Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 7 - Evidence - Meeting of February 16, 2005
OTTAWA, Wednesday, February 16, 2005
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:02 p.m. to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the Chair.
The Chairman: Welcome senators. I want to welcome as well our audience across the country, not only on CPAC but also on the World Wide Web.
We are continuing our study of the oversight of consumer protection within the financial services sector. We have heard some interesting and compelling evidence, and we are delighted today to hear from the Assistant Privacy Commissioner and her staff.
This subject is of great interest to the committee. We are convinced that this is an area of oversight that begs careful scrutiny.
Please proceed, Ms. Black.
Ms. Heather Black, Assistant Privacy Commissioner, Office of the Privacy Commissioner of Canada: Thank you, Mr. Chairman. I am one of two Assistant Privacy Commissioners. I have primary responsibility for the private sector legislation, fondly known as PIPEDA.
The Chairman: For the viewing audience, PIPEDA is the Personal Information Protection and Electronic Documents Act.
Ms. Black: With me today are Patricia Kosseim, General Counsel, and Anne Rooke, Acting Director General of Investigations and Inquiries Branch.
Thank you for inviting us to comment on consumer issues related to the financial services sector. My comments today will focus on the application of the Personal Information Protection and Electronic Documents Act to the banking sector.
PIPEDA has applied to banks and other federally regulated industries such as telecommunications and airlines since January 1, 2001 when the act came into force. Specifically, the Office of the Privacy Commissioner has jurisdiction over some 50 banks as listed in Schedules I and II of the federal Bank Act.
Since January 1, 2004, PIPEDA has applied to other financial institutions such as trust companies, insurance companies and credit unions operating in provinces that do not have ``substantially similar legislation.'' In those provinces that have substantially similar legislation — Quebec, Alberta and British Columbia — provincial personal information protection legislation applies.
My comments will focus on banks because, as I will explain in a moment, we have more experience with banks than with other financial institutions.
As you know, banks operate in a complex regulatory environment subject to a number of legal requirements that impact on their personal information practices. Banks are also expected to comply with international ``know your customer'' obligations such as those issued by the Basel Committee on Banking Supervision. To date, we are only one of several bodies with oversight responsibility with respect to financial institutions.
The Chairman: Would you explain what the Basel Committee on Banking Supervision is and why Canadian banks have some obligations to be live up to their obligations?
Ms. Black: I am not an expert in the financial sector. My understanding is that this is an international committee of which most banks in the world are members and there are certain industry rules, regulations and guidelines that all banks follow. That is the extent of my knowledge.
The Chairman: Perhaps you could give us an aide-mémoire on that. Some of us are familiar with it; many of us are not. It is important that we keep all of our committee members up to date.
Ms. Black: I will do that, Mr. Chairman.
We are often required to take these competing requirements into account when dealing with banks. For example, we recently dealt with some complaints about a bank that sent a form letter to its customers asking them to indicate whether they were U.S. citizens. As it turned out, due to a change in ownership structure, the bank is now classified as a controlled foreign corporation for the purposes of U.S. income tax law. As a result, the interest income earned on personal deposit accounts of account holders who are known or presumed to be U.S. citizens is required to be reported to the U.S. Internal Revenue Service.
Since PIPEDA came into force, we have received more complaints about the banking sector than about any other industry sector. In 2002, 42 per cent of our PIPEDA complaints were against banks. In 2003, the percentage dropped slightly to 37 per cent. In 2004, complaints about banks continued to lead the pack, even though the scope of the act expanded to include a wide variety of other industries.
On the whole, Canadian banks are privacy sensitive and they have a long history of protecting personal information. The relatively large number of complaints reflects the ubiquitous nature of banks. Almost every Canadian has a bank account, and many Canadians have bank issued credit cards and mortgages or other types of bank loans. As well, the volume of complaints suggests that Canadians share our view that personal financial information is sensitive and deserves to be treated with care.
Many of these complaints involve what might be called one-off problems — a careless or overzealous employee disclosing information without consent or using personal information without consent — as opposed to systemic problems involving bank policy.
Perhaps the best way to give you a sense of how the act applies to banks and how we deal with complaints is to discuss briefly two systemic issues that have arisen in the banking sector and to explain how they were resolved.
We have received two complaints from individuals that a bank demanded, as a condition of opening a new deposit account, that they submit to credit checks, even though the individuals were not seeking credit. On the surface, this raised questions about the bank's compliance with PIPEDA which prohibits organizations from collecting more personal information than necessary.
Although the bank claimed that it only used credit bureau information to verify and check fraud-related databases, we determined that this system being used did inquire into the individuals' actual credit information.
In conducting our investigation, we consulted a report entitled ``Customer Due Diligence for Banks'' issued by the Basil Committee on Banking Supervision, and the access to basic banking regulations issued under the Bank Act that became law on September 30, 2003.
The commissioner concluded that the complaints were well-founded. We recommended that the bank should not make inquiries into an applicant's eligibility for credit unless the applicant is interested in having access to credit.
We acknowledged that banks have an obligation to mitigate the risk of fraud and we recommended that the bank implement procedures whereby individuals who wish to open a personal deposit account without submitting to a credit check may do so by accepting risk-reducing conditions such as a hold period on deposited cheques.
I want to discuss these complaints because our findings helped establish the principle that individuals can open plain vanilla accounts by providing a minimal amount of personal information.
We have also investigated complaints about banks taping telephone calls with their customers. This is a common practice. We rejected the position taken by one bank that only one party had to consent to calls being recorded, in this case the bank customer service agent. We did agree that it is appropriate that information exchanged during a business conversation should be recorded in some way, both to protect the organization and the individual. However, the reasonable expectations of the customer should also be considered, and most individuals would want to know beforehand that their call will be taped.
In these cases, the banks clearly did not meet these expectations and did not have the individuals' consent to record the calls, thus contravening the consent principle of the PIPEDA.
In order to help organizations comply with the act, our office developed best practices guidelines for recording customer telephone calls. The guidelines state that conversations should not be taped unless it is for a purpose that a reasonable person would consider appropriate in the circumstances, and that the customer must be informed of the purpose for taping the call and must consent except in certain limited cases where consent is not required. None of those circumstances would obtain in that situation before the taping begins.
We also recommend that customers should be offered an alternative, such as visiting a retail outlet, writing a letter, or conducting the transaction over the Internet. The banks in question are now complying with these best practice guidelines.
I have used these two examples because they illustrate how we have used PIPEDA to convince banks to change their business practices to become more protective of personal information.
I would like to thank this committee for the opportunity to appear. Thank you very much for your time today. We would be pleased to answer any questions that we can.
Senator Massicotte: Since I am not very familiar with your organization, I will be asking you some questions of a more general nature to get a better understanding of how you operate. What is your organization's role versus that of the banks and insurance companies?
Many organizations operate in this field. Does the consumer know to whom he should turn? What role does each organization play and how do you work together?
Ms. Black: All of the banks have, as required by the legislation, a person within the bank who is responsible for privacy. Normally, that is someone called the chief privacy officer or the ank ombudsman. That would be the first line of complaint for a consumer who is not happy with what is happening in the bank.
The banking community also has a bank ombudsman. I believe this is set up under the Canadian Bankers' Association. That is a second line of complaint. After that, one is essentially into the legislative framework of a complaint to our office, followed by an investigation, followed by a report, followed by recommendations that we make, findings. If still not satisfied, the consumer can go on to the Federal Court, or we can go to the Federal Court or we can go on to the Federal Court on behalf of the complainant.
It is confusing in some ways for consumers. There are several layers, but it seems from our experience, at least, with the banks — and the banks do take privacy issues seriously — that often complaints are resolved at the bank level.
Senator Massicotte: If I understand correctly, the disgruntled consumer calls you and you tell him to contact the bank's ombudsman directly. Correct?
Ms. Black: Sometimes we do. We always ask the question: Did you complain to the organization in question?
Senator Massicotte: Before the consumer finally gets through to you, he must be very persistent because he has to go through three departments. Then, if the situation is that serious and he has not lost patience or committed suicide, he calls your organization. That is a little disheartening, would you not agree?
Ms. Black: It can be, and that is why it is critical. It is in the law. It is in the CSA standard that is part of the law that an organization must set up processes and practices for dealing with these issues, and must make it known to its customers that, if you are not happy, you can go to the bank's privacy officer.
Often consumers become frustrated with the run-around, if you will, and by the time they get to our office and we ask, ``Have you complained to the bank?'' they scream, ``Yes, we have complained to the bank and we are nowhere.''
Senator Massicotte: Do you report directly to a minister or to a board of directors? What is the management structure of your organization?
Ms. Black: The Privacy Commissioner is an independent officer of Parliament.
Senator Massicotte: He reports directly to the Senate and to the House of Commons.
Ms. Black: Not to a minister.
Senator Massicotte: You stated earlier that in order to exercise your authority, you had to turn to the courts. Do you exercise any direct authority over financial institutions?
Ms. Black: If I understand the question, we have powers in both pieces of legislation, the Privacy Act and PIPEDA. We have extensive powers of investigation and we have the power to take cases to the Federal Court.
Senator Massicotte: A month and a half ago, on three separate occasions, the CIBC committed a serious blunder when it faxed a customer's confidential information to another party. What was your involvement in these incidents? What was the final outcome? It seems this happens regularly.
Ms. Black: We have in fact completed an investigation into the CIBC faxing fiasco. We are now at the point of drafting letters to CIBC and to the various complainants that we have had on the faxing issue.
Senator Massicotte: What are the implications for the bank? Will the bank be required to compensate customers who lost confidential personal information?
The mere fact of having to send a letter acknowledging failure to comply with the legislation is not, in my opinion, a harsh enough penalty. Are millions of dollars at stake?
Ms. Black: I would venture to say that the bank has suffered already some serious harm as a result of this. We have had meetings with high officials in the CIBC. They have viewed this problem very seriously from a reputation point of view. They are not taking it lightly.
It was probably a common industry practice and they were unlucky. With millions of faxes being sent out every day, these things are almost bound to happen. We know that some of the other banks have been doing it. I believe everyone is paying attention to what will happen with the CIBC investigation. It is in the public domain. Results of our investigation will be made public on our website. It is a serious business for the banking industry.
Senator Meighen: Following on that, you say you publicize the results of your investigation. Do you work in any way with the banks to determine a common solution or the elements of a common solution so that such incidents will not be repeated? If so, how do you do that?
Ms. Black: As with all complaints that we investigate, we are an ombudsman office, and the focus of our operation is to try to resolve problems. We do not begin with a view to going directly to a finding of well-founded or not well- founded but we do try to resolve problems. We were in constant contact with the CIBC on the issue. They have taken many steps internally to deal directly with the problem of the faxing of client information and with some of the more systemic problems that surfaced as a result of the issue being made public. There were certain communication issues within the bank. The CIBC is a large organization, so it was a question of the left hand not knowing what the right hand was doing. They have worked to solve these problems.
All of the steps that the bank has taken, short-term, medium-term and long-term, will be dealt with in our public case summary on this issue.
Senator Meighen: That was my question. Presumably much of it is not of great proprietary interest and other banks would benefit without getting a competitive advantage.
Ms. Black: Yes.
Senator Meighen: Other banks know that it could happen to them, and now they have a ways and means to avoid it.
Ms. Black: That is right.
Senator Meighen: From what you have said, and correct me if I am wrong, you see the OPCC as more of a problem- solving organization than a ``if-you-are-wrong-I-will-take-you-to-court-and-sue-the-pants-off-you'' organization; is that correct?
Ms. Black: That is correct.
Senator Meighen: If 100 problems are solved, how many are solved through discussion and mediation rather than through court proceedings?
Ms. Anne Rooke, Acting Director General, Investigations and Inquiries Branch, Office of the Privacy Commissioner of Canada: In 2004, when we began to actively settle cases with organizations, 40 per cent of our cases were settled where the organization took steps that satisfied our office and satisfied the complainant. It has been an effective tool.
The organizations are receptive to our suggestions as to what they can do to improve their practices. With one organization, we settled the case during investigation. The individual had complained that the lending institution had disclosed information about her to her uncle. As a result of our receiving the complaint and initiating the investigation and discussions with the lending institution with regard to redress for the complainant, the institution sent the complainant a letter of apology and they adjusted her outstanding loan.
In our investigation, we realized that this organization, which was fairly small and only became subject to the Personal Information Protection and Electronic Documents Act, PIPEDA, in January 2004, did not have any policies in place to reflect their obligations under the legislation. We worked with them on that. They established a privacy committee; instituted privacy training for all of their employees; discussed with employees how much information could be disclosed and should not be disclosed with their employees; established written policies about all of the aspects under the act for which they are required to take action; and how to avoid a repetition of this case, which was too much information being disclosed when they were attempting to collect a debt.
In that case, we resolved it with the organization. We have posted a case summary so that other organizations with similar business practices can see what they should be doing and not doing.
Senator Meighen: What do you see as the emerging issues in this field? Do you have the legislative fire power to deal with them, in your view?
Ms. Black: Are you referring to emerging issues in privacy generally?
Senator Meighen: Ones that you have to tackle.
The Chairman: Ones that relate to our subject matter.
Senator Meighen: Ones that relate to our subject matter and your jurisdiction. Do you have the necessary authority to deal with these emerging issues? Is there anything new under the sun? There could well not be.
Ms. Black: I cannot say that it is a new issue, but it is receiving more and more attention. I am referring to cross- border disclosures.
Senator Meighen: Would that be similar to the example that you cited?
Ms. Black: Yes.
Senator Meighen: That one left me hanging, I must say. What was the point? I am curious about the end of that story. It is a perfect cross-border issue. Is the bank subject to revealing that information or is it required to reveal it?
Ms. Black: The complaint that we had was about the collection issue. This person was not a U.S. citizen and resented having to tell the bank that she was Canadian and not American. The bank in question was kind of between a rock and a hard place on that one. In the attempt to protect the information of non-U.S. citizens, they have to ask that question because the default is such that all of the information would go because they would not be able to distinguish between who is Canadian and who is American. It would be left to the Internal Revenue Service, IRS, to sort it out. They were attempting to be privacy sensitive. I expect the next tranche of this may be: Does the bank have the authority to disclose that information to the IRS?
Again, as an institution subject to the requirement to report to the IRS because of its corporate structure, I do not know what they will tell us. There may be requirements in Canadian banking regulations that allow this kind of thing, but I do not know about that.
Senator Angus: Senator Meighen raised an issue that I wanted to explore. It goes to your mandate to protect Canadians and the privacy of their personal information on the one hand and the authority that the legislation purports to give you on the other hand. Obviously, in terms of oversight, we are interested to know whether you think that, generally, you have the tools at your disposal to protect Canadian consumers properly. If not, is there anything we can do to help you? Do you have any suggestions about how your authority might be enhanced?
Ms. Black: On the public sector side, the Privacy Act, which governs personal information held by federal government institutions, is seriously out of date in that it is now more than 20 years old. It is a first generation date of protection law, and it is severely limited. In that sense, we are working with an out-of-date instrument to try to protect information that, for example, flows from the federal government to the private sector, and may ultimately flow across borders — not only the U.S. border, but into other foreign jurisdictions. There is nothing really to stop that.
Senator Angus: Within the legislation, is there, for example, a quadrennial or five-year review clause that might redress the situation?
Ms. Black: I wish there were. There was a time, three-year review that took place in 1986-87. A committee of Parliament issued quite a large report called ``Open and Shut.'' It dealt with access and privacy, and made many recommendations that were not subsequently taken up by the government. I believe there was another run at it by another parliamentary committee some years later and, again, there was no real movement toward Privacy Act reform. It is long overdue.
Senator Angus: In that regard, would you welcome our initiative here? We have the constraints of time, so I do not want to go through a whole litany, but is there some way you could encapsulate two or three particular areas where your efficiency is prejudiced or compromised by the law being out of date?
Ms. Black: Yes. We have been charged by Treasury Board policy with reviewing privacy impact assessments submitted to us by government departments. There is no legislative foundation for that and, without a legislative foundation, there is often no funding. Therefore, we are seriously underfunded for that initiative, and it is very important.
Every single new initiative by the government that has an impact on privacy has to go through this process. It is critical. It is best to find the problems before they emerge as real problems.
There is nothing in the law that deals with data matching, which is the whole process of taking information from here and there, and putting it together so that you have a whole new purpose, a whole new use to which you are putting the information.
My counsel points out to me a serious deficiency, and that is limited access to the courts under the Privacy Act. The only matter that can be taken to the Federal Court under the Privacy Act is denial of access. Under PIPEDA, you can take anything. You can take a complaint about use, disclosure — anything that the law covers. Any legal requirement in the law can be the subject of complaint and can go on to the Federal Court, so it is very broad.
Those are just three areas.
Senator Angus: Would you, for example, like analogous access?
Ms. Black: Yes.
Senator Angus: Ms. Rooke indicated that 40 per cent of the complaints you receive in a year are resolved. Out of how many would that be? Are there 100 complaints or 10,000 complaints?
Ms. Rooke: That would have been in 2004.
The Chairman: I think Senator Angus raises a larger question. I looked at your material. We have asked this of other witnesses and I want to suggest this to all future witnesses. We are not interested in anecdotal evidence. Anecdotal evidence highlights systemic evidence. It would be useful for us to receive all the complaints, or a statistical analysis of all the complaints, that you have received under the new legislation: the timing of those complaints; the nature of those complaints; the resolution of those complaints; and whether they were initiated by you or by a consumer. That would be more helpful for us.
Our mission here is to undertake a systemic oversight of privacy protection within the financial sector. It would be much better for us, as opposed to senators prying this information out, if we could see all of it. Once we take a look at all of it, we may have you back again.
Senator Angus: Yes, Mr. Chairman. I think the witnesses are actually being very helpful. I am trying to get a sense of the order of magnitude; and I am sure you will comply with the request to give us details. Do you receive 10,000 complaints?
Ms. Rooke: No, definitely not. I think we would have closed approximately 600 of the PIPEDA cases.
Senator Angus: Is that in a year?
Ms. Rooke: That is in 2004, which is when the legislation applied fully across all commercial activities, and included private sector organizations that were not subject for the first three years.
Senator Angus: You say that 600 were resolved.
Ms. Rooke: That is the total.
Senator Angus: Forty per cent of those were resolved.
Senator Hervieux-Payette: I have two questions for you. First of all, there is the whole issue of privacy and the banks' obligations, for example, in cases of money laundering. Some wrongdoers attempt to steal people's identity. It seems that Canadian regulations governing identify theft are among the least stringent, compared to those of other countries. In your estimation, do banks go too far in requesting information when meeting their obligation to ensure that money deposited comes from an honest source?
On another subject, identity theft is on the rise. Do victims of identity theft sue for damages incurred? Here is what usually happens. A thief uses false papers to open a bank account and make banking transactions. That information can subsequently be used to take out a mortgage loan and buy a house. There is one well-known case in Montreal where a victim's home was actually sold while he was away on vacation. Sometimes, the schemes to defraud can be quite elaborate.
The main problem is the identity of the persons making the banking transactions. In the previously noted case, the bank was apparently not willing to admit that it had made a mistake or to compensate the victim for any suffering endured. Do you intervene in cases such as this? If I experienced this kind of service as a customer, I would not be satisfied if all you did was send a letter to my bank asking it to treat me better. The banks do make some serious mistakes and often, as a result of these mistakes, the victims are forced to take legal action to get some compensation. The incident I spoke of actually happened in Quebec. My question is this: How do you resolve problems of this nature?
Ms. Black: Thank you for those easy questions. We have had complaints from individuals who object to the amount of information that banks are collecting, and we always look at this. Of course, as the money laundering regulations and what have you were updated and changed, the amount of information that the banks had to collect, were required by law to collect, went up.
If someone complains to us that the bank is now asking for two pieces of identification or what have you, we look at what the money laundering act and regulations require and we will tell the complainant that the law requires the bank to do this, that it is a reasonable request, and that he or she must comply. There is no sense in going to another bank, because another bank is subject to the same rules and regulations.
Senator Hervieux-Payette: They do not go overboard; they just ask for the business history, according to the legislation.
Ms. Black: I believe so. We have no indication that banks are asking for way more information than they require.
The issue of identity theft is a very serious one. We have received no complaints in that regard. I have had discussions with an organization called Phone Busters which deals with ID theft complaints. It is a criminal matter for the most part. We are participating in the initiative undertaken by the Competition Bureau for next month, which is Fraud Prevention Month, with materials on how to prevent ID theft. We have materials on our own website on what to do if you have been the victim of identity theft. Other than that, we have no direct experience with the whole issue of identity theft.
Senator Hervieux-Payette: Regarding the incident I spoke of, how would you have handled the matter, if the customer had filed a complaint with your office? What would you have done to help this person who lost his home to an identity thief and how would you have dealt with the bank and the notary who were also negligent in this matter?
Ms. Black: I would suggest that the privacy issue would be the least of the person's problems. They have recourse to law enforcement and what have you. I have heard of these cases. It apparently does happen. The privacy issue is subsumed in the greater fraud theft issue. I do not know what we would have to say about it. If the ID theft had been the result of an organization such as a bank not taking the appropriate steps to protect personal information, we could go after the bank because the law does require an organization to safeguard personal information. If there are sloppy practices going on that have the ultimate result of ID theft, then we could address the issue from that angle, but that would be probably of small comfort to the individual.
We have the same issue with spam, for example. The privacy laws are one tool in a huge arsenal in dealing with some of these issues.
Senator Harb: You talked a about credit bureaus. I am very interested in that element. Have you been hearing any complaints about credit bureaus? If you have, would you share with us some of those complaints?
Ms. Rooke: In the past, we investigated complaints against the two major credit bureaus in the past. In 2002, we had a series of complaints where one of the credit bureaus was having difficulty meeting the time lines set out in the legislation to provide access to consumers. Those consumers filed complaints with us and we worked with the organization. They recognized the problem and they took appropriate measures to clear up the backlog of access requests and institute a procedure so that they could turn around the access requests within the 30 days allocated under the legislation. Subsequent to that, we received no further complaints on that issue.
We have also received complaints regarding the amount of information that appears on a credit report. For example, people are concerned about the number of hits that may appear on their credit reports, and we have looked into that. We received one complaint where an individual alleged that her employer was able to obtain information from the credit bureau about her by means of another company that he owned. We looked into that and we established that in fact, yes, that had occurred. The credit bureau recognized that there was a problem and was taking measures.
Senator Harb: The law clearly states that any institution — whether it is a business or otherwise, — has to have the consent of the individual before they obtain credit information.
Ms. Rooke: Exactly.
Senator Harb: Would you be surprised if I were to say that many organizations can just go on the computer and get credit information on anyone without a person's permission?
Ms. Rooke: The organizations that do submit a request to the credit bureau have an agreement with the credit bureaus that they have consent to do this. There should be consent. For example, if bank X is doing a credit check and the credit bureau has the agreement with the bank, then the bank has your consent.
Senator Harb: If they do not, would they be breaking the law?
Ms. Black: Not just this law but also provincial credit reporting legislation.
Senator Angus: Who has that onus?
Senator Harb: Whose responsibility is it to ensure that is in place?
Ms. Black: The primary responsibility is that of the credit granters. They must get consent from the consumer to run a credit check. The credit granters, as members of Equifax or TransUnion, then tell TransUnion or Equifax that they have the consent of the consumer to run the credit check.
Senator Harb: If a consumer has a problem with Equifax or TransUnion, what mechanism does the consumer have to correct a problem on his or her credit file?
Ms. Black: In all the provincial credit reporting legislation, there is provision for a complaint process. I am not overly familiar with it.
Senator Harb: Would you be surprised if I were to tell you that it would have to be an order of the Minister of Finance of the province in which the credit bureau is operating? The minister or his deputy ministers would have to order the credit bureau to correct the file which could take months, if not years. That takes us to the point my colleague is talking about which is the credit granting by lending institutions.
Ms. Black: Under PIPEDA, there is a right of access and a right of correction and notation. If what you are telling me is that the provincial system is not responsive, I believe that, where we do have jurisdiction over these organizations, our law would be more responsive.
Senator Harb: My colleague, Senator Meighen raised the question: Where's the beef? Other than the reprimanding, writing a letter to the institution that falls under your jurisdiction, do you have any other sticks? Can you fine them? Can you jail them? Can you take them to court?
Ms. Black: We have a couple of sticks. We have the power to name the institution publicly when we come to the conclusion that it is in the public interest to do so. That does not apply to every organization or every complaint. It would have to be pretty significant. We have an audit power so that we can, with reasonable grounds, do a complete audit of an organization, and we always have the power to take a complaint through the court process up to the Supreme Court, if it comes to that.
Senator Harb: Nothing in the act specifies that, upon a finding that an organization has committed an offence, it is liable to X, Y, Z?
Ms. Black: The offence provisions in the act are limited. They, essentially deal with obstruction.
Senator Harb: Dealing with the credit bureaus, the two organizations you mentioned are international in nature, and one would presume that they have a data base in which they store all of the information on consumers. If Equifax or TransUnion have such a data base, one would presume that it could be stored either here in Canada or offshore. The information could be given about an individual here in Canada or offshore, as long as those requesting the information are members of credit bureaus.
Does that pose a privacy concern for you in that one of these agencies that is supposed to be under Canadian laws is giving information to foreign agencies and/or taking information from foreign agencies with regard to a citizen of Canada?
Ms. Black: There is some provision in the law to deal with the issue of what we call processing so that, if an organization is subject to the law here in Canada processes information offshore, it is obliged to ensure that certain protections are in place to protect that information.
We all recognize that we are living in a world where often it does not matter where the information is stored. Often you do not know where it is. It does pose problems. We work with international organizations to try to raise privacy standards around the world. We have been working with APEC, Asia-Pacific Economic Cooperation, and with the OECD. We have regular meetings with our colleagues in Europe and in the United States.
Senator Plamondon: I would like to complete Senator Harb's answer. In Quebec, if a person discovers a mistake on his credit record, he can contact the party responsible for the error and ask that the proper correction be made. The error cannot be correctly directly. That is the law in Quebec.
Senator Angus: And there is no advantage to having the record set straight.
Senator Moore: I want to explore the topic that was initiated by my colleagues regarding the cross-border transfer of personal information. I am thinking about the impact of this personal information of Canadians as it pertains to the Patriot Act in the United States of America.
As I understand it, U.S. intelligence agencies with secret court orders could demand and obtain records held by corporations, such as CIBC Visa, if the credit card company did contract any of its operations to a U.S. based company.
I understand that, in October, a report was made to your office with regard to Total Systems Services Inc. of Georgia. In November there was a report on a company called ABIKA out of Wyoming that does data mining and data matching, which you mentioned earlier. There was also a recent situation in British Columbia where the EDS Corporation of the United States had been apparently contracted to do the bill collecting for the Province of British Columbia.
With regard to Total Systems Services and ABIKA, was notice of those situations given to your office?
Ms. Black: That is correct.
Senator Moore: What were you able to do and what was the outcome of those complaints? Have they been resolved? How are Canadian consumers protected in those situations?
Ms. Black: We are still investigating those complaints. We have initiated discussions with the Federal Trade Commission in the United States. It is difficult for us to investigate organizations that are not in Canada. We have no legal power to actually do that. We cannot go down and knock on ABIKA's door and say that we want to conduct an investigation. I do not think they would give us the time of day.
We are doing what we can. We recognize that we are dealing with a foreign corporation. It is collecting information about all sorts of people from, in most circumstances, publicly available sources. They simply mine what is out there about people, massage it and dress it up and, in a lot of cases, probably misrepresent it. It is a problem.
Senator Moore: You are looking for legislative help in this area. It was the second item.
Ms. Black: It would be hard to help us with that one. It is the sort of thing we fault our great neighbour to the south for doing all the time, trying to apply its legislation extraterritorially.
Senator Moore: I am not suggesting that. I am suggesting putting in place a law in Canada that would prevent companies from doing this.
Ms. Black: We can deal with the companies in Canada. With companies in the United States or in any other foreign jurisdiction, we are limited in what we can do.
Senator Moore: These companies have been contracted by Canadian entities to provide these services. Could we not legislate that?
Ms. Black: If that is happening, we can deal with it. We do not need changes to our legislation. If you are a company in Canada and you are sucking up information about anybody, it does not matter whether it is a Canadian or not, the law applies. We can deal with those issues.
If information is in the United States or indeed in any foreign jurisdiction, it is subject to the laws of that jurisdiction. All Visa information from all over the world is in the United States.
Senator Moore: Today, could you tell CIBC Visa not to issue information pertaining to Canadian consumers to any non-Canadian company?
Ms. Black: We have an investigation into this.
Senator Moore: Is this part of an ongoing investigation?
Ms. Black: It is part of an ongoing investigation. I am a little hesitant to give you an answer to that question.
Senator Moore: If your answer were in the negative, I think most Canadians would be alarmed. I will go on.
The Chairman: This is a jurisdictional question. We are trying to, as best we can, understand what powers are being utilized to protect the consumer. If in fact some of the powers to protect the consumer are offshore and we do not have a means of containing that information, then that is a serious question of sovereignty. I think it would be very important to hear from your legal counsel in writing about the limits of your power and what steps if any can be taken to respond to Senator Moore and other senators' concerns. This is a major concern about sovereignty and control. It is very hard for us to protect consumers if in fact this information, our sovereignty, is leaked out of offshore. Please, if you would help us on this, I think, it is an important part of our investigation.
Ms. Black: Yes, Mr. Chair. We can provide you with whatever information is available to us, but I think we need to recognize that we live in a wired world and it is simply not possible to say that no information about Canadians is allowed to flow outside of Canada. It is not possible.
The Chairman: We understand that. This committee is very practically-minded. Europeans are also tackling this same issue. Even the EU is mightily concerned about these privacy issues.
Ms. Black: They are concerned.
The Chairman: I have been to conferences where we deal with this. My concern is that we do have powers, but it is a question of whether we choose to exercise those powers. However, if you do not have those powers, that is another question for us. You have heard Senator Moore and others raise this issue, so perhaps you could help us. We are aware of the interdependent world we live in as much as anybody. Having said that, there are still limits to interdependency.
Ms. Black: You mention the EU. All members of the EU comply with the EU directive on personal information and any EU member state can block transfers of information to foreign jurisdictions that do not have what they call adequate protection.
The Chairman: That is exactly my point.
Ms. Black: The EU has caved in on many occasions to our great neighbour to the south. It becomes a trade irritant. There are many ramifications to this type of situation. You can incorporate it into the law. I know the French data protection authority is most concerned about the information of employees of multi-national corporations that goes out of France and into the United States. At the end of the day are they going to say no? That is what it comes down to.
Senator Moore: I will now deal with a different subject matter, and perhaps you respond to this in writing and send it in to us. The Privacy Commissioner created an external advisory committee of privacy experts in February of 2004. Could you send us a list of who they are and how they are be doing?
Ms. Black: Certainly we can. They are not all privacy experts.
Senator Moore: I see some are private-sector scholars.
Ms. Black: We have one privacy expert, David Flaherty, the former commissioner in British Columbia. Stephanie is not on the external advisory committee. We have Paul Thomas from the University of Manitoba.
Senator Moore: You can send in a list.
Ms. Black: We have a former Supreme Court judge. We will send you the list.
Senator Moore: The commissioner awarded $271,590 to various non-profit organizations to conduct research into privacy. Could you send us a breakdown of where that money went, that is, the name of the organization and the type of work it does for the commissioner's office?
Ms. Black: Certainly. That information is available on our website, but we will send it to you.
The Chairman: Senator Plamondon has a keen interest in this subject matter, so we will give her leeway to proceed.
Senator Plamondon: I am especially interested in privacy issues and have been for a number of years. I have attended conferences on this topic in The Hague, Chicago and Washington. Several studies were conducted on the dissemination of personal information before I was appointed to the Senate.
I want to draw your attention to an issue that has always left me somewhat perplexed when I attended meetings on the subject, whether in Quebec, in Canada or elsewhere in the world. I am talking about the issue of consent. I have observed that consent forms can provide for multiple responses. I recall filing a complaint with the Quebec commissioner who, at the time, was Paul-André Comeau. I recall lobbying to have an insurance company's consent form changed. The form was so general that the company could have requested information about their clients from just about anyone. The form contained the wording ``or any other person''. It went too far.
Prior to the Tournier ruling, in the 1920s, a number of court challenges were launched. Only when consent was given was there no challenge. I have here the four conditions listed in the Tournier decision. The fourth is the explicit or implicit consent of the client. If we look at the legislation in Quebec, the province to adopt the first privacy act, we note that consent must be clear and enlightened and given for specific purposes. Therefore, if people do not complain about the consent form that they have signed, then you are not going to receive any complaints about consent. It is important to take a proactive stand. Are you proactive? Have you looked at the consent forms used by financial institutions and by life insurance companies that share information with others?
In order to open a bank account, a customer is required to sign a consent form which in some respects, is broader in scope than any of the transactions he is likely to make. Prospective customers are asked to provide their SIN number, even though they may never receive any tax forms. Institutions cannot compel people to provide their SIN number, but consumers are largely unaware of that fact.
Insurance companies do telemarketing. The caller tells you, or sometimes tells you, that the conversation will be recorded, the purpose being to be able to play the conversation back, but also to confirm if indeed you agreed to take out insurance over the telephone. With respect to insurance telemarketers, call centers will look to these conversations as proof that the customer did in fact request a certain type of insurance coverage. How do you handle the problem of consent forms which, in my opinion, are overly broad in terms of the specific financial needs of a consumer?
Ms. Black: We have had many complaints about bank consent forms. We have worked with the banks to improve their forms. What else?
Ms. Rooke: We have not done this systematically with each bank, but we have received a number of complaints about this. We looked at the consent forms used by the major banks and now, consent clauses do comply with the act's requirements.
As far as the insurance industry is concerned, we are currently investigating a number of complaints that we have received.
Senator Plamondon: Do you only investigate complaints? When you receive many complaints, do you say to yourself that the problem must be systemic and that more needs to be done, beyond simply investigating the complaints?
Ms. Black: If we had sufficient complaints we would consider an audit of an organization's consent practices. Am I right that you are referring to consent to collect? Are you interested in disclosure as well?
Senator Plamondon: It applies to all the operations covered in the act, that is to the collection, processing, dissemination, storage and possible deletion of information on file.
Ms. Black: We have information related to consent on our website. We do a lot of public education. We do as much as we can with the resources available to us.
It is not something that has been, I would say, a major source for us of disquiet among consumers. Is that safe to say?
Ms. Rooke: I would say that initially, in the first year, we received a lot of inquiries on the issue. We did investigate. We issued findings in which we indicated that, in certain circumstances, the consent clause was not clear or was too broad, and the organizations agreed to reword the consent clause to restrict it. We did have some success.
Our website contains information about various types of consent and the circumstances in which it would be appropriate to give consent.
Senator Plamondon: Insurance companies are fishing for information when they ask you to sign a consent form which would give them access to your medical records. Medical records include notes on patients' conversations with their doctors. They will have access to the patient's complete file, that is to information on problems you may have had with your children or spouse, information about a vasectomy, an abortion, and so on. These facts have nothing whatsoever to do with the insurance the customer is trying to buy.
I have other concerns as well. On the subject of credit cards processed in the United States, when can we expect an answer on that issue?
Ms. Black: It will be in the next two or three weeks, I would think.
Realistically, within the next two months.
Senator Plamondon: I have one final question. Do you have less authority than that conferred by the Quebec legislation? I think the answer is most certainly yes!
Ms. Black: I am not sure I understand the point on less authority. The CAI in Quebec has order-making powers like many other information privacy commission offices in the country. I do not know whether it is more effective. It may not be directly the question, but it begs the question of what you are trying to achieve and how you get there. We are trying to achieve good privacy. There are arguments on both sides.
There are strengths of the model that Quebec has, although I do believe that it is over-judicialized.
There are strengths in the system that we work with on the other order-making side, namely, British Columbia or Alberta. All of these issues will be up for debate at the mandatory five-year review of the private sector legislation, which is slated to commence in 2006.
Senator Plamondon: I would like to hear your views on the Patriot Act. For example, if an American company has interests in Canada, the US government can request information about Canadian customers and the company would not be obliged to admit that it disclosed information to the US government. I am simplifying matters somewhat, but that is the long and short of it.
Ms. Black: That is an interpretation of the Patriot Act, that it can reach into Canada. That is the conclusion Mr. David Loukidelis reached. It is hard to say whether the Americans are likely to use the Patriot Act to access information in Canada. We have no evidence that they have done so to date. There are information sharing arrangements in place between Canada and the United States that have been in place for many years, and information flows back and forth across the border. Do they need to use the big gun? I am not so sure that they do. It is certainly an interesting discussion, and to anyone who has not read it, I commend to you David Loukidelis' report.
The Chairman: I would thank you and your colleagues. I have a couple of questions. If you want to respond quickly, you can; otherwise, you can give your response to us in writing.
In examining the scope of your responsibilities, you fairly said that we are here to look at the financial sector, namely, the chartered banks, insurance companies, credit unions and so on. That is our mandate.
If I take a look at your mandate, it includes telecommunications, broadcasting, airlines, private sector and interprovincial areas. You have an almost limitless mandate. Bearing in mind that Parliament has seen fit to give you that mandate, what is your annual budget?
Ms. Black: It runs at, I believe, around $11 million.
The Chairman: You have been very careful to define your model as opposed to more regimented models. I will not call them more regulated or judicial models, but rather, more regimented models. Are you comfortable that you have adequate resources to fulfil your wide mandate?
Ms. Black: No.
The Chairman: First, we would like to know why not on a cost-benefit analysis. We do not want just a number. We want to know, in writing, in what respect your budget is inadequate for the mandate given to you by Parliament.
Second, it is important for us to receive the statistics that I mentioned, which are the complaints, the timing of the complaints and the resolution of those complaints. When you talked about the 600 complaints, I assumed that included not just the financial sector but also others. It is important for us to compare apples to apples in the mission that we have, which is to focus on consumer complaints within the financial sector.
Ms. Black: Certainly.
The Chairman: Again, we have heard nothing about the information other than, peripherally, with respect to insurance. We would like to have an examination of the number of complaints from the insurance sector and the nature of those complaints. That would give us a better sense of our mandate, which is oversight.
By the way, we are not prepared to wait for 2006. The Senate has mandated us to look at these questions now because nobody has looked at this legislation up until this time. We do not want to wait until 2006 because that is a year down the road, which means that the consumer will not have a chance to respond to needs until the year 2007. It is too far away. We are a committee in a hurry.
Finally, Senator Angus asked me to raise this question with you. You have indicated that you put your information on the Internet, and we have no not quarrel with that because it is very efficient. Having listened to our questions carefully so far, you will be aware that we are concerned not only with people in this country who have access to the Internet, which represents about 65 per cent, but also with the 35 per cent of the public that cannot afford either a computer or access to the Internet. If we are here to protect their privacy, interests, and credit ratings, how do you communicate your concerns in a cost efficient way to the 35 per cent of the public that cannot afford access to the Internet? Again, you could give that answer to us in writing. If we are not satisfied, with all due respect, we may have you back.
I do not mean to give you a hard time or lecture you in any way, but this committee has a genuine interest. Every region of the country is represented in this committee. Our members have a great interest in the subject matter and a deep concern that the issues of privacy and consumer protection have not been properly addressed. We are here as a regional and federal body to help you to ultimately help the consumer that we all serve.
I do not want you to take up any more time. If you feel that you require more time, please contact the clerk, and we will give you an opportunity to come back and explain your data.
Senator Oliver: Mr. Chairman, some of the questions you have asked the witness to advise you on relate to finance. You should know that today, in one hour, Jennifer Stoddart, who is the Privacy Commissioner for Canada, will appear in this room before the Standing Senate Committee on National Finance to deal with matters of budget and the fact that 58.7 per cent may be cut from the $11.2 million. We will be asking questions about that. Our questions will be answered tonight by the commissioner when she appears before the National Finance Committee of the Senate.
The Chairman: I appreciate that. It is not an overlap. Again, our mandate is to take a look at whether there are adequate resources with respect to consumer protection and privacy within the financial sector. Ms. Stoddart has a much broader mandate than that, as I have indicated. We cannot solve the problems of the world, but we can consider the problems with respect to the financial sector.
Would you care to make a final comment?
Ms. Black: Mr. Chairman, we appreciate your keen interest in the subject of privacy in the financial sector. It is important to us and it is nice the talk to people to whom it is also important.
I would offer one caveat with respect to the insurance industry. We have had only a limited time to deal with complaints about the insurance industry. I am not sure that we will have a lot of results to report to you, but with more than four years in the banking sector, we can provide you with all of the information. We would be pleased to come back at any time to discuss any of these issues and answer any more questions.
The Chairman: When we get that information, we will assess it and we will be back to you.
Our next witness is Ms. Sue Lott. Please proceed with your comments.
Ms. Sue Lott, Counsel, Public Interest Advocacy Centre: I will speak about issues on which we have specific knowledge and on which we have done research. When I say, ``we,'' I am referring to the Public Interest Advocacy Centre, which is a non-profit organization that provides legal and research services to consumers and the organizations that represent them. We work primarily in areas where important public services are delivered such as energy and telecommunications, but also financial services, which is one area that I have been focusing on in the two and a half years that I been with the Public Interest Advocacy Centre.
Part of our funding comes through the grants and applications programs of the Office of Consumer Affairs of Industry Canada. That it has funded some research we have done on the financial services sector. We hired EKOS Research Associates Inc. to survey Canadians' attitudes to financial services and we have prepared a couple of reports. We have also published two reports on the alternative financial services sector. I understand you were seized with that issue last week when you dealt with Senator Plamondon's bill about the issue of interest rates.
We have prepared two reports on that. One was a survey to get some sense of who are the users of these services. The second one looked at regulatory solutions to this issue.
We note that the committee has a fairly broad term of reference on this issue. We are pleased that you are seized with looking at the issue of consumers and financial services. I want to speak briefly to some of the areas that we have focused on when we have considered consumers and financial services.
The first one is the issue of bank fees and charges. This is a major irritant for consumers. The fundamental question is: What is the rationale for the increases in bank charges? Banks are moving to an electronic environment where presumably transaction costs decrease as you move from a physical platform — from talking to a teller inside a branch — to an electronic platform.
Related to that, we have also had questions about ATM fees. We have talked about the issue of the growth of non- banks offering automatic teller machine services now in addition to banks. This came as a result of a consent order of the Competition Tribunal that essentially opened this market up. Since the opening of that market in 1996 we now have a number of players. We know that we can now access our personal accounts through electronic banking services and non-bank services at innumerable locations. In fact, we have noticed that there does not seem to have been a very effective result of competition in this area in the sense that these charges have become much more multi-tiered and have just grown.
Although we know that consumers are embracing electronic banking services — it is incredibly convenient for consumers — there is a growing income gap occurring around attitudes to in-person banking. The simple fact is that people with less income find that they have much more need of in-branch banking, talking to people inside banks, because they have no ability to access particularly the Internet environment. As compared to those with high incomes, it is very important for them to be able to bank in person. That might have some relationship to the use of the payday loan sector, or alternative financial services.
Having read the transcripts dealing with Senator Plamondon's bill, we noted that you posed a number of questions to the financial institutions about why consumers are turning away from banks and turning to this sector where the costs are obviously so much higher. In dealing with that issue, we wanted to get some sense of the demographics of the users in order to understand what could be driving people to use these services rather than mainstream banks. Interestingly, from a demographic point of view, we found that these people looked like the average Canadian. I am talking about the people who specifically get a payday loan, which is a two-week bonded loan over usually a two-week period that can be very expensive.
These borrowers must have a source of income. They must show a bank account in order to get these loans. It is not the demographic characteristic that is driving people to these services. When we did focus group conversations with people around that, we found they had other reasons for using the alternative financial services sector. One reason is that these people have very different credit histories and credit ratings. They are credit challenged. They have had difficulty getting credit cards or being able to make payments on credit cards. Another sector is simply choosing to use these financial services because it meets their day-to-day needs. They are unable to get through the month. They have shortfalls on day-to-day expenses. Their own personal comfort level with debt is very low. They said that they liked the bonded nature of the payday loan because it forces them, at the end of a two-week period, to pay off the loan.
Unfortunately, though other factors come into play because, often, people cannot pay off the loans because of the high charges that accompany them, and the ability people have to be able to roll these loans over. That is when they get into dangerous debt problems.
The key finding was that people have a basic lack of financial literacy with regard to these loans. When we asked people if they could tell us how much these loans cost, the majority did not know the cost of the loan or grossly underestimated what they were paying. Only eight of 57 people accurately stated the cost of the loan. It is interesting to note that they did not express this in an annual percentage rate. One of the complaints we have about the industry is that people cannot compare the cost of this loan with other comparable methods of receiving credit. They do not understand. They cannot make the comparison.
The committee has asked why banks are not meeting the needs of their customers for short-term loans. I do not have the answer to that. I have asked financial institutions that question, and they just tell me that these people are credit risks. Without much transparency in how banks make these decisions, I cannot assess that answer. Notwithstanding all the root causes, our fear is that we are creating a two-tiered system of financial services. People with moderate income levels are turning to alternative financial services where, by the way, they cannot build up a credit history. You cannot do that when you use an alternative financial service. That does not help your credit history or help to build up good credit.
We have some concerns about inadequacies of self-regulation in the area of financial services. Here I am focusing on the Canadian Code of Practice for Debit Card Services, and that relates to a perspective that we have taken along with some other consumer groups, notably Option consommateurs and l'Union des consommateurs, two Quebec groups that we often work with and are working with on this issue. We believe that we need a regulatory framework for electronic payments. We have moved to the state of complexity in numbers of players and in technology around electronic payments that it difficult, in terms of risk allocation, security and redress, for consumers to make their way through. Some areas are self-regulated; some areas are not regulated at all.
We think the Financial Consumer Agency of Canada does an important job in monitoring compliance and consumer education. We wish it had a stronger public profile and a broader consumer protection mandate.
Finally, on the issue of consumer credit, we are currently doing research on that issue. We have commissioned a survey of Canadians' use of credit reporting agencies. Having heard a lot of anecdotal evidence about problems with inaccuracies of credit reports, we wanted to find out how true they were and what the consumer experience was in the credit reporting sector. We have some initial findings from that survey, and I am in the midst of putting that information together.
The Chairman: You said that you are prepared to share that with us. When will your survey be completed?
Ms. Lott: The report is being put report together as we speak. We have done the survey. We have had a number of conversations with credit counselling people. We are still trying to talk to some financial institutions. We have talked to Equifax and TransUnion, and we are attempting to speak to many players to identify the problems in the system.
The report is due to be finished by the beginning of April. We found that approximately 17 per cent of Canadian adults have checked their credit rating in the last three years. We thought that was interesting. I thought it would be higher, given the extent to which people are so highly dependent on getting credit in society these days. We also found that, of those who checked their credit rating, 18 per cent found inaccuracies. The main implication of the inaccuracies was that people were denied access to financial services. This is not a huge percentage, but if you extrapolate that to the subset of the adult population that checked its credit report, it could be about half a million Canadians, so it is not insignificant.
The credit counselling agencies representatives we talked to all focused on the importance of accuracy and transparency in the process. Consumers do not understand how it works. They do not understand what credit scores are and how they are formulated. Issues of privacy were highlighted.
Finally, we are most concerned about the practices of credit repair agencies. We wish the Ontario government would move on that. We do have credit repair legislation and protections in our new Consumer Protection Act, but we think we should eliminate this area because we do not need credit repair agencies. People have the right to look at their credit report and make those changes. An intermediary cannot help you, and they are often scams because they ask for up- front fees, do nothing, and then disappear. This is a middle man that has grown in this area. It is an area of high consumer complaints. It always appears on the top-10 lists of ministry representatives we talk to.
Senator Harb: Thank you for your presentation. Your organization is well positioned to look from the other side at issues this committee is studying.
I am interested in your survey of credit reporting agencies. I will draw to your attention an issue regarding the way credit agencies rate consumers that was brought to my attention by a number of constituents when I was in my previous role as a member of the House of Commons. Apparently, you can pay all your bills on a regular basis for 10 to 20 years and still have a poor record. In some cases, that is a result of consumers responding to the government's encouragement to shop around for the best credit card rates. However, every time you apply for a credit card, the credit card company goes to the credit bureau to check on you. The mere fact that they check on you leaves a mark, and all those marks create a warning that could injure your consumer credit, defeating the purpose.
Ms. Lott: That is an irritant. A private member's bill brought forward by an MPP in Ontario sought to amend the act to disallow that as a reporting factor on a credit report. As you say, it is a Catch-22. We encourage people to shop around, but each time there is an inquiry it is noted on the consumer's credit report. It makes no sense.
Senator Harb: As you are aware, you need not give your consent for an agency to obtain information about you.
Ms. Lott: That is an interesting issue. Consent happens at the beginning of the application in the credit process. It is not required, although it should be, each time an inquiry is made as a result of that. It is my understanding that consumers agree when they fill out the application. We hope that it is drawn to the consumer's attention, but my impression is that it generally is not. It was certainly never drawn to my attention when I applied for a credit card. Now much of this is done on line, so there is not the ability to ensure that is drawn to the consumer's attention.
Senator Harb: The Assistant Privacy Commissioner was very forthcoming in asking for help to do her job in the form or an amendment to the act that governs the privacy commission.
From your side, what are some of the things that you think need to happen to the Privacy Commission Act in order for that act to fulfil consumer needs and to respond to some of the problems that you have outlined and others have brought forward?
Ms. Lott: I do not know much about the privacy aspect nor about the powers of the commissioner. I have looked at some of the commissioner's decisions and I certainly have not been highly persuaded that there has been a very proactive aspect around this issue. When we wrote our first report on credit reporting in 2000, we wrote to the Privacy Commissioner about ensuring that there was active consent, that it was directed in front of the consumer, and that the clauses be much more clearly written. We did not get a lot of follow-up from them on that. I am not sure that they have the time or the resources to follow up on that.
Senator Massicotte: You have expressed some considerable concern about the level of fees involved in ATM use or those being charged by other sectors. You are obviously encouraging regulation, in other words, government involvement in determining a reasonable level of these fees. I want you to respond to my concern that every regulation is, indirectly, a tax. It is obviously costing the industry. Our country becomes less competitive and therefore ``anti- regulation.'' However, you are here in this city which loves regulation. We are all here to make new laws.
Is there not a better way? Obviously the fundamental weakness is there is a lack of competition because the best way to resolve these issues is competition — let the market dictate and have full disclosure. You are not disputing full disclosure. You are not talking about competition, although you raise it somewhat. Why such a complicated solution, that is, regulation? Why not deal with the issue? Is there adequate competition or not? Whether you overcharge in one area or another, if there is full disclosure and there is competition, everybody wins.
Ms. Lott: Consumers do not perceive a high degree of competitiveness between banks respecting bank fees and service charges. They do not see strong degrees of competition for their services from banks. That is the perception of consumers.
I know that some of the major banks are very interested in merging. They are interested in having bigger entities, and fewer of them. I am not sure how interested they are in promoting competition.
Senator Massicotte: Perception is one thing. As an expert, in your view is there adequate competition today in the banking sector? You gave us the example of ATM fees, and so on. Is there adequate competition?
Ms. Lott: There is adequate competition in certain financial services products, but I do not think there is in that area. I do not see a lot of competitive difference between banks.
Senator Moore: At the bottom of the second page of your brief, you deal with the inadequacies of self regulation and you mention the Canadian Code of Practice for Consumer Debit Card Services. You say that one of your concerns is the lack of adequate adherence to the code by its members. Who are the members who would subscribe to that code of practice?
Ms. Lott: Anyone who is an issuer of a debit card.
Senator Moore: All of the chartered banks?
Ms. Lott: Yes. It is voluntary. They do not have to belong to that to sign on to the code.
Senator Moore: Who wrote the code?
Ms. Lott: Interac is also a member of it because it processes the transactions.
Senator Moore: Who wrote the code? Was it the members?
Ms. Lott: That was prior to my time as a consumer advocate.
Senator Moore: Give me some examples of how members do not adhere to it. Where is the lack of adherence?
Ms. Lott: The survey dealt with certain aspects of the code, specifically what must be disclosed to the consumer at the time of signing the agreement, pointing out what exists in the code in terms of rights and responsibilities and issues around the security of how a PIN number is chosen. They considered aspects of the code that deal with security of ATMs, for example. Descriptions of the obligations are set out in the code. This would come from the issuers of debit cards concerning the security of transactions. The working group actually contracted with EKOS to provide a mystery shopping survey. They found, in terms of adherence, both that, when shopping in person and by phone, a number of very weak areas.
I would be pleased to provide you with a copy of that survey. It was quite detailed. It looked at almost every aspect of the code.
Overall adherence was poor and it was particularly poor in areas concerned with security of transaction.
Senator Moore: It would be important to see that.
Senator Plamondon: I would like to draw a parallel between the closure of bank branches, the appearance of Money Mart stores and the removal of some ATM machines. A number of bank ATM machines have been replaced by independent ATM machines that are more costly to consumers. The actions of the banking industry may have seemed to have opened the door to more competition, but this is only a false perception because in truth, the private sector has merely stepped in to fill the void and consumers are paying more for the same service.
When I presented Bill S-19, the following question came to mind. Why get rid of a tool that helps law enforcement agencies conduct investigations in certain provinces? There must be an alternative, since companies that provide payday advances are not part of the landscape in Quebec. What solution do you see to this problem, so that the most vulnerable consumers are not forced to borrow money from companies that charge criminal interest rates?
The representatives of companies that provide payday advances have made it known that finance companies are not members of their association. Some finance companies charge up to 50.6 per cent in interest, including insurance. What steps do you recommend be taken to correct theses problems?
Ms. Lott: It is not easy. The reason people are turning to this sort of second tier of services, whether that is white label ATMs or whether it is the alternative financial services sector to cash cheques or to get payday loans.
The Chairman: When you say white label ATMs, again for our listening or watching public you mean those that are not affiliated with the banks?
Ms. Lott: That is right they are non-bank owned and operated.
People are partly turning to them because they are the actual branch banking and as you said actual bank-sponsored ATMs disappear and they are replaced by that. In many rural places, branch banking disappears and white label ATM is the only alternative. We know that an ATM cannot replace a number of services that you need to do in person at a bank.
That is a factor. It is hard to say how we can protect the most vulnerable in our society. Many of the most vulnerable do not even have bank accounts or do not have any relationship with a bank whatsoever. We know in a case like that, in fact I think it was the Royal Bank that has stepped into that in consultation you probably heard from them about this with community grassroots organizations to create a cheque cashing service because they knew people were spending a lot more money around the corner at the local money mart of whatever.
Senator Plamondon: Would this not be one solution to the credit problem? Back when banks were unwilling to let certain people open bank accounts, community groups were consulted. Certain conditions were set out and now, even welfare recipients and minimum wage earners can open a bank account.
A representative of a law enforcement agency told us that the agency had given operations like Money Marts too much leeway. Now we have a major problem on our hands, when action should have been taken earlier. Quebec found a solution to this problem by issuing operating licenses only to businesses that charge no more than 35 per cent in interest. Consequently, there are no such businesses that provide payday advances in the province of Quebec. Aside from taking Quebec's lead, what other solutions do you see to this problem?
Ms. Lott: When we researched this two years ago, no one was interested in the survey we did on payday loan companies, partly because they had not made the in-roads into society that they have now in 2005.
They have grown slowly but exponentially in the last couple of years. People are turning to those partly because, they have said to us in the focus groups, they feel uncomfortable dealing with banks. They feel intimidated in banks. They like the fact that these alternative financial services have long hours and are easily accessible. They are not intimidated inside these places because they train their people to be very non-banker-like and fairly comfortable to be around. Often young people work in them. The clients feel at home. That is most unfortunate because we know that they are getting ripped off in those places.
Senator Plamondon: Do you not think the solution lies in the traditional financial system where arrangements could be made to provide this kind of service? After all, banks made in excess of $13 billion in profits last year.
Ms. Lott: We know that, in response to the MacKay task force, we now have important banking-service regulations which limit the amount of identification required to open a bank account, and that assists very low-income people and encourages them to open bank accounts. If people have decided, psychologically, that they do not want to be around a bank, it is a challenge to turn them back. If banks are allowing that segment, because they are not, frankly, a group that buys a lot of products from banks, they do not care as much about losing that segment.
Senator Plamondon: Does that mean that we are caving in and saying we are not asking anything from the banks?
Ms. Lott: I would like to see banks serving customers by offering lines of credit and overdraft protection, and the few times I have had a chance to raise that with them, I have not had a very positive response.
Senator Hervieux-Payette: If we assume that the charges for ATMs are too high, could you provide us with comparisons from a few countries where there is more competition? I would like to know if our rates are much higher than those in the United States, any other European or Australia. Are we an exception or are we in the average range? I share your feelings, but we cannot regulate an industry as important as this one based upon our feelings. We need to know if we are in good company or in the company of those who are, in fact, using the system, but certainly not helping people in a lower-income bracket. Of course a bank transaction is always less costly, but it has to be accessible.
Ms. Lott: Are you talking about ATM charges?
Senator Hervieux-Payette: Yes.
Ms. Lott: I have not done the research on that, but I would be happy to follow up and provide that to the committee.
Senator Hervieux-Payette: It would be important to know that, because we cannot draw any conclusion without full information. I agree with you, we are piling up costs. I refuse, personally, to use private institutions because they add costs on top of costs, and people are not aware of that.
Ms. Lott: No, I think it is a fair question. I will follow up on that and provide the information.
Senator Plamondon: In providing that information, it would be useful to separate the ATMs that belong to the financial sector, the traditional banks, and independent ATMs, so we are able to compare apples to apples.
Ms. Lott: I would be happy to follow up on that.
The Chairman: Let me add to this as well, because this is a tantalizing subject and it is becoming more pervasive. My memory is that, when the ATMs were first introduced by the chartered banks, if you used one ATM by one chartered bank there was an agreement between the banks that there would be no charge, or a very minimal charge. If my memory is correct, that was the precondition. More recently, if you use your own bank ATM there is no charge, but if you use a sister charter bank there is, and traditionally it is about $1.50. Is my recollection correct on that?
Ms. Lott: My impression is that there was always going to be a regular account fee, depending what your basic banking package allowed you in terms of a number of free transactions. There was always that and an Interac fee because there has to be that fee in order for this process to happen. The matching between the systems that is done by means of Interac, always involved a fee. The difference now is that there is a convenience fee that is also being applied by banks, not to their own customers but to customers of other banks who use their banking machines.
The Chairman: Perhaps you could help us with that. I take Senator Plamondon's point, because I have made it a practice now of attending a number of ATM banks in middle-class districts and lower-class districts, and my finding is that when you find white machines, white ATMs, the costs are $2.50 or so, and in addition to that there is an aspect that increases the fee because you are limited in terms of the amount you can withdraw. Being charged $2.50 on $100, it is quite different from being charged $1.50 on $200.
Ms. Lott: That is the average.
The Chairman: Can you help us as well to see if there is any agreement or principle about how much you can withdraw from an ATM at any particular time between a white labelled machine and a standard bank machine? There is an interesting issue of hidden costs. In other words, at one ATM you can only withdraw a certain amount of money on one withdrawal and, if you want more, you have to perform another transaction.
Ms. Lott: It is a valid question. The Financial Consumer Agency of Canada has a very useful graph of various bank fees and charges, depending where you go and what you use. I do not know whether they have done anything concerning maximum withdrawals.
The Chairman: Anything that you can get for us or point our staff to would be useful. Senators are interested in this from a competitive and an access standpoint.
You indicated you published two reports on the alternate financial sectors, focusing on payday loans. If you would make those reports available to the committee that would be most helpful.
Ms. Lott: Certainly.
The Chairman: Finally, there is a question of selling consumer credit cards. I know that at the airport in Ottawa and in Toronto there are a number of stands selling credit cards. If you buy or acquire the credit card, you automatically get Aeroplan points.
Ms. Lott: Or Air Miles, yes.
The Chairman: The question I have, based on what you are telling us, is there any limitation on unsolicited credit card marketing that allows a card to be issued and then withdrawn after the first payment or two because a card holder cannot meet the credit requirements? In effect, there is a cost to the consumer for acquiring the card, and then if they cannot or do not use the card, it is withdrawn. Is there any practice concerning that?
Ms. Lott: Do you mean concerning the issue of unsolicited credit card marketing?
The Chairman: No. Credit cards are sold or marketed with very little credit checking. We can get those credit cards, I believe, almost on the spot or in the mail.
Ms. Lott: Not that I am aware of. I also inquired of U.S. consumer organizations. There was some attempt to have legislation respecting solicitation to students, but it has not gotten very far. It has been stalled. They are also frustrated that this activity is not regulated.
The Chairman: We hope you get your survey respecting difficulties with consumer credit lines to us as soon as possible. That would be useful. That is one of the specific requirements of the mandate of this committee, that is, examining credit lines and the difficulties entailed in that. Any help you can give us along those lines — along those credit lines — would be very helpful.
Ms. Lott: All right.
The Chairman: I would thank you for your testimony. You can see that senators are interested in this subject. Anything further advice would be helpful.
Ms. Lott: I appreciate that your committee is engaged in these issues because we have been talking about them for a while.
The Chairman: I would announce to senators that we will be reconvening tomorrow at 11:00 o'clock. We will have a brief meeting after the evidence to deal with the 2005-06 budget. I would thank you all.
The committee adjourned.