Ottawa’s Recent Review of the Bank Act

393px Jim Flaherty 2007
Advocis supports the position
of Canadian Finance Minister
Jim Flaherty on separating
a bank’s insurance business
from their banking business.

Advocis’s recent submission to the Department of Finance makes it clear that Advocis supports the government’s policy intent that was announced in 2009. To review, the government position was that banks should separate their insurance business from their banking business.

Advocis stressed that any changes to present restrictions not allowing banks to sell or market insurance from or through their bank branch network, without significant protective measures, could potentially harm consumers and would upset the level playing field that presently exists.

LSM supports Advocis’s position. The primary reason we take this position is because of Tied Selling. Tied selling is the practice when consumers are required to purchase an unwanted product as a condition of purchasing the product they actually want — typically a loan.

For instance, a consumer wishing to buy a loan from a bank would be subject to tied selling if the consumer is informed that the loan would be made available only if RRSPs held elsewhere were moved to the that particular bank,  a credit card were to be obtained from the bank, or any other services were required to be purchased with the loan. Tied selling is a concern because some financial institutions possess a certain degree of leverage over their customers that mean those customers cannot easily move to another institution. It is especially harmful when financial institutions engage in tied selling with respect to their credit granting activities, since this is when consumers are often most vulnerable.

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