Ever since the global financial crisis struck in 2008, Canadians have been subjected to a constant refrain: Canada has the “most sound banking system in the world”. During the worst of the crisis, from 2008 to 2010, the official line was that Canada’s banks did not require the extraordinary bailout measures that were being offered in other countries, particularly in the U.S. We knew that as early as 2008 the federal government had made provisions to buy insured mortgage pools from Canada’s banks in order to keep credit flowing during recessionary times. The government was careful to call it a “liquidity support”, not a “bailout” but, as one report reveals, government support for the country’s biggest banks was far more generous than the official line would suggest. Support spanned the course of two years and Canada’s banks turned not only to the Canadian federal government and the Bank of Canada for help during this protracted time period; they also took advantage of American bailout programs.
I would suggest that all Canadians read this interesting report published by the CCPA “Canadian Centre for Policy Alternatives” in April of 2012 called “Big Bank’s Secrets” and you can read the whole report at: www.policyalternatives.ca as documents some surprising truths as to what really happened.
I have no issue with our banks needing to be well capitalised and profitable, but we now have a situation where our big banks have almost a virtual monopoly in Canada approved by our Federal Government. And wanting to further extend their scope of operations well beyond the original mandates they were granted. One issue that I have touched on several times is credit, life and mortgage insurance being sold in banks by unlicensed employees. The Supreme Court of Canada recently ruled that this practice is illegal, this because the sale of insurance is not one of our chartered bank’s core obligations, so as a result insurance products sold by any bank employee are now subject to provincial legislation, including legislation that says life insurance must be sold on a separate premise from the rest of the bank and also that any sale of insurance products must be done by a licensed individual and that there are certain fiduciary obligations that go along with that licensed individual.
Which begs the question as relates to past sales of credit life and mortgage life insurance by banks: “Was this compliant or not, if sold in-branch by an unlicensed bank employee?” So, now what can be done? According the Supreme Court of Canada, the bulk of credit and mortgage insurance policies were sold illegally.
Which leads to the question, what legal remedies might now be available to bank customers having purchased a product “sold illegally”, does this make their policy null and void and what’s the impact of this for all the bank customers involved?
This whole issue was highlighted for me this spring when a life-insured client passed away and I delivered a large insurance cheque to the family, only to find out that two creditor life policy claims from two different banks were denied on the excuse that the client had failed to disclose a pre-existing medical condition; so both only refunded the premiums paid, a small fraction of the actual coverage the family thought was in place.
Another of my many beefs with banks is the restrictions now built into mortgages that many consumers are not aware of, the primary concern being the draconian early surrender penalties; used to be three-month’s interest penalty, which now is “the interest differential” or bank speak for the opportunity to really hose you!
I recently met with a young couple wanting to move to an innovative bank option that I refer clients to, only to find out they were facing a $42,000 pay out penalty. This was never explained to them and the disclosure on this hidden in the fine print on their mortgage document?
The latest federal government initiative has been to set up a financial education task force to improve the level of financial education for Canadians, especially for school children. Better late than never in my opinion, but the concern that I have now is that the big banks want to be in on the front in line to help “educate” our students, which, as a farm boy, reminds me of that old saying “putting the foxes in charge of the chicken coop”; plus considering Canadians today are piling on debt like there’s no tomorrow, will only make a bad situation even worse.
Peter Boys – A concerned Canadian