John Chant’s Policy Options piece, “OSFI must be independent,” offers some good observations; however, it is disadvantaged by a number of unfortunate misunderstandings about credit unions’ recent interactions with the federal banking regulator around the use of the terms “bank,” “banking” and “banker.” I’d like to take this opportunity to help clarify these misunderstandings.
As co-operatively owned, provincially regulated, deposit-taking institutions, credit unions occupy a unique space in the financial marketplace. For decades we have used forms of the verb “to bank” to help Canadians identify what are the only other banking choices available to them besides the Big Six global banks. We’ve used these terms on websites that say “on-line banking.” We’ve used them on advertising that says “Bank with XYZ credit union.”
For many decades, these practices have generated zero red flags from the Office of the Superintendent of Financial Institutions (OSFI). That’s because credit unions have used the verb in the same way Canadians do: to describe their day-to-day interactions with a credit union — and because of the many ways credit unions differentiate themselves from the big banks.
So it was surprising that OSFI issued an advisory in June ordering credit unions and other nonbanks to stop using these verbs. This leads me to an important issue the article gets wrong.
Credit unions are not objecting to restrictions on the use of “bank” as a trade name — we do not wish to be known as “banks.” This has always been off-limits in the eyes of credit unions, Finance Canada and OSFI. So while we do not want to be confused with banks, we do want to be able to use the common terms that Canadians use, to ensure the public understands the services we offer and to retain some ability to compete in a market that is dominated by global big banks.
The idea that Canadians might have been confused by the use of the terms has been an important public policy concern. That is why Parliament saw fit to include the restrictions on the use of the terms, even before the Bank Act came into existence more than 100 years ago. Scholars who have looked at the history of these restrictions have concluded that the rule was put in place to address the use of the terms — especially in names and titles — by unregulated financial institutions, which credit unions are not.
However, there is no evidence that Canadians are confused. A recent Senate study concluded that “according to Finance Canada and OSFI, there have been no complaints or other examples of misunderstanding among consumers about the use of these terms.”
Telling credit unions not to use the phrases “on-line banking” or “commercial banking” is more likely to create misunderstanding. New Canadians and people who are unfamiliar with credit unions would have more trouble identifying their local credit union branch as a well-regulated, deposit-taking institution where they can safely do their banking, and this may undermine credit unions’ ability to attract members and provide real competition to the big banks.
This brings me to an important point the article gets right. The government sets financial policy, and OSFI enforces it. The reason so many Canadians and ultimately the minister of finance raised concerns about the June advisory was because it represented a departure from OSFI’s own common-sense enforcement over many decades of restrictions on the noun “bank,” and all the best legal opinions on the matter. With no public consultation and no evidence of public misunderstanding, the regulator effectively reinterpreted the Bank Act and with it Parliament’s intent — which was to prevent unregulated financial institutions from deliberately misleading Canadians.
In August, Finance Minister Bill Morneau rightly opted to move the whole question into the financial institutions framework review. Rather than “political interference,” as John Chant suggests, this decision is a proper demonstration of the Minister’s authority to set policy.
It is now up to the Minister of Finance to consider amending the Bank Act to make it clear that credit unions can continue to use the verb “to bank” and the term “banking” to describe the services we offer Canadians.
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