 4.4 Innovation I am satisfied in how my bank provides new technological methods of service delivery. If anything, I would prefer to have more flexibility introduced for electronic communication - subject to client consent, for some do not have computer access. For example, I understand that some securities documents still must be delivered in paper. 4.5 Disclosure About Financial Products and Services The federal government's recent changes to increase disclosure have been excellent. I particularly like the requirement that credit card statements indicate how long it would take to pay if only the minimum payment were made. I still see a major gap in disclosure: mutual fund fees. The fees paid should be required to be disclosed in exactly the same way that bank account fees or any other fees must be disclosued - by a specific line item on the statement. I also think that the approach taken by the Australian code would be adviseable: In Australia, the "Code of Banking Practice" is more prescriptive and places more requirements on the bank to look out for its customers in several typical transactions and situations. For example, if a consumer were to guarantee the debt of another debtor, the bank must take several steps to ensure the guarantee is freely entered into, that the person guaranteeing the credit knows about his or her potential liability to repay the debt and must ensure that the person guaranteeing the debt acts independently and free from pressure from the primary debtor. This emphasis on prescriptive rules seeks to ensure that consumers won't fall prey to well-known problems with banking. I would also like to see a requirement for sufficient notice - e.g. 90 days - before closing an account for lack of use. Notice through the internal bank email would be sufficient, if the client has consented to electronic delivery. Finally, I am including this comment here as it does not seem to fit anywhere else. Banks should be required to provide sufficient documentation to clients to confirm that a security interest held against the client's loan with the bank has been extinguished. This type of paperwork should be a basic requirement of documenting the closure of a file. 4.6 Access to Financial Services The federal government is generally doing a great job in this area. The only problem is fees. This is the main difference I can see between the major banks and BC's credit unions. The basic banking accounts with their low monthly fee (XXXX is $3.95) have a limited number of transactions. Once exceeded, ALL transactions are $1 each. It is ironic that banks have been increasing their fees at a time when so many clients are using self-serve electronic transactions. There is no justification for having to pay XXXX $5 for going to the XXXX bank machine 5 times to withdraw my money. The costs involved compared to transactions with the teller should be minimal. By contrast, BC's credit unions charge different transaction fees based on whether the transaction is with a teller or is self-serve. I strongly recommend that you consider imposing limits, proportionally, on how much banks are allowed to charge for self-serve transactions for which fees are now charged, compared to transactions with a teller. For example, self-serve could be limited to 50% of the fee for going to a teller. 5. Continuing the Conversation: Engagement Yes, the government should implement a mechanism for enhancing engagement among stakeholders in regulatory, supervisory and compliance processes related to consumer protection. A process should be put in place to receive regular input from the major consumer protection organizations in Canada. This would parallel the current approach of voluntary codes for financial institutions - consumer protection agencies should have a voluntary process for informing the government about issues on an ongoing basis. XXXX, XXXX XXXX