Restriction on term ‘bank’ disappoints credit unions
Federal financial agency gives ruling on language in new banking legislation
When Eric Dillon, the CEO of Conexus Credit Union heard the federal government had clarified the definition of what a bank is and that credit unions didn’t make the cut, he was shocked.
“The first reaction was kind of shock that the federal government and its financial regulator (Office of the Superintendent of Financial Institutions) would suggest that it controls the English language,” he said.
On June 30, a notice was published by OSFI in regards to what defines a bank under the federal Bank Act. Under the act, all nonbank financial service providers, including federally regulated trust and loan companies, provincially regulated institutions such as credit unions, and unregulated financial services providers cannot use the terms “bank” and related descriptive words.
Credit Union Central of Saskatchewan, an organization which represents the province’s credit unions, was disappointed to hear the news, but pointed out this a new literal interpretation of the Bank Act.
“We’ve had previous agreements that credit unions could use the term as a common vernacular to describe the business of financial services or the business of banking and credit unions. Although we’re structured different and under different legislation we’re in the same business of financial services,” said Keith Nixon, CEO of Credit Union Central of Saskatchewan.
According to Nixon, credit unions understand they aren’t using the word bank to describe how they do business but instead the financial services they provide.
Mark Lane, CEO of Affinity Credit Union, said he knew there was a possibility the definition would be changed but he hadn’t thought it would actually happen.
“I had honestly thought that cooler heads would prevail and that common sense would prevail. And now obviously with the paper being released, it’s on us to reach out and convince lawmakers otherwise,” he said.
Lane understands the banks’ concerns about non-regulated financial service providers using the term “bank.” But he points out credit unions are regulated financial institutions too, just provincially instead of federally.
Dillon believes this new interpretation of the word bank has to do with customer service rankings. In the past decade credit unions have ranked first in the Canadian Federation of Independent Business survey and the IPSOS survey.
“I think the banks maybe got tired of calling us the best and the Canadian Bankers Association obviously put pressure on OSFI to enforce some obscure piece of regulation because they got tired of losing to us,” Dillon said.
Nixon said Credit Union Central of Saskatchewan is working with its counterparts in other provinces and the Canadian Credit Union Association, to express its concerns with the interpretation.
“We understand this is an interpretation by OSFI, the federal regulator, and we also understand that the federal finance department should have available to it powers to change the legislation if there’s a reason to change it,” he said.
If the interpretation sticks, these “non-banks” will have until June 30, 2019, to phase out the use of the terms on signage with earlier deadlines for websites and printed materials by the end of this year and next June.
I had honestly thought that cooler heads would prevail and that common sense would prevail. MARK LANE, CEO Affinity Credit Union