Canada's big banks are currently under review by a federal government watchdog, with results to be made public by the end of the year.
Testifying before the House of Commons finance committee Monday, Lucie Tedesco, commissioner of the Financial Consumer Agency of Canada, said her agency began looking into bank practices last September, following a scandal over sales and fake accounts at Wells Fargo Bank in the U.S.
She said studies done in other countries have found that sales targets in banks precipitated bad practices and that controls and regulation weren't adequate. After the hearing, Tedesco said Ireland and the United Kingdom were among the countries where studies had been conducted.
Tedesco said the agency reviewed the complaints it had received about Canadian banks over the previous three years and found they were stable. It decided to make bank sales practices related to credit cards the target of its 2017-18 industry review and sent a letter to the banks Feb. 3, reminding them of their legal obligation to provide consumers with the required disclosure and to get their express consent when selling them products and services.
However, following reports by CBC's Go Public of questionable practices by Canadian banks, the agency decided to examine what the banks were doing when it came to express consent and disclosure, she told the committee.
"Since then, our supervision and enforcement team has been hard at work reviewing and investigating complaints," said Tedesco. "They are looking at any and all factors that may be contributing to non-compliance and have been instructed to take appropriate enforcement action for all breaches they uncover."
The agency has also sped up its plans for an overall review, she added.
"I also instructed my team to accelerate plans for the broader industry review of bank sales practices, which is now in full swing. Through the review, we are assessing whether sales targets and incentive programs are contributing to practices that may be leading to poor outcomes for consumers."
Tedesco told MPs that among the techniques her office plans to use is a "mystery shopping type exercise" to look at what happens when consumers walk into bank branches.
Tedesco said that in the past 16 months, Canadian financial institutions have reimbursed $15 million to 1.5 million consumer bank accounts. However, that covered a wide range of situations including service and interest charges.
The finance committee hearings come in the wake of a series of stories by CBC's Go Public, in which bank employees described sales practices by some of Canada's biggest banks. Allegations included pressuring employees to meet constantly higher sales targets, signing clients up for services without informing them and forging signatures and initials.
To date, thousands of bank employees have contacted Go Public, describing stress-inducing pressure to increase sales.
Banks co-operate with reviews: CBA
Darren Hannah, vice-president of the Canadian Bankers Association, said Canadians are well-served by their banks and it is rare for a complaint between a customer and a bank to not be resolved by the institution.
Banks have also established codes of conduct for their employees, he said.
"All employees are required to attest to compliance with the code of conduct on an annual basis," Hannah told MPs. "Should an employee not adhere to the bank's code of conduct, banks take corrective action to address employee behaviour."
Hannah said banks co-operate with the federal regulator to ensure they are following regulations and that the regulator regularly conducts "reviews of the banks' business practices, and banks co-operate with them on these reviews."
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During the hearing, both Hannah and Tedesco were peppered with questions from MPs, several of whom mentioned that they have received letters, emails and phone calls from Canadians.
One of the challenges, Tedesco said, is that her office only has jurisdiction over some of the banks' practices. For example, mutual funds sales are sold by separate subsidiaries of the banks, which fall under provincial rather than federal oversight.
Committee member Raj Grewal, Liberal MP for Brampton East, said that some banks are circumventing regulations by playing on the difference between an "adviser" and "advisor." The former falls under securities regulations, while the latter does not.
Hannah, however, dismissed the suggestion, saying there was a lot of misunderstanding around the issue.
"If you're in a regulated institution doing a regulated activity, the regulator is going to regulate you, and one vowel isn't going to change that."
The hearings are expected to stretch over three meetings of the committee. Former bank employees who have come forward are expected to testify Wednesday afternoon, while representatives of Canada's big banks are to appear the following Monday.
If, after the hearings, the committee finds that there are problems that can be addressed by government action or tighter regulations, the committee can recommend that the government take action.
Elizabeth Thompson can be reached at email@example.com