Media Release
DEMOCRACY WATCH CALLS ON GOVERNMENT TO ENACT BANK ACCOUNTABILITY MEASURES

Thursday, December 5, 1996

OTTAWA - Today, in response to reports of record profits from Canada's chartered banks, Democracy Watch called on the federal government to enact measures to help consumers hold banks accountable.

"In return for the government and taxpayer protection banks enjoy from both foreign competition and insolvency, Canadians have the right to know what banks are doing with their money, and whether the fees and interest rates they charge customers are justified" stated Duff Conacher, Coordinator of Democracy Watch.

Currently, banks only disclose their total revenues from service fees and credit cards. The cost of their electronic banking systems and service and credit card operations are not disclosed in detail.

"If the banks continue to refuse to prove that they are not gouging consumers with banking charges and credit card interest rates," said Conacher, "we can only assume that they have something to hide.Ó Democracy Watch also wants the banks to disclose whether they use fee revenue to subsidize losses in areas such as foreign operations that are of little benefit to the Canadian economy.

Banks argue that they only earn a small percentage of their revenues from service fees and credit cards, and therefore Canadians should not be concerned. This response fails to answer the key question of how much it costs them to make revenue in these divisions, and also discounts just how much banks can take from customers with only small increases in their prices.

"With over 20 million customers, banks can make a lot of money nickle-and-diming their customers, because every extra nickel they charge adds up to $1 million more, and every extra dime $2 million more, in their pockets." asked Conacher.

Democracy Watch called on the federal government to change the Bank Act, which is currently under review, to require detailed disclosure of costs and revenues for all divisions of bank operations.

ÒThe Liberals have a perfect opportunity to close the gap between the banksÕ rhetoric and reality,Ó said Duff Conacher, Òand if they fail to act it will be clear that they favour the interests of their banker friends over the interests of consumers.Ó

Democracy Watch also repeated it call for the creation of a Financial Consumer Organization (FC0) as a key step toward helping bank customers hold banks accountable on issues such as service fees, credit card interest rates, deposit insurance, privacy, tied-selling, corporate governance and complaint handling mechanisms.

The FCO would be created by the federal government requiring federally-regulated banks, trusts and insurance companies to enclose a flyer when they mail out their bank statements, credit card bills, and insurance premium statements. The flyer would invite customers to pay an annual membership fee ($10-15) to join the FCO. This mechanism has been used very successfully to help residential utility ratepayers band together in four states in the U.S. to hold utilities accountable to their interests.

If only three to five percent of financial institution customers signed up, the FCO would have between 600,000 and one million members and an annual budget from membership fees of between $6 million and $15 million. The FCO would be governed democratically by the members and would represent financial consumers before the government, agencies and the courts. It would also provide consumer education services such as comparative price surveys on service charges, credit cards, and advice on questions to ask mutual fund and insurance brokers.

Last April, Industry Minister John Manley publicly stated his support of the FCO proposal, and pledged that he would push the banks to enclose the flyer if they refused to do so voluntarily.

"The proposed Financial Consumer Organization would create a self-sustaining, broad-based and representative organization that will help financial consumers and encourage competition in the marketplace," said Duff Conacher, "at little or no cost to government, taxpayers and the banks. We will hold Minister Manley to his pledge to help ensure the creation of the organization.Ó