• By: Dan Donovan

The shameful behaviour of Canada’s greedy, gluttonous banks

"The man who has won millions at the cost of his conscience is a failure." – B.C. FORBES

Canada’s banking sector is an oligopoly consisting of six large banks (‘The Big 6’) who control an overwhelming proportion of the banking business across the country. They gouged out record profits of more than $46 billion in 2019 – the tenth year in a row, and more than doubled their 2010 profits in part by firing thousands of people, shifting jobs overseas (or using temporary foreign workers), cutting services, and hiking fees and credit card interest rates even as the Bank of Canada’s prime rate dropped to record low levels.

The Big 6 banks paid their CEOs a gluttonous $75 million, in 2019, in salary and bonuses. Toronto-Dominion Canada Trust CEO, Bharat Masrani, received the highest overall pay for the 12 months ended October 1, 2018 raking in $15.3 million in total compensation on profits of over $11.7 billion. Royal Bank of Canada CEO, Dave McKay, took home $14.5 million on approximate profits of $12.9 billion. Bank of Montreal CEO, Darryl White, was paid $10.1 million on profits of approximately $5.8 billion, while Canadian Imperial Bank of Commerce CEO, Victor Dodig, pulled in $10 million on profits of approximately 18.6 billion. Bank of Nova Scotia CEO, Brian Porter, raked in $13.3 million on profits of $8.8 billion while Louis Vachon, President and CEO of National Bank of Canada, was remitted 8.1 million on profits of $2.3 billion.

It’s no surprise to find that these corporately cuddled, entitled, overpaid administrators of an oligopolistic entity have completely failed in their response to the COVID19 crisis, the Black Swan event that is proving to be the worst global calamity of our lifetime. Only after some prodding by the government did the tone-deaf potentates running the Big 6 Banks announce temporary mortgage and loan deferrals and cuts to some credit cards and fees, for some of their customers. A review by Ottawa Life Magazine, the CBC, other media companies and Democracy Watch shows it’s all smoke and mirrors — a cynical ploy designed to further enrich the banks in a crisis at the expense of an exasperated citizenry.

Canada’s Big 6 banks mortgage deferral programs are all similar and specifically designed to ensure they lose no money in the short term, and in fact make profits while royally screwing over consumers who will end up paying more to them in the longer run. The manner in which they structured these ‘deferrals’ assures that interest accrued from each deferred payment will be added back into the principal balance of the mortgage. Essentially, the bank is loaning customers the amount that they would have paid in interest during the deferral period and will then charge them back the interest on that loan as well. Customers will end up worse off in the end paying interest . . . on the interest, plus the loan itself. Cynically, the banks will then increase many of their customers' payments at the next mortgage renewal cycle due to the increase in mortgage balance, which the banks facilitated through this opprobrious policy in the first place.

Typically, The Canadian Bankers Association, who never miss an opportunity to live up to the old Brian Mulroney adage that “there is no whore like an old whore”, put out a release to justify this avarice saying "Customers should understand that [a deferral] is not mortgage forgiveness. Mortgage deferral means that payments are skipped for a defined period of time, during which interest which would otherwise be part of the deferred payments is added to the outstanding balance of the mortgage." In short, the behaviour of the Big 6 Banks and their CEO’s is organized loan sharking and kleptocracy. It is a modern day version of ‘let them eat cake’. All six CEOs should be put on a stage and publicly shamed for their gluttony and cupidity.

Contrast this behaviour with that of the small but mighty Vancity Bank, a values-based financial cooperative with more than 534,886 member-owners and the only bank in Canada with a meritorious response for its customers' needs regarding COVID-19. Vancity is providing personal and business credit-card-holders who need to defer a payment due to the impacts of the COVID-19 pandemic. These payment deferrals are for up to six months at a zero-per-cent interest rate. Vancity instituted this policy on their own. Only after media reports and some pressure from the government did the Big 6 Banks agree to cut their credit card rates by 50 per cent in the short term. The problem is that they are already charging outrageous interest rates to most customers that are on average between 18 and 30 per cent. They will offer ‘customers’ six months of deferral payments on credit cards. When customers resume their payments after 6 months, their first minimum payment will be all the interest they have accumulated over the six-month period plus fees and additional percentages where applicable. You’d get a better deal from Tony Soprano.

It’s not just mortgage payers and credit card holders that the Big 6 Banks are stiffing. Incredulously, they have used the crisis to find new ways to not help smaller enterprises. There have been dozens of reports of small business owners who have gone to their banks to access the federal government’s COVID-19 $40-billion business credit availability program (BCAP) and have been refused, even though Export Development Canada (EDC) which leads the program, say they should qualify. EDC said the fastest and easiest way to extend credit to a large number of companies during the pandemic was through the banks, which have existing relationships with companies. But since the money is being delivered through those banks, each financial institution can follow its own criteria and decide which businesses are eligible. This taxpayer money was made available by the federal government for the banks to distribute to assist small businesses during the pandemic and 80 per cent of the loans are backed by the federal government.

Instead of ensuring the money goes to the ‘smaller businesses’ it was created for, Scotiabank and the others are redirecting this taxpayers-backed money and making it available to their larger commercial clients who generally have revenues of over $15,000,000 and borrowing requirements in excess of $1,000,000-$3,000,000 (depending on the industry). François Bruneau, president of DFC Woodworks in Kemptville whose successful company has been building deck chairs in Kemptville and exporting them around the world for forty years, applied to the program and was refused. The pandemic has temporarily shut down his company at the busiest time of year and slashed sales by 75 per cent. He is losing hundreds of thousands of dollars a month and has had to lay off seven employees. An EDC representative told him he should be eligible for the loan guarantee program. Scotiabank advised him he didn't meet the conditions to apply. He told the CBC that “I just found out that small business clients will not be eligible for the EDC BCAP program, it will only be extended to commercial banking clients.” In response to reports of this case in the media, Scotiabank communications manager Caitlyn Veiga said “As Canadian businesses continue to feel the impact of COVID-19, Scotiabank is committed to standing by our clients to support them through these challenging and uncertain times”. How is that for Orwellian doublespeak? (In non-banking English parlance that means we are not loaning you the dough!) More than enough reason there to have a Parliamentary inquiry into the Big 6 Banks and their practices.

It is imperative that Parliament take extraordinary measures now to pass new bank reform legislation that includes making the Canadian banking system competitive and letting foreign banks in to ensure more access to capital and a reduction in service charges for clients. Under the current oligopoly, the abuse has become so extreme that Canadian banks are actually allowed to charge their customers fees for depositing money into their accounts. They are also allowed to charge e-transfer fees to customers, even though they own the e-transfer companies that make the transfers.

New legislation should require banks to immediately cut all interest rates and fees now for credit cards to zero for six months, following the Vancity policy; they should also be required to cut loan payments for the same period for those requiring the help; the Big 6 Banks should be required to disclose detailed profit reports after fully independent audits by a Parliamentary approved auditor and be legislated to keep rates and fees at reasonably low levels in the future; this reform should include new laws to completely separate the Big 6 Banks from insidious relationship with credit agencies, especially Equifax.

To further stem the abuse, legislation should empower consumers and increase consumer protection by creating a federally funded independent, consumer-run bank watchdog group (as recommended by MPs and senators in 1998). Parliament should require banks to disclose approval rates for credit, loans and accounts by neighbourhood and type of borrower, and require corrective actions with steep fines by any bank that discriminates. It should be made illegal for predatory pay-day loan companies to operate in Canada and the interest rates and fees they charge should be capped and reviewed annually by a watchdog. Consumers should have access to basic banking at Canada Post outlets for things like certified funds and financial transfers.

New legislation should include strict provisions around bank executive pay. Competition in real business has a way of self-regulating salaries. However, the Big 6 Bank oligopoly has proven that the CEO’s have used the federal protections afforded the banks to enrich themselves at the expense of customers. Canada’s Big 6 Banks should be required to pay their fair share of taxes now, and in the future. New legislation should close all the loopholes the Big 6 Banks so cleverly exploit with the CBA and other lobbyists. The role of these lobbyists in influencing services fees and bank privileges must also be curtailed. Finally, new legislation must strengthen enforcement measures and penalties to ensure banks, and other financial institutions, serve everyone fairly and well at fair prices. As Duff Conacher, co-founder of Democracy Watch says, “Because the big banks control more than 90 per cent of the banking market in Canada they can hike fees and interest rates whenever they want, and treat customers however they want, and so the federal government must finally make key changes to protect 30 million bank customers from gouging and abuse during this crisis, and into the future.”