Expanding Credit?

The Ontario government has welcomed proposed changes it suggests will up the competitiveness of credit unions and caisses populaires in the province, while also helping to better serve individuals, communities and businesses.

In recently accepting a report prepared by Laura Albanese, parliamentary assistant to Ontario finance minister Charles Sousa – which contains 15 recommendations for reform of the Credit Unions and Caisses Populaires Act, 1994 – the minister reported in February the suggestions will protect consumers, align legislation with international best practices to mitigate risk and enable credit unions to meet evolving needs of members.

But what does this mean for brokers, if anything at all?

Among the recommended changes is that credit unions will be allowed to “wholly own a wider spectrum of subsidiary businesses than currently permitted, such as insurance brokerages, so they can better compete with other financial institutions,” notes a statement from Ontario’s Ministry of Finance.

Members of credit unions, including small businesses, rely on them for essential financial services, often as alternatives to banks. “Implementing these recommendations would foster a more efficient and effective regulatory framework that better protects consumers and investors while improving the competitiveness of Ontario’s financial services sector,” Sousa maintains.

“The report means to address recent changes in the credit union industry, including consolidation of credit unions, an increase in their asset size, and the development of new and innovative business lines that generate non-interest income,” states a briefing from Blake Cassels & Graydon LLP. “The objective is to put credit unions on equal footing with the investment powers of banks.”

The broker position has been to support the ban on credit unions being able to sell or market unauthorized insurance products, such as home and auto insurance.

Following the release of the Ontario budget in 2014, the Insurance Brokers Association of Ontario (IBAO) applauded the proposal therein to ban online retailing of unauthorized insurance products. “Credit unions are currently marketing insurance on their credit union websites despite the intent of regulations under the Credit Unions and Caisses Populaires Act that prohibits the promotion or selling of unauthorized insurance products,” IBAO noted at the time. “Banks have the same prohibitions under the Bank Act.”

The approach “protects consumers who are vulnerable at the point of lending from an obligation to purchase an important insurance product under duress,” IBAO noted, adding consumers are also protected from cross-selling tactics from persons who are not properly trained to provide insurance advice.

The Blake Cassels & Graydon briefing notes the report “suggests regulatory prohibitions related to coercive tied selling, negative option billing, maximum cheque holding periods, or minimum account balances as conditions for loans.”

To brokers, the ban on selling insurance at the point of credit in place under the Bank Act needs to continue.

“Authorized” products that banks can sell include creditors’ disability, creditors’ life, creditors’ vehicle inventory, mortgage and travel. Banks, however, cannot sell home and auto insurance in their branches, and since 2012, through their websites.

The federal government noted in its 2016-2017 budget document that it is proposing to extend by two years (to March 29, 2019) the mandatory review of the act, which had been scheduled for 2017. The move has been welcomed by brokers.

“It seems like the government wants to do a thorough and proper review on how Canadians and all communities are served by the banks and insurers,” Steve Masnyk, IBAC’s manager of public affairs, told Canadian Underwriter. “We are confident the review will culminate with the notion that in the interests of all Canadians, credit-granting institutions ought not to be selling insurance at the point of granting credit.”

Time will tell if changes being considered in Ontario and federally will do just that.