Appearance before the Standing Committee on Finance (July 7, 2020): Environment scan: Canadian banks during COVID-19

Overview

Canada’s big 6 banks have been at the center of the economic response from the beginning of the COVID-19 pandemic. The banks are working on a case-by-case basis with their clients to find flexible solutions to help them manage their finances. Furthermore, the Government of Canada and the Bank of Canada have worked closely with banks to quickly administer benefit and loan programs for Canadians in need.

The media and the public have been watching the banks’ actions throughout the pandemic. Below is a summary of the discussion about Canadian banks and their response to COVID-19.

COVID-19 bank measures

• In mid-March, the banks announced they would be temporarily closing some branches and reducing operation hours. They have increased their call center capacity in order to continue to serve Canadians. The banks have implemented processes that prioritize seniors, frontline healthcare workers and vulnerable populations when they access in-branch services.
• As of June 30, Canada’s top 13 banks have provided their clients^{Footnote 1}  with:
  • more than 450,000 credit card payment deferral requests.
  • more than 743,000 mortgage deferrals, payment reductions and options to exercise the “skip a payment” feature in their mortgage agreements. This represents about 15% of the number of mortgages in bank portfolios.
  • direct deposit enrolment by 2.5 million Canadians to receive CRA COVID-19 benefits.
  • more than 669,000 Canada Emergency Business Account loans, representing $26 billion in interest-free credit for eligible businesses.
  • more than 74,000 loan deferrals for small- and medium-sized enterprises and corporate customers.
  • social media campaigns encouraging Canadians to use telephone, online, or mobile banking options.
• Some of the big 6 banks have introduced or expanded initiatives to help seniors, youth, and consumers transition to online banking.
  • RBC introduced a new website “Bank Easy”^{Footnote 2}  featuring video tutorials and instruction guides to help Canadians with banking online. The bank also updated its “Boomerang”^{Footnote 3}  resource that empowers learning, sharing and connection for adults aged 50+ in Canada.
  • Scotiabank has created an online resource called “Bank Your Way”^{Footnote 4} a tool to guide customers through all the possibilities of digital banking.
  • CIBC launched “Advice Today”^{Footnote 5} an online hub that provides timely financial advice and information to help Canadians through the COVID-19 situation.
• The Canadian Bankers Association launched a number of awareness campaigns to address emerging issues due to the pandemic.
  • A televised and radio ad campaign on the various relief measures the banks are providing Canadians in light of the COVID-19 pandemic. To FCAC’s knowledge, this is the first-time banks have acted collectively on a promotional campaign.
  • A mounted a social media awareness campaign, with the Canadian Anti-Fraud Centre, to warn consumers about scams. For this campaign, they are posting more content on the warning signs of fraud, sharing content from other organizations, and providing links with more information for consumers. For example: #COVID-19 related phishing attempts are on the rise. Here are tips from the CBA on how to spot these scams ow.l/WUHk50aEOjv #Cyberaware #fraudprevention.^{Footnote 6}
• In early June, CBA also launched free financial literacy seminars called"^{Footnote 7} Your Money Students” and “Your Money Seniors” available online via Zoom.

Consumer issues

Banks’ relief measures

• Some Canadians are having trouble receiving assistance, especially mortgage deferrals, from their bank. CBC^{Footnote 8}  and Globe and Mail^{Footnote 9}  are among the many outlets that reported customers saying they were told their application was denied because the client’s credit product is “too new”  because they recently signed their mortgage or loan agreement or they “do not meet the criteria” set out by the banks, such as not losing their job due to COVID-19. Consumers have expressed to the media some concerns the eligibility criteria are unclear. 
• In the news and on social media, Canadians have expressed disappointment in the relief measures offered by their banks, saying they are not enough. They are calling on banks to waive fees for products and services, such as debit transactions, reduce interest rates on financial products, and halt charges of interest upon interest on payment deferrals.
  
  • Both the Prime Minister and the Minister of Finance have faced questions from The Globe and Mail, Postmedia, TorStar, and many other outlets^{Footnote 10}  during the daily COVID-19 press conferences on whether the Government would pressure banks to adopt more measures to help their clients. Some outlets, like Le Devoir and The Financial Post^{Footnote 11} , even suggested the PM make financial sector aid, such as $750 billion in regulatory relief provided by OSFI, conditional on the amount of relief measures offered by the banks.
    In their responses, Prime Minister Trudeau and Minister Morneau commended the institutions for helping the Government distribute benefits quickly to Canadians through direct deposits and loans to small businesses. They added that they have been in discussions with the banks since the beginning of the pandemic and will continue to hold conversations to urge them to do more to help their clients. 
• The media and consumers are calling for banks to cut their credit card interest rates, waive penalties, fees, and interest on other financial products. 
  
  • The New Democratic Party of Canada issued a press release on June 4 asking the federal government to use its powers within the Bank Act to help Canadians struggling during the COVID-19 pandemic and make the banks waive interest rates, penalties, and fees on loan deferrals and to stop charging interest on credit cards and lines of credit.^{Footnote 12}  
  • After Canada’s largest credit union, Vancity, reduced its interest rate for credit cards to 0% on April 8th, calls for banks to do the same began to intensify. The banks eventually announced they would cut credit card interest rates in half to 10.99%, but consumers and advocates say this is not enough.
    @Vancity @TD_Canada My Visa and accounts are with @RBC. Long wait times (totally understandable) but in my experience they are working hard with clients to waive fees, etc. But now is the moment to step up in a big way—let’s all follow @Vancity’s lead.
    @TD_Canada @scotiabank I have paid fees before, and have had no problems doing so. Institutions that make billions in profits can waive fees during a global pandemic!
    @BMO - how about waive fees for low income people since so many places won't accept cash but only debit or credit? #yegbiz #yeg.
    @BMO @BMOHarrisBank Your CEO should waive all overdraft fees/charges in this time of need. There is an international health emergency going on and im getting my money taken away (money that i dont have) because i cant afford to pay some things because my hours are cut. Unreal.
  • Several media sources published opinion pieces and letters to the editors on this issue. One Postmedia guest columnist wrote “It's time that Canada's bankers got their collective butts kicked” by having the Minister of Finance rewrite the Bank Act to include more provisions to help consumers during COVID-19 and post-recovery. ^{Footnote 13}  
  • Two petitions, from Leadnow ^{Footnote 14}  change.org ^{Footnote 15} have emerged online asking the Government of Canada to force banks to adopt more relief measures. Together, they have earned more than 30,635 signatures.
• Consumers are upset that banks are putting profits before consumers, calling them greedy.
  
  • #government is working hard to help Canadians during #COVID. GREEDY #Banks are using manipulative & controversial calculations to take advantage of people mortgage situation @TD_Canada @scotiabank @bankofcanada @JustinTrudeau t.co/FUEi0SWzfK.
    
  • @JustinTrudeau @Bill_Morneau @CIBC @ BMO @RBC @scotiabank @TD_Canada @nationalbank You banks need to do more. And do better. Just be responsible corporate citizens instead of greedy moneygrubbers making money off the misfortune of your customers. Shame on you all. #BeBetter.
• Banks are continuing to charge interest on mortgage deferrals and loan products despite providing payment relief, causing interest to accrue on interest balances^{Footnote 16} . Personal finance experts are warning consumers this could be costly for some Canadians. One reporter from the Toronto Star^{Footnote 17}  warned that, for many, this could mean $1000s more in payments.
• Online banking and digital payments are on the rise. Geoff Zochodne from the Financial Post reported that in March, Interac broke a record for e-transfers with over 50 million transactions processed.^{Footnote 18} The pandemic has forced Canadians to adopt digital forms of banking that will likely outlast the pandemic.
• Postmedia reported that Canada’s smaller financial institutions are offering customers higher interest rates on savings accounts than the big banks.^{Footnote 19}  In some cases, the rates are 40 % higher than their bigger counterparts. The Globe and Mail reported as many as 15 banks have rates of at least 2 % or higher. The idea is that the lower rates will attract consumers in the long-term, lead to profits for these smaller institutions. The Co-CEO of the financial website Ratehub is quoted as saying that if small banks can afford to pay these rates, then the bigger banks can as well and should follow suit. The big banks continue to maintain lower rates for these products.

Access to bank services

• On May 17, Bloomberg was one of several outlets reporting on Canadians’ experience with long call wait times for all the banks.^{Footnote 20} On social media, Canadians report wait times anywhere from 1 hour to more than 4.5 hours in one session, with some saying it took days to get through. Others have reported delays in hearing from financial advisors on the status of their credit or mortgage payment deferral applications. 
  • “I've spent a total of 8hrs over three calls on hold with Scotiabank this weekend. Each time, after hrs of waiting, the line has abruptly disconnected. I know it's not their fault and they are dealing with HUGE numbers of calls but.. It really sucks. Trying again today. Pensive face.”^{Footnote 21} 
  • @cibc 4 weeks later and I am still waiting for a response on deferring payment of principal on my mortgage. I was proactive in reaching out to CIBC. Multiple emails later...only to be told to dial a 1800-number and hope that we get through. Unacceptable!^{Footnote 10} 
  • I totally get long hold waits during this. But why doesn’t @TDBank_US have a call back feature? Was on hold for an hour last night and an hour today. Yet to speak to an actual person after waiting 2 hours. Company as big as TD Bank doesn’t have a system in place for call backs?^{Footnote 10}  

As of the week of June 23, some consumers continued to report waiting more than 1 hour on hold.

• After waiting for over an hour to speak to a human @BMO the question is do I hang up or not hang up?^{Footnote 10}

Fraud

• The Canadian Centre for Anti-Fraud and many police organizations across the country have been warning Canadians about the rise in the number of scams since the pandemic.^{Footnote 22}   Many are related to the Canada Emergency Response Benefit and fraudsters impersonating public health officials and financial advisers, but a growing number of scams since May have involved fraudulent loan offers. Andrew A. Duffy from the Victoria Times Colonist reported that consumers, who are struggling financially and are unable to get assistance from traditional lenders, may find themselves vulnerable to online scams promising low cost loans for an upfront fee.^{Footnote 23}  

Financial institutions and services

• On Monday, March 16, the CEOs of Canada’s big 6 banks co-signed a letter published in the National Post^{Footnote 24} with 24 other organizations calling on all levels of government to prioritize slowing the pace of transmission of this coronavirus, with the economic recovery coming second.
• The big banks announced their Q2 net profits during the week of May 25. According to Bloomberg news, RBC, BMO, and CIBC, all performed below economists’ estimates. Compared to the same quarter in 2019:
  
  • TD’s profits fell 52% to $1.5 billion. 
  • RBC’s profits fell 54% to $1.48 billion. 
  • Scotiabank’s profits fell 41% to $1.3 billion. 
  • BMO profits fell 50% to 1.12 billion. 
  • CIBC fell 71% to $392 million. 
  • National Bank’s profits fell 32% to $379 million.
• Robo-advisors, a self-guided online wealth management service that provides automated investment advice at low fees and low account minimums, are thriving^{Footnote 25}  and attracting new clients during the pandemic. Rob Carrick from the Globe and Mail reported that WealthSimple had double the new sign ups compared to March 2019. Wealthbar increased its clientele by 81 % in March and April. Carrick said investors are becoming more aware of their finances during the pandemic and are looking for low fee options to traditional investing channels.
• A study by J.D. Power^{Footnote 26} conducted prior to the COVID-19 pandemic found that overall customer satisfaction went up by 0.5 %. This year, online banks were the top in customer satisfaction for Canadian consumers with Tangerine and Simplii Financial scoring the highest. While RBC and TD scored the highest among the big 6 banks, placing fourth and fifth overall. Scotiabank bank scored the lowest of the big 6 banks tying for ninth with Desjardins.
• Economists from the Bank of Canada, Government agencies, Canadian banks, think tanks, and academia are worried about the lasting impacts on the economy and the long-term stability of banks as they predict an increase in household debt and defaults.^{Footnote 27} 
• Regulators also expressed concern about the stability of Canadian banks with the Office of the Superintendent of Financial Institutions announcing on June 23 that despite there being elevated risks for Canadian banks due o pressure on highly indebted households and businesses, the regulator would not lower its Domestic Stability Buffer.^{Footnote 28}  The president of the Canada Mortgage and Housing Corporation (CMHC), Evan Siddall, said at a House of Commons Finance committee appearance that mortgage defaults pose a serious risk for banks and will likely rise in the Fall, putting some banks at higher risk.^{Footnote 29} 
• The 6 banks survived an important stress test conducted by the Bank of Canada as part of the latest Financial System Review (FSR) to assess the impacts of the COVID-19 crisis. This indicates that the banks could withstand the worst effects of the pandemic. 
  • The test involved simulating a 30% plunge in GDP in the second quarter from the end of 2019 and a slow recovery that would leave economic output below pre-crisis levels for more than two years.
• Banks are accessing the central bank's new Standing Term Liquidity Facility, which the Bank of Canada launched on March 31. This allows eligible financial institutions to borrow from the central bank by pledging collateral, including mortgages, to fund new lending.

Financial Consumer Agency of Canada

• FCAC is seen as a resource for the media. Throughout the pandemic, reporters shared from advice the Agency’s consumer education information on debt management and guidance for seniors on how to manage their savings. 
• Prior to COVID-19, FCAC produced several research reports on pertinent consumer issues and trends. The Agency’s reports on payday loans^{Footnote 30} (2016), HELOCs^{Footnote 31} (2017 & 2019), and the Canadian Financial Capability Survey^{Footnote 32} (2019) were cited in a variety of sources to help paint a picture of the risks that existed for consumers pre-COVID-19 and how the pandemic is exacerbating some of the issues identified.
• There has been interest in FCAC’s role as a regulator. In mid-March, the Financial Post interviewed the Agency’s commissioner about how the pandemic has changed its supervision activities.^{Footnote 33} The Globe and Mail has directed enquiries to the Agency to understand how enhanced regulations under the Bank Act and the FCAC Act that came into force in April will strengthen the regulator’s ability to oversee financial institutions.

Debt

• In June 2020, Statistics Canada reported that in the first quarter of 2020, Canadians owed $1.77 for every $1 earned – a record high.^{Footnote 34}  The MNP LLP March Consumer Debt Index found that during the same period, almost half (46%) of Canadians were concerned about their current debt levels.^{Footnote 35}  This was an increase of 10 points from December 2019. Moving forward, these numbers will likely rise as the effects of COVID-19 were just beginning in Q1. 
  • The MNP Index also showed that Albertans and Atlantic Canadians are struggling the most with 55 % and 52 % respectively saying they are either working reduced hours, receiving reduced pay, or have lost their job entirely.^{Footnote 29}
• A report from the Privy Council Office shows that during the week of June 8-14, Canadians in Atlantic Canada and the Prairies experienced increased concerns about their financial situation.^{Footnote 36} 
• Canada Mortgage and Housing Corporation’s President and CEO, Evan Siddall, testified during his appearance at the House of Commons Finance Committee in June that he expects mortgage defaults to rise by the Fall of 2020 and for consumer debt to “crush” Canadians at 200% of household income by 2021. He said the Government needs to “act now to soften the economic blow.^{Footnote 37}