So just how protected are you feeling?
Financial consumer watchdog might be missing the scope of consumer disaffection
With TD Bank’s annual meeting just days away (March 30), and with all eyes pinned to the sales culture at all the country’s big banks, it’s an opportune moment to unravel the various ways in which supervision and enforcement of the financial services sector fail the Canadian consumer.
Credit, first, to the CBC for its investigation into what sounds like David Mamet culture at the bank, branded with a big, green easy chair.
Mamet’s mantra, fans of the playwright’s Glengarry Glen Ross will recall, was ABC, as in “Always be Closing.” In the play the sales guys were pushing real estate.
But they could have just as easily been pushing a 20 grand top-up on a line of credit.
We’ll get to TD’s statement of defence in a minute.
Let’s look first to the Financial Consumer Agency of Canada (FCAC), which assured Canadian consumers this week that it is on the case and will investigate.
Legislated into existence in 2001, the agency was received with a fair degree of skepticism from the moment of birth. Would it have any teeth, i.e., enforce- ment powers? Or would it become preoccupied with such soft targets as consumer awareness and financial literacy?
The first commissioner on the job, Bill Knight, came fairly quickly out of the gate with a challenge to the country’s big banks — to, as the Star reported at the time, “explain and justify the growing spread between the Bank of Canada’s benchmark overnight lending rate and the interest rate on credit cards.”
The story pointed out that across a decade and a half, to 1995, credit card interest rates were adjusted, up and down and with a time lag, as the overnight rate changed.
Legislated into existence in 2001, the FCAC was received with a fair degree of skepticism from the moment of birth
The unhinging was clear by the time of the FCAC’s creation, as the overnight rate drifted down to 2.5 per cent in November, 2001.
By that point, the spread between that of a standard credit card interest rate and the overnight rate had ballooned to 16 points from 10.
Today? The Bank of Canada rate has held steady at 0.5 per cent. We have been in a prolonged era of historically low interest rates.
Yet the interest rate on TD’s Aeroplan Visa Infinite Card is 19.99 per cent. Twelve of the bank’s fifteen credit cards listed on its website carry a 19.99 per cent rate of interest.
The TD Emerald Visa card is set at the TD prime rate plus a range, depending on credit worthiness, from 1.5 per cent to 12.75 per cent.
So the bank can rightly claim that it has a lower-priced offering, which in no way excuses the unconscionable rates at the high end.
The big change for consumers is that they now understand, as it is printed right there on the front of their Visa bill, that if they pay only the minimum amount owing, it will take four million years to pay off the balance.
The banks, as we know, move in lock step, from interest rates to the benchmarking of executive compensation against one another.
It’s a very cosy club. In the wake of the initial CBC investigation, TD issued a press release announcing that while it takes the allegations seriously, it did not believe the media coverage was “an accurate portrayal of our culture.”
The bank pledged to review the complaints.
On Wednesday, the CBC reported that employees from all the Big Five reported being pressured to upsell clients. Bank agents say they have been left sick and sleepless due to the pressures of meeting unrealistic sales targets.
Will the FCAC be effective in thoroughly investigating what are acceptable sales practices — meeting sales targets only after full client disclosure and approval — and what aren’t?
I would suggest that by its very mandate, the agency can’t possibly understand the scope of consumer disaffection.
If a bank customer has a complaint, the FCAC directs on its website, he or she should speak first to the bank itself. If still dissatisfied, head up the level to a more senior bank representative or an internal ombudsman.
So the FCAC’s data aggregation doesn’t begin at the beginning. Of the roughly 700 potential breaches investigated last year, all were “triaged within five business days of receipt,” the agency reports.
In 2016, the FCAC commissioner released a single decision. “Following a system update, a bank experienced processing issues with the posting of payments to customer accounts,” the agency’s website states.
“As a result, certain cardholders found themselves above their credit limit and incurred an over-limit fee in error. The bank accepted the findings in the Notice of Violation.”
Contrast the FCAC with the Consumer Financial Protection Bureau in the U.S., which went after Wells Fargo for opening unapproved client accounts.
In January, the protection bureau took action against Equifax and TransUnion “for deceiving consumers about the usefulness and actual cost of credit card scores they sold to consumers.”
TransUnion was ordered to pay restitution of $13.9 million (U.S.). The list of actions taken by the bureau is long and robust and a testament to transparency.
Much has changed since the FCAC was created.
The agency said this week it will be examining the banks’ business practices in relation to consent and disclosure and will “investigate and enforce any incidence of non-compliance.”
Finance Minister Bill Morneau needs to question whether that brings any amount of reassurance to Canadian consumers. Or whether the FCAC’s mandate of ensuring that Canadian financial institutions act in their best interest has to be rethought for the modern era.
“Certain cardholders found themselves above their credit limit and incurred an over-limit fee in error.” FCAC WEBSITE