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Henrik and Anne Brunn Submission in Response to Finance Canada's 2006 Review of Financial Sector Legislation:
Attn: Gerry Salembier
Director, Financial Institutions Division
Financial Sector Policy Branch
Department of Finance
Cc: Honourable Ralph Goodale
Minister of Finance
Cc: Honourable Monte Solberg
Conservative Finance Critic
Cc: Honourable Judy Wasylycia-Leis
NDP Finance Critic
May 22, 2005
As Canadian citizens and users of financial services, we are pleased to have the opportunity to provide our views and input for the 2006 Review of Financial Institutions Legislation. Most of our input is derived from direct situations and difficulties which we have personally encountered in our small business dealings with a financial institution, as well as issues brought to light from resulting circumstances and research during these situations.
1. It is crucial that a review of bank Ombudsmen and the Canadian Ombudsman be done by an impartial body as well as a review of CFSON and FCAC. In our own situation, none of them have lived up to their mandates.
- The CBA bank code states that "Each bank will provide its customers with the information they need to use their bank's complaint resolution procedure." This statement needs clarification. Does "provide" mean that there is literature available upon request? Or, if a dispute arises, is the bank obligated to offer the consumer the information on complaint handling. It is in our view that the number of consumers who are aware of the Ombudsmen, CFSON and the FCAC is minimal. It also appears that those who are aware of it have often found it to be unhelpful and not worth wasting the effort on.
- The "correct" procedure in accessing the levels of complaint handling is cumbersome and confusing. According to FCAC personnel, if the first level does not open a file when a complaint is made there is no access to following levels. There is no indication to the consumer on whether or not a file has been opened. All levels of the complaint handling process should provide direct links between the consumer and the correct department.
- The Ombudsmen claim that they provide fair, impartial, and complete investigations. The Ombudsmen should demonstrate that they have given both parties an equal opportunity to bring forward and clarify their concerns, present documentation and give their version of the dispute. (In our case they did not).
- In 2003 FCAC conducted a survey of financial institutions to determine how banks were performing with respect to certain legislative disclosure requirements and other branch practices (including complaint procedures). This was done in the form of a mystery shopping exercise. Financial institutions whose branches were to be included were given advance notice identifying elements that the mystery shoppers were to verify as well as information about the timeframe during which the mystery shopping would be carried out. Rather than giving a heads up to allow branches to prepare, would the exercise not have served a better purpose if it had been able to identify actual practices and potential problem issues within the branches - thereafter making recommendations, and perhaps also including a follow up survey?
2. Follow-up is needed on the 1999 task force recommendations which resulted in the June 2001 Bill C-8 (Finance Canada: Reforming Canada's Financial Services Sector – A Framework for the Future). The task force concluded that "The current framework for consumer protection is not as effective as it should be in reducing the information and power imbalance between [the consumer and the financial institution]." The task force also recommended "...working to reduce turnover of account managers, decentralizing credit granting processes (including meaningful delegation to the local level)..." These issues need to be revisited.
3. There must be greater accountability and compensation for losses suffered by customers from unjustifiable bank actions. The burden should not be placed upon the customer to "prove innocence". The bank should clearly indicate the reasons and justifiability of their actions. Banks should also be responsible for their own legal costs which typically far outweigh those of small business owners. Banks should prove default prior to launching legal actions. An outside entity (possibly FCAC) must have authority to issue significant fines and/or penalties upon compliance failure. Under the current system, banks may charge their costs (such as legal, professional, etc) to the consumer whether or not there is proof that the consumer is in default.
4. During a dispute, if requested by the consumer, banks must allow the involvement and input of their own personnel (as well as independent resources) who are trained in that particular industry or area of concern.
5. During a dispute, banks must provide a clear and concrete indication of what is needed to meet the banks requirements and for continued support. To state that the customer must "satisfy the bank" is too vague and does not allow for planning strategies and improvements. Nor is this sufficient reason to begin legal action.
6. If banks insist on the more costly "review engagement" financial statements rather than "notice to reader", they should accept their validity of those statements.
7. Increased disclosure and transparency to customers is needed on the fine print in agreements. Most small business owners believe that nothing will go wrong as long as loan payments are made. They are unaware of the importance and danger of not meeting ratios. Prior to signing agreements there should be discussion between the customer and the lender on the length of amortization periods in relation to their direct influence on various ratios. If loan payments are made and there is no deterioration of equity, a ratio default should not be adequate grounds for a bank to take legal action.
8. Some small businesses may have access to subsidized government agencies (ie. Farm Debt Mediation Services) which can help them produce financial analyses, plans, proposals and reviews. Where the customer's financial stability is in question for the bank, the option of using such agencies should be offered and acceptable to the bank. The bank should not patronize their own more costly accounting firms at the customer's expense thus creating further hardship to the customer as well as a conflict of interest.
9. There is a need for financial institutions to provide a more detailed disclosure of their lending support portfolio. (ie. a breakdown of the percentage of loans by large, medium and small business; by industry; by start-up and expansion requests versus approvals or rejections) If banks do not meet small businesses' demand for capital, they prevent jobs from being created.
10. There should be uniform standards of loan application forms and computer programs to simplify the qualifying process for both the lender and the applicant. The applications should apply to the particular industry, be relatively uncomplicated to fill out for bank account managers, and be available to the applicant.
11. Account managers need adequate training to enable them to read and understand accountant prepared financial statements. They must also be able to correctly apply the information from the financial statements to their loan application software programs and/or forms.
12. Banks need to give more authority/credibility/discretion to local branches and their industry specialists. Credit granting decisions should not be made by someone whom the client does not have an opportunity to meet with if the application is otherwise supported by the local branch. If a local branch in rural Alberta supports a customer, it is not appropriate that head office personnel in downtown Toronto revoke the decision if the local branch manager is otherwise considered competent.
13. If a bank wishes to terminate a relationship with a client and forces the client to find alternate funding, the bank should not have the benefit of also collecting prepayment penalties.
We thank you for the opportunity to present our concerns and suggestions.
Henrik and Anne Bruun