FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, June 1, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order.

As everyone knows, pursuant to Standing Order 108(2), the orders of the day today concern the study of tied selling. We have the pleasure of having with us today a number of individuals who would like to speak on this particular issue.

We will begin the hearings with Mr. Kenneth G. Holliday.

Welcome. As you know, you have approximately 10 to 15 minutes to make your presentation, and thereafter we will engage in a question and answer session.

Mr. Kenneth G. Holliday (Individual Presentation): Thank you.

I am a certified financial planner, a chartered life underwriter, and a chartered financial consultant. These are all designations of CAIFA, the Canadian Association of Insurance and Financial Advisors.

I have been in business since 1971. I sell life insurance company products in Saskatchewan, Alberta and B.C., and mutual funds in Saskatchewan. I am also a deposit agent representing banks and trust companies in Saskatchewan.

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My business is primarily investments, both traditional guaranteed investments and funds—segregated and mutual funds. I also do estate planning and tax planning with my clients. At the present time, my database charts approximately $ 100 million of clients' money.

I thank you for the opportunity to appear here to present a few examples of tied selling and other questionable practices of the banks, and express my opinions. I look forward to your questions.

In February 1998, I was attempting to sell RRSPs to an existing client. The prior year, this client had purchased RRSPs of $ 12,000 from me, using a loan from ManuBank, which he repaid in full throughout the year. This year he wanted to further diversify to an institution that does not have a loan program. I know a manager of a local TD branch that will make RRSP loans, allowing clients to invest anywhere, providing they move their bank accounts to that branch. This may be tied selling.

When the loan condition was explained to the client, he indicated that he had already dealt with a different branch of the TD Bank, and would prefer to approach them about a loan. His TD branch advised the client that they would give him a loan, but he had to buy his RRSP there.

I believe this is blatant tied selling. The bank went further to confirm to the customer that if he went elsewhere to get his RRSP loan, his debt-equity ratio would be reviewed, and they might call all or part of his existing loan and/or reduce his line of credit.

This client feels the bank may still take this action if his name is used, and specifically requests that I not provide his name. He did borrow the money for an RRSP and bought his RRSP from his own bank.

Then there's my own case. This spring I knew I would be purchasing a new or at least another vehicle. I requested a short-term credit-line extension. I had business in progress that would generate funds to pay for the vehicle in cash, or pay off the loan very soon. I asked for a $ 30,000 increase to my line of credit. I already had a line of credit at $ 25,000, about $ 12,000 of which was being used. The bank has my life insurance for security, and would also have the new vehicle. The cash value on my insurance is approximately $ 40,000.

In my opinion, the loans officer was attempting to justify and set the stage for the coming tie-to-RRSP transfer. Initially, the loans officer tried to tell me that they couldn't use my life insurance for security and I had to buy theirs.

I did not at the time think of tied selling. I did not write down her exact words, but in no uncertain terms, my life insurance was not good any more. They had in the past lent more than I was asking for now, and they previously had less security.

The loans officer then suggested that the beneficiary, my wife, would also have to sign the loan, which has never been required before. From past dealings, if they kept records, it would be plain that a request for my wife's signature was going to be extremely upsetting to her, and completely out of the question.

It was left that I would fax something with current cash values—which I knew the bank had just received to update for the existing credit line—and the loans officer would recheck with their legal department about the requirement of a beneficiary signature, and with some higher authority for the life insurance exception.

I did not talk to her for a month or so while I was looking for the right vehicle. I found one, and called for an appointment. The officer was away on vacation and her fill-in saw me. This fill-in started by explaining that she was new to my file, and she could see they wanted more assets at their bank for security.

It was when the bank's loans officer said, “What about the RRSPs?” that I said, “That's tied selling”, to which she snapped, “No, it is not. I didn't require you to transfer them, I only asked `What about them?”'. She only then indicated that the interest rate would not be as favourable as before, and it would certainly be much more favourable if I had more assets there. She continued that the loan had been pre-approved, without my having to take their insurance or my wife's signature being needed—the very direct inference being that unless those RRSPs were transferred to the bank, I would not receive as favourable treatment as if they were transferred.

I am better qualified than the average customer, and I knew the insurance was good security and that the beneficiary's signature is not required. Most customers would have transferred their RRSPs, taken the bank's life insurance, and had the beneficiary sign off all their rights, which is what most annoyed me at the time.

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I simply advised her that it was close enough to tied selling to make me very uncomfortable, and that there were other financial institutions quite prepared to provide the services I was requesting at very reasonable interest rates.

In the end, my $ 30,000 loan was available at prime plus one, with no additional security. On May 14 I repaid that loan in full, and asked to have my insurance released.

Throughout the year I am faced with this sort of pressure being applied to clients over and over again. Clients will not allow their names to be used because they can't risk cheques bouncing, lines of credit being reduced or cancelled, and the damage to their reputation and embarrassment this would cause. Therefore these clients accept the bank's terms as part of the condition of getting a loan.

Another example starts in 1996 and continues to this day. There is a line of credit at a business owned by my client that is being used as a means to force the client to retain money at that bank. This client had about $ 1,000,000 in funds at the bank, which officially can't be used for security. It's an RCA trust and involves Revenue Canada. The client was advised that if these funds were transferred away, his line of credit would be affected.

In mid-1997, I wrote a letter to the client concerning his estate plan and expressed my concerns that if the funds were being used for security and were assigned, he was risking a problem, and Revenue Canada could require tax payment of approximately one-half of the $ 1,000,000. I suggested he review the situation with the bank, his legal representative, and his chartered accountant. I provided a copy of this letter of concern to his chartered accountant, and I provided an extra copy to the client, suggesting he might want to give it to the bank. I had recommended these funds be transferred, and they had said, “If you do, your line of credit is reduced”.

Shortly after my letter was sent, the bank reviewed their position. They would not reduce my client's line of credit. He has since transferred most of the $ 1,000,000 out. His cash position is very secure, and he could lend his own funds to his own company, but he now fears that if he moves his RRSP, the bank will cut back the line of credit of his company without warning, and this could cause an NSF cheque and bad ratings.

RRSP is not officially assignable. That's also tied selling, in my opinion. It is valid that they know his assets and liabilities to assess him and his company for credit risks, but the trust funds are as valuable in one place as another. He should not have felt pressured to keep his funds at the bank. Clients are asked to sign a “letter of authority to surrender”, to be used only if the loan is in default.

It would be possible for me to cite numerous cases where banks have tied one transaction to another. It seldom if ever is done in writing, and is virtually impossible to prove, because the client will not risk retaliation.

I thank you for hearing these, and suggest that committee members speak to friends and relatives, and question them, to find examples that are very close to home.

Getting statements of all assets and liabilities from clients is valid. In no way should a lender infer, though, that an asset or deposit at their institution, unassigned or unassignable, is any better than the same asset at another institution. The fine line between tied selling and acceptable aggressive sales tactics is hard to find.

I welcome your questions, and thank you.

The Chairman: Thank you very much, Mr. Holliday.

We'll begin with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman.

Thank you for coming, Mr. Holliday. In the last paragraph is a good example of what we're facing when we're trying to write a very definitive description of tied selling, when you say, “The fine line between tied selling and acceptable aggressive sales tactics is hard to find”. It is a fine line.

Let me ask you about an example. If a bank advertises up front, and says, “If you bring your mortgage to our bank we won't charge you a fee, and we'll also give you a personal line of credit of $ 20,000 at prime rate”, it is saying to the customer: If you bring over an asset to which we're going to lend you money in the form of a mortgage, we're going to give you a deal on any personal line of credit.

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Do you think that is tied selling in a way, or is that just good marketing?

Mr. Kenneth Holliday: I suppose it depends on how it's done—that is, if the deal is the same for everybody, if it's not a condition of the mortgage or the line of credit, and one does not have to have the other thing there; it's only that you get a better term, perhaps, or a better interest rate if you have both pieces of business at the bank.

I think most clients like to think that the more business they give me, or the more business they give any one place, they'll receive better treatment than somebody who does one small little thing there. I think that's valid business practise, personally.

Mr. Dick Harris: I tend to think that banks are in the business to make money, and if they can offer a package deal to a prospective client, then I think that's probably just good marketing. You know, the more business you give us, the better deal we'll give you on what you need from us, including loans.

I think we get into the tied selling issue—and maybe you could comment on this—when a client of the bank, or a prospective client, is in a spot where they need the bank more than the bank needs them. That's the time when the bank can put the squeeze on them to require this or that.

Mr. Kenneth Holliday: In my first example, that client needed the bank in a big way. In my case, I really didn't need the bank, so I was able to say no to their terms, whereas he couldn't risk it in any way, shape, or form. It's more often the case that we're applying for credit because we need it than because we don't need it.

Mr. Dick Harris: Yes. Generally people who don't necessarily need a particular bank can go across the street and shop, or go around the corner. As we're trying to define what tied selling is—and I think it's important that we do, eventually, and sooner rather than later—examples like the ones you've given are very helpful.

I don't have any other questions. I understand pretty well what you're saying here. Unless there's anything you wanted to add to it, I think it's pretty complete.

Mr. Kenneth Holliday: I don't think there's anything I need to add to it.

The Chairman: Mr. Pillitteri, do you have a question?

Mr. Gary Pillitteri (Niagara Falls, Lib.): Yes, thank you, Mr. Chairman.

I have actually two questions. In one part of your statement here you made the remark that the signature of the wife was not needed. If it's life insurance, I fail to understand that. If it's life insurance that has a name on it, how can you use that for collateral? It does not go directly into one's estate. If I have a life insurance policy and it's to my wife, that's not part of an estate. It goes directly to her.

So life insurance cannot be used as collateral. It has no value as a collateral, as I see it. Correct me if I'm wrong.

Mr. Kenneth Holliday: Okay, I will.

Voices: Oh, oh.

Mr. Kenneth Holliday: Yes, it can be used as collateral, and very often is. If that life insurance policy has a cash value—that is, a cash surrender value—

Mr. Gary Pillitteri: Provided you have the name of the beneficiary as the collateral.

Mr. Kenneth Holliday: You don't need the name of the beneficiary. The beneficiary doesn't have to sign. If the person who owns that policy wants to cash in that policy, they do not need the beneficiary's signature, providing, first, that the policy was issued after a certain point in time, where you no longer have the preferred beneficiary designation, and second, that it's not an irrevocable beneficiary.

In my case, that's exactly what it was. It's not an irrevocable beneficiary. I can cash it in at any time, without her permission. When I assign it to the bank as collateral security, if I want to borrow against that policy, take money out of that policy, or anything of that sort, I would first of all have to get the bank's permission before I could touch it.

So that happens all the time. That's a very common thing to have happen.

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Mr. Gary Pillitteri: You could cash it in at any time—and I don't want to argue the point—but when one passes away, one does not cash it in at any time.

Mr. Kenneth Holliday: If I passed away, the cheque would be issued to the bank and to my wife jointly.

Mr. Gary Pillitteri: I see.

That's one part. Another part of tied selling is when we look at offering a package. I think Mr. Harris asked about this. If you're dealing with a bank, provided you're bringing forward to them RRSPs and mutual funds and everything you have, and if it does give you 0.5% or 1% less on a loan but you have to buy into all the packages and that, is that marketing or is that...?

Mr. Kenneth Holliday: If they said, “We'll give you a better interest rate if you move your RRSPs”, that would be marketing, but if they said, “We won't give you the loan unless you move your RRSPs”, then that, to me, is tied selling.

Mr. Gary Pillitteri: Thank you. That's all.

The Chairman: Thank you, Mr. Pillitteri.

Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): I guess I have a technical question first. I wanted to know about this last part—an RCA involving Revenue Canada. I don't know anything about that area.

Mr. Kenneth Holliday: An RCA is a retirement compensation arrangement. It's like a pension plan.

Ms. Paddy Torsney: Okay. So he'd cashed out from some business and they told him to park it in an inaccessible RRSP.

Mr. Kenneth Holliday: It's a long, horrendous explanation. As a company, you can agree to provide some type of retirement compensation to your employee, which may be you as a shareholder. The amount you're going to pay them could be far in excess of what you're allowed under a pension plan, and you do this with Revenue Canada. The company gets a deduction for doing this, but they have to set half of the money aside in a special tax account with Revenue Canada.

If you mishandle the other half of the money, which you retain invested, if you assigned it to the bank, the money that Revenue Canada is holding, you lose. You never get it back. That was what was unofficially going on here.

In fairness to the bank, at that point—and I don't know whether I need to be fair to the bank—I suspect that the bank manager was in your position. He did not understand the significance of what he was doing.

Ms. Paddy Torsney: Right. It just looked like a pool of a million bucks.

You mentioned the TD in one of these, but you didn't mention the other banks involved in these cases. Is it a variety of banks?

Mr. Kenneth Holliday: In my case, it's the CIBC. The third one, I don't care to name, because I think it would be too easy for them to figure out who it was.

Ms. Paddy Torsney: There aren't too many clients with a million bucks in funds.

Mr. Kenneth Holliday: That they just lost, yes.

Ms. Paddy Torsney: Since it's very hard to define some of these things, is the issue best addressed by legislation? How would you see that legislation being written up? Or is it best addressed by educating consumers more, and figuring out how to empower them to say, as you did, “Take another look and call back the head office, because you're making a mistake here”? How best do we deliver that to Canadians? Is the ombudsman system working?

Mr. Kenneth Holliday: There's a million-dollar question.

We need to do a little bit of both. First, I think back to the days when the cost-of-borrowing legislation was first introduced, and how it now was necessary that you be advised how much this loan was going to cost you when you borrowed money from the bank. They devised a means of providing that information. If there was a requirement that the borrower be provided with certain information at the time of applying for a loan....

When I sell a mutual fund, I have to give you a prospectus, and I have to give a receipt for it. If I'm lending you money, I think I should have to provide you with some type of information package that says, okay, this is illegal, this isn't illegal, and if you think you're being asked to do something illegal, call this 1-800 number, be it an ombudsman or whatever.

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At the moment, most people don't have a clue about how to contact an ombudsman, or even that one exists. I think that type of information package would be of great assistance. Human nature is such that you could put it in the newspaper every Saturday and explain it all on one full page, and you still wouldn't remember it. You'd get so you didn't even look at that page.

So you need to have that information in front of you when you're applying for a loan.

Ms. Paddy Torsney: What about a system that would say there has to be a cool-down period or something; you have to have 24 hours to review the material before you can actually sign and get the money; or you have an opt-out after 24 hours if you've signed off all these things?

In the province of Ontario, for instance, there was a real racket—well, it might not have been a racket, but there was a real problem—with health clubs selling lifetime memberships. People were buying into these things. They didn't realize they were in high-pressure sales. They didn't know their rights, so they set up a cool-down period where you could back out.

One of the problems is that you're sitting there with the bank manager and you're signing off all these things, and it all seems to go fairly well. Afterwards, though, you might think about it and say, “What did I just do?”

Would that help?

Mr. Kenneth Holliday: I guess it would help—

Ms. Paddy Torsney: Would it be feasible?

Mr. Kenneth Holliday: —but would the bank feel comfortable advancing the funds immediately, or do they need the cool-down period? Let's say I've bought my vehicle. The guy is standing out on the street, waiting for his cheque. Do I have to go out and tell him, “We have this cool-down period, and the bank won't release the money for 48 hours”, or whatever?

Ms. Paddy Torsney: Right. It might be a bit complicated.

Mr. Kenneth Holliday: It might throw up some problems. That's my first reaction to that.

Beyond that, education helps, but you need it in front of you at the time when you're making the loan.

Typically, part of what happens when you go to get a loan, or you go to buy RRSPs or whatever, is that you negotiate the terms of it and when you finally decide on exactly what you're going to do, it's sign here, sign here, sign here.

We're all guilty of it, myself included. You don't take the time to read the forms. I don't take the time to read the forms, and I sign them blank.

Ms. Paddy Torsney: Do you really think most people go in and “negotiate” a loan, or do they just “get” a loan?

Mr. Kenneth Holliday: Most people go in, kind of hat in hand, and very bashfully ask for some assistance. Most people do not go in with the intention of driving a hard deal to get a loan. That's not where they're at. Some do.

Ms. Paddy Torsney: Yes. The more sophisticated customers, or the tougher nuts.

Mr. Kenneth Holliday: Depending on what it is, how much the loan is, how badly you need it, and how soon you need it—

Ms. Paddy Torsney: And how much experience they have dealing with financial institutions, no doubt.

Mr. Kenneth Holliday: Yes.

Ms. Paddy Torsney: So you think legislating some kind of package might help; that people have to get the ombudsman information, both their own bank's ombudsman as well as the national ombudsman; that there should be some other caveats within the agreement that they must agree to do, to read certain things; and that they have their rights clearly identified—for example, they don't have to transfer their RRSPs to get a loan at that bank, or whatever.

Mr. Kenneth Holliday: Something of that sort. I have to say, I haven't spent enough time fleshing that out. I wasn't....

Ms. Paddy Torsney: It would be interesting to hear your ideas on it. Ultimately, people have come to this committee because they think there's a problem, and they want us to address it. So far we're getting a great description of the problem, or of some of the cases that might be a problem and others that might not be, and it's not clear that all the legislation in the world won't solve this—to me, at this point—and if we were to do something, what our options would be and how that would really alleviate this problem and not create a second one.

If you did have ideas, we'd certainly be interested in them.

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Mr. Kenneth Holliday: Something just ran through my mind while you were talking. In terms of a cooling-off period, think of the Direct Sellers Act. It says that if this repairman comes to your house and sells door to door, and he is going to fix the roof on your house, and it's going to cost you $ 10,000, there's a cooling-off period, but lots of people are still ripped off. So all the legislation in the world, all the regulations in the world, are not going to stop every case.

Sometimes loans officers are not even aware that what they're doing is questionable, and sometimes they are. I think a lot of times they're not aware. I think of the RCA case here. I really don't think the bank manager was informed enough to know that he was putting this customer in a very precarious position.

And that's part of the problem. There isn't enough education, experience, training for some of the bank staff. The advice, the information they get from the bank may be totally wrong. I suspect a lot of times it is unintentional.

Ms. Paddy Torsney: Okay. Thank you.

The Chairman: Mr. Holliday, you're aware of what the situation is vis-à-vis the challenge we face with tied selling, are you, that we have to proclaim a section of the act?

Mr. Kenneth Holliday: Yes, I am.

The Chairman: Because that's what the issue is.

What do you think? Should we?

Mr. Kenneth Holliday: Yes. I have not read the precise legislation, so I only know the general gist of it, but I like the direction it's going in.

The Chairman: And how would this solve your problem?

Mr. Kenneth Holliday: Anything you can do, whether it would be totally solving the problem or not, is a step in the right direction. So I see it as a step in the right direction—not the only step that needs to be taken, but one of them.

The Chairman: Explain something to me. What's life before proclamation and life after? How different would it be?

Mr. Kenneth Holliday: Depending on what went along with the proclamation, if there was no advertisement, if there was no way to make the public very aware of the new legislation, of what it is, and of what is now illegal that wasn't before, I don't think it would change a thing.

But it will if it is published, as I suggested, with a brochure that says this is now illegal at the time you apply for credit or whatever, and sign anything at the bank, whether it's a VISA application, opening a bank account, or anything. That information should be readily available, and that's a bigger step that needs to be taken.

Legislation may already be there. I don't know. I don't know all the legislation. But I do know that people go into the bank and they pick up the CDIC brochure, for instance, and they're fairly well-informed about what's covered and what isn't covered. At least they know where to find it. There's nothing like that at all for credit terms.

The Chairman: So let us say that this section of the act is proclaimed, and let's say that tied selling has occurred between customer X and bank Y. Who should we go after, the official? By that I mean the loans officer. Should we go after the bank, and what measures should we take? Should it be a fine? What do you think?

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Mr. Kenneth Holliday: The loans officer should be reprimanded the first time; the second time there should be a fine. The bank should also receive a very severe fine, not just a rap on the knuckles. And if there's a minimum severe fine, it won't happen, there won't be tied selling. If there's a minimum fine of $ 1 and a maximum of $ 1 million, it'll continue.

I don't think that just having some legislation that says it's illegal is going to help unless there's some serious teeth in it. And I don't know what the penalties proposed are. I have no idea.

The Chairman: Thank you.

Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

I wanted to follow along on the fact that there are ombudsmen in banks as well as the Canadian banking ombudsman, and we have seen some of their very nice, glossy brochures. I have talked to them and asked them if they make these available to their customers, and they have assured us that they do.

I haven't heard anybody come to this committee and say that they approve of tied selling. To a person, everyone admits it's not desirable, and we hear a lot of anecdotal stories about it.

My question to the ombudsman was, can you change a systematic problem, which is what this seems to be? It's incidental, and often, as you said, it may be the difference between somebody perceiving it as bundling and somebody else perceiving it as tied selling. They say there is a moral suasion. Banks don't want to do this, they don't approve of it and when they see it happening they step in to remedy it. You're saying you think legislation is a necessary step and yet that alone is not enough.

I guess my question is, is the ombudsman, in the role they're playing, if they were effective, not enough to deal with this?

Mr. Kenneth Holliday: I'd ask you a question, to start with. Have you ever seen...? You would know how to contact the bank ombudsman, but I don't.

Mrs. Karen Redman: So in all of your dealings there was never any mention, when you were unhappy and you didn't like what you were hearing, and you went to the bank manager—

Mr. Kenneth Holliday: Never. The subject never came up. Nobody ever mentioned the ombudsman.

In fairness, in the first of these three cases, he's not about to mention the ombudsman or anything. He can't afford any kind of upset with his bank. In my case, I couldn't have cared less one way or the other. I just would have gone across the street.

I can't remember ever being given anything by my bank that said there's an ombudsman. I guess there is, but I don't know how to contact him. I could figure it out if I tried hard enough, long enough. I'd probably phone the main head office of the bank and they'd tell me.

I don't think your average customer thinks of doing that. They need to be given something that says here's where you go. And as far as going to a bank ombudsman is concerned, most people look at that with a jaundiced eye. They say this is like asking the fox to watch the chicken coop. They don't really think they'll get a fair hearing, so they don't even try.

Mrs. Karen Redman: You illustrated earlier in your comments that you could put something in the newspaper and if it was there every day people would become desensitized and they wouldn't bother reading it. My understanding is that the pamphlets that they've written and brought in as evidence to this committee are supposedly put out where the general public would walk by. If anybody was interested they would be able to see them in the brochure rack. So it's not even as if they have to go to the counter and say they're really upset with how they've been treated and demand to have the number of the ombudsman. You could do this with relative anonymity initially, and that was part of the strength of having that kind of system.

To your way of thinking, should everybody who goes in to negotiate any kind of bank business be handed a brochure that says this is the 1-800 number, this is the number you call if you're dissatisfied with your business?

Mr. Kenneth Holliday: Yes, I think so. It would be very possible to produce that kind of information brochure—very short, easy to read. It would say to call this number if you have a complaint, and this is what is apt to happen.

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As I said before, that kind of thing is much like the cost of borrowing. I assume it's the same here in Ontario. If you go in to set up a loan, they have to tell you, somehow or other, how many dollars and cents this loan is going to cost you. One way or the other, you're given that information. If you're not given that information, you don't really know what to do about it.

At the same time, if you're told you have to do this, and it's illegal, you're not told that it's illegal. They don't even know it's illegal. What we're struggling with here, to a certain extent, is what is illegal? What is tied selling? Some things are very clear as tied selling. Mostly it's very difficult to know the difference between bundling and tied selling.

That may not be all that helpful to you.

Mrs. Karen Redman: I have one final question. I don't know if you have the answer.

I was surprised that it wasn't more prevalent. We've had anecdotal stories told. It's a very unpalatable situation when somebody feels that if they don't do X they won't get their loan or whatever service it is that they're going to the bank for. I'm surprised that the statistics aren't higher. I wonder if you would have any kind of suggestion about why this is so. You sense it's pervasive, and yet you look at the statistics and it's not as rampant as you might expect.

Mr. Kenneth Holliday: I suspect that part of the reason you don't hear about it is because of the fear of retaliation. Real or unreal, they fear it.

In putting together this presentation I asked a number of clients for permission to release their name and I was refused. I asked them whether I could use their example without releasing their name, and hesitantly had two. I do know of others who, beyond any question at all, said, if you even hint of my case, I'm out of here. I don't want you to bring it up. I don't want to hear anything about it, nothing. They fear retaliation that much.

Mrs. Karen Redman: And from your experience, is it real or is it perceived?

Mr. Kenneth Holliday: Both.

Mrs. Karen Redman: Thank you.

The Chairman: Mr. Harris.

Mr. Dick Harris: Thank you, Mr. Chairman.

Mr. Holliday, I want to ask you a different kind of question and get your opinion on it. Let's just reverse the situation for a moment. Let's say the client is dealing with bank A and this client has a decent salary, $ 150,000 in RRSPs with that bank he's dealing with. He has some equity in his house and his debt-service ability position is fairly favourable.

He wants to buy himself or his wife a $ 40,000 automobile and he goes to his bank and asks for a $ 40,000 loan. The bank says they'll give him the money at prime plus 1.5%. The guy says, fine, I'll think it over. He comes back the next day and he says he told the the bank across the street that he would bring his RRSP over and perhaps transfer his mortgage, give them some business, and they'll give him that $ 40,000 at 0.5%. He asks his bank whether they are prepared to match it or risk losing his business.

What would you call that?

Mr. Kenneth Holliday: A smart move on the customer's part.

Mr. Dick Harris: I throw that out to you, just to play the devil's advocate.

Mr. Kenneth Holliday: I don't think that is tied selling. I think that's bundling. They haven't said they won't give him the loan. Initially, the first bank said, we'll give you the loan, and these are the terms. Now he's negotiating his terms, trying to reduce his interest rate, with the bank across the street saying they'll go one step better. They'll charge him 0.5% rather than 1.5%.

Mr. Dick Harris: What if this bank instead said to this same customer that they'll give him a loan at 1.5%, but if he moves all his RRSPs and everything over there, they'll give him that same loan at 0.5% over prime. Would you call that tied selling?

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Mr. Kenneth Holliday: Run that by me again.

Mr. Dick Harris: Well, let's say this client dealing with bank A had some RRSPs with other investment companies, and he went to his same bank and said he wanted to borrow $ 40,000. What if the bank said, “Yes, at 1.5% over prime, but I know you have $ 150,000 in RRSPs out there; move them over to my bank and I'll give you that same loan at 0.5% over prime”? What do you call that then?

Mr. Kenneth Holliday: I'd call that bundling, because they haven't refused his loan. They have simply said, “You'll get a better term if you do more business with us.”

Mr. Dick Harris: All right. Thanks.

The Chairman: Thank you, Mr. Harris.

Mr. Holliday, thank you very much, on behalf of the committee, for bringing this evidence to our attention.

Mr. Kenneth Holliday: You're most welcome. Thank you.

The Chairman: We're going to suspend for a few minutes.

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• 1148

The Chairman: I'd like to bring the meeting to order and take this opportunity to welcome Mr. Bruce Mackenzie.

As you probably know, Mr. Mackenzie, you have approximately 10 minutes to make a presentation, and thereafter we'll engage in a question and answer session. You may begin.

Mr. Bruce Mackenzie (Individual Presentation): To start, I truly come from a layperson's perspective on this. I hadn't actually realized this situation existed until I reviewed an incident that happened to me with some people I had worked with and with some financial advisers who work with my money.

Last year I was in a situation where I was researching some financing options to buy into a business that I currently work for, and I was referred to a bank, and in particular a banker, through a colleague of mine who will be a partner and who I trust implicitly. I went to visit the bank and we had a great meeting to start with. Certainly it was very open and congenial. I discussed what I needed and my plans and objectives. Everything was pretty much agreed upon, subject to, of course, the regular investigation of my personal credit status and financial statements.

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This gentleman, who was so friendly and so warm, all of a sudden reached across the table, looked at me, and said “Of course, these business loans for somebody of your age can be very difficult to get, and we would want all your business—your mortgages, your RRSPs, your Visas, what have you”.

I told him I was pretty comfortable with where my RRSPs had been invested and I wouldn't be too interested in moving them at that time. Then he said again, in a very down, dour tone, “We'll have to see if you get approved first”. Then we moved on.

We ended the meeting, as I say, in the same manner in which it started. It was very congenial, and I walked out with the responsibility of completing some of the standard forms of application.

I really didn't think a lot of it, but I'm surprised at how the atmosphere changed during that one period. I felt that things were going along well, and then suddenly the atmosphere shifted. Immediately upon returning to my office I told the story to my business associate. He remarked that, yes, it seemed a bit strange and out of character.

I eventually met with my financial adviser and told him the same story, again more from an anecdotal standpoint. He mentioned at that point this was not an appropriate means of selling. It was the first I ever heard of tied banking. Since that happened last November, I've become aware of situations that happened to friends of mine as well.

The Chairman: Thank you, Mr. Mackenzie.

Mr. Harris.

Mr. Dick Harris: Thank you, Mr. Chairman.

Mr. Mackenzie, I guess the question we all have now is whether the bank actually ever said to you that it was prepared to give you the loan on the following conditions and then talked about your Visa, your mortgage, your mutual funds. Did you ever get to that stage?

Mr. Bruce Mackenzie: No, it was never presented that way. It was just presented in terms of, “Of course, we'd want all your business”, and then things were specifically identified.

Mr. Dick Harris: You don't mention here whether you actually or ultimately got the loan or went into the business. Was pursuing the loan terminated after this?

Mr. Bruce Mackenzie: No, I wouldn't say. After that I decided one of my options might be to generate the capital. I had resources. I wasn't entirely excited about depleting a lot of my cash resources, but I pursued that route. I don't want to communicate that I was intimidated or put off banking or institutions. I decided personally that maybe I could do this on my own.

Mr. Dick Harris: So you never ended up dealing with this, then.

Mr. Bruce Mackenzie: No.

Mr. Dick Harris: All right. Thank you, Mr. Mackenzie.

The Chairman: Are there any questions on this side?

Mrs. Redman, please.

Mrs. Karen Redman: I have just one, Mr. Mackenzie. Did it occur to you to go back to the bank and complain about the treatment you received?

Mr. Bruce Mackenzie: It was very subtle. I didn't walk out of there thinking, “God, what happened here?” I certainly recognized the change in the course of the meeting. I'm familiar with that feeling and pretty good at being perceptive to those changes. Even after being informed by some people that it wasn't appropriate, I didn't feel...particularly because this person was the banker for a colleague of mine for many years. In fact, what ended up happening was my colleague wrote a letter to him expressing his displeasure with the process.

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Again, even committing with my colleague.... You know, in any type of buying process a certain degree of knowledge is incumbent upon the person doing the buying. I'm not versed in finance or the ethics or the legalities, but I do say that at the time, I felt a little.... You're compromised when you go in to apply for a loan, particularly if you're younger and maybe don't have the abundance of resources to use as negotiation or what have you.

Quite frankly, much as I would like to believe I'm educated and know the process, I didn't go into any of the bank meetings I had with the idea of negotiating my loan. It was pretty much, “Please consider me, because this would be helpful”.

I did find the change in the atmosphere very strange, how a gentlemen who was so congenial and open and comfortable all of a sudden put the hard sell on. Truly it looked like it was uncomfortable for him as well. That's really what initiated my comments to everybody. It wasn't actually what he said; in fact, had it been another situation, I might have blindly done it, because I didn't think there was anything wrong with it.

Mrs. Karen Redman: Thank you.

The Chairman: Are there any further questions?

Ms. Torsney, please.

Ms. Paddy Torsney: What we're here for is to consider whether or not this piece of legislation will be proclaimed, but that won't make any change in human behaviour. Whether someone goes weird in a meeting or not is not something we can control.

You came here today to tell us about this experience. Did one of the committee members recommend that you come?

Mr. Bruce Mackenzie: That's right. I wasn't championing this at all.

Ms. Paddy Torsney: Okay. How do you see a piece of legislation affecting your future dealings in this kind of arena?

Mr. Bruce Mackenzie: As a citizen of this country, I would hope we wouldn't have to legislate everything we do or that's done. However, as a consumer I hadn't realized this was an issue or was inappropriate.

I'm a big believer in taking responsibility for your own decisions, so that information should be there. It probably is there; it's probably in the bank lobby I went into. I didn't stop to read all the brochures.

First, this person was referred to me through a colleague of mine, and I felt there was a level of trust and understanding. Second, it was a large, recognizable bank. This wasn't appropriate behaviour, and I would have assumed the bank would have dealt with it internally.

To me the legislation is really not the issue. I would say people need to be educated about what is right and wrong and what institutions of any type are allowed to do to get your business. Somebody mentioned marketing. I'm pro marketing. It is a business, and I'm glad our banks are making money. My money is there, and that's important to me. But the communication shouldn't be that if you don't do this, you won't be approved for this loan. It's intimidating. As I say, you go in there in a compromised situation. You generally need money when you're applying for a loan.

Ms. Paddy Torsney: Do you think that along with the forms you took but didn't fill out it would have been helpful if you had been given the brochure on the ombudsman or on your rights as a consumer?

Mr. Bruce Mackenzie: Oh, I filled out the forms. I applied for the loan and got approved. I've just not accepted going through that practice.

Ms. Paddy Torsney: So it wasn't actually tied selling, because you didn't agree to it.

Mr. Bruce Mackenzie: No, I came here to tell the story.

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Ms. Paddy Torsney: Do you think it would have been appropriate for them to give you your rights as a consumer and some brochure about the ombudsman should it have gone the other way and you weren't approved?

Mr. Bruce Mackenzie: If it's not appropriate and people, including the banks, know it's not appropriate, I would assume there are some internal processes that would prevent it. I know there's a lot of pressure on individuals and on institutions as a whole to be profitable, to make money and generate business. That's fine, but if this wasn't appropriate, why did it happen? It wasn't posed in the manner that if you give us all your business—if we do your Visas, your mortgages, and your RRSPs—we may even be able to improve upon the rate we give you.

Ms. Paddy Torsney: But they didn't give you forms to fill out for a new Visa card from their bank or to get mortgage information, so they didn't—

Mr. Bruce Mackenzie: No.

Ms. Paddy Torsney: Okay.

What field do you consult in?

Mr. Bruce Mackenzie: Human resources.

Ms. Paddy Torsney: Okay. Thanks.

The Chairman: Human resources, you say?

Mr. Bruce Mackenzie: Yes—executive recruitment, headhunting.

The Chairman: That's important, because then you would know about pressure.

Mr. Bruce Mackenzie: Oh, sure.

The Chairman: You could identify it without a problem.

Mr. Bruce Mackenzie: Again, it was the perception of the atmosphere in the meeting. It wasn't what was said.

I'm used to sitting in front of executives for a corporation and, because we sell a service, being able to answer some pretty direct questions. You generally get a feeling in those meetings if it's going well or not going well. In the middle of this meeting there was just this envelope that changed, and it seemed to suggest to me that the role had reversed all of a sudden.

Everything had been proceeding well. When this was presented and when I suggested I didn't want to do it, there was a feeling that maybe there was not going to be a relationship. It became a bit more formal at that point. I walked out of there thinking, geez, I didn't nail that meeting. I didn't get a good feeling from it.

The Chairman: Mr. Mackenzie, what do you want us to do?

Mr. Bruce Mackenzie: It's amazing how many people I've talked to don't even realize this happens or is illegal. I've spoken with I can't tell you how many people even in the last week who have told me similar stories.

There should be some education from the consumer's standpoint. Maybe we can put it up front. I agree with the last gentleman, who suggested that all of us—particularly me, I suppose—are guilty of not reading forms. I don't even know what was in the application form, whether there was a bold thing across the bottom that said the institution can't demand that you do x to get this loan approved. Maybe something that gives you that information should be packaged with the presentation and allow you to pursue other resources if necessary.

I do a fair amount of banking. I also didn't know that banks had an ombudsman—not that I probably would have gone there again. I left the meeting well before I thought anything was happening.

You're told that smoking is bad, you're told it's unhealthy, and at the point of sale there's a pretty bold message telling you that. Maybe there should be something similar on the application forms. It wouldn't be a huge cost to anybody, but perhaps there can be a paragraph on the bottom of the form in bold print. It puts it on paper. Again, it puts the responsibility back in the purchaser's hand. If it's there to read, you're responsible for reading it and nobody would be trying to hide anything.

The Chairman: How would you define tied selling?

Mr. Bruce Mackenzie: From what I know, I would say it's a situation where getting the product you're trying to buy is contingent on offering something else—from the consumer's standpoint, not from the seller's standpoint.

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The Chairman: But not in all cases, because there's a difference between tied selling and cross selling and beneficial selling and so forth.

Mr. Bruce Mackenzie: What do you mean by that?

The Chairman: Well, a bank or a financial institution may offer you a better deal because you're purchasing, for example, your home insurance plan and your auto insurance plan, and you'll get 5%, 10% or 15% off.

Mr. Bruce Mackenzie: Well, I totally agree with that, but—

The Chairman: But you don't get it if you just buy one.

Mr. Bruce Mackenzie: Yes, that's fine, but they're not saying you don't get it at all. I think the difference there is that if you're applying for a loan, the loan should be approved or disapproved based on the merits of your application.

The terms of that loan can be approved upon and negotiated or whatever. I think that's a very positive process. I think that should happen. But I don't think you should feel you must add to the standard application just to get the loan. I shouldn't have to throw in more money.

When you go to buy a car, you know the terms of buying a car, and you want the car. When you negotiate the deal, it's not often that they say, “Well, why don't you throw in, as a consumer, an extra $ 10,000?” I mean, I wouldn't do that, so I wouldn't expect that. In terms of making a deal, it should be favourable to both parties.

The Chairman: What should we do if a person is in contravention of the act, or the institution? Should it be the institution? Should it be the individual? Who should we be looking to?

Mr. Bruce Mackenzie: To be responsible?

The Chairman: Yes.

Mr. Bruce Mackenzie: If the information is there, I think the consumer should be responsible. I truly believe that. If the information is there, and is presented, and we know that this is right or wrong, the banks have an obligation to.... If they're withholding information, and if this person or institution promoted it to this person, presented it in such a way that said, “Don't listen to this stuff. This is what we require, and if you don't do it then you're not going to get the loan”, then obviously we need to address that. But I don't know that the information is there.

The Chairman: Let me rephrase the question. If, let's say, you were a “victim of tied selling”, as legislators, should we be going after the institution, i.e. a bank, or after the person who works within that institution—the loan officer, for example?

Mr. Bruce Mackenzie: I think it would have to be the individual, unless it was proved that the institution supported that individual in what they were doing.

Again, this could apply to any situation. If a company was encouraging their staff to do this, then the responsibility would lie on both parties, but if it's a maverick within an organization, you can't ask the organization to be responsible for it.

The Chairman: Okay.

Any further questions?

Mr. Pillitteri.

Mr. Gary Pillitteri: Yes, I have a little question. This is almost hypothetical. Let's say I'm a businessman and I have insurance on my buildings, my business, my vehicle, and I have insurance of liability, and I happen to have this with two or three different companies. The renewal comes up and one tells me, for a commission, that to renew my policy at a cheaper rate I would have to get the whole three of them into that one company. It would be the same thing if my bank renewal were to come up, and it would be safe to say that my RRSPs have to go in almost the same condition—RRSPs, my mortgage, and my demand loan.

I have heard here before that if that's the condition, it's tied selling. How do you see that in terms of what I just proposed and asked you? We've also heard from the insurance individual, who said, “Well, that is putting a package together; that's bundling”.

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Mr. Bruce Mackenzie: It seems to me the difference there is actually getting the insurance or the loan. I agree with, and I'm in favour of, insurance companies, banks, anybody in the selling process.... If they can offer a better deal for a bigger package, sure, that should be legitimate. If your terms are renewed, if you get a better rate, that's fine, but if you don't get anything at all, that's a problem.

If you're going to renew your insurance, if you have the same terms and somebody said to you, if you bring your house insurance, your liability, your disability insurance and you put it all together with us and we'd give you a better deal, I would think that is positive marketing.

If a company said you've been dealing with us, you only have your liability with us, consequently it's due for renewal and we won't renew unless you give us all this other business, I would think there's a problem with that.

Mr. Gary Pillitteri: In other words, if a benefit occurs to a customer and tied selling is occurring, that's fine. But if there's no benefit to that client, what you're saying to us is that it's tied selling. Both of them are tied selling.

Mr. Bruce Mackenzie: If nothing happens in the consummation of the deal, then there is no deal, right?

Mr. Gary Pillitteri: But if the deal does occur and both of them are putting on a condition, if it's benefiting the client, that's not tied selling. If it's not benefiting—

Mr. Bruce Mackenzie: Let's put it this way. I doubt that very many banks, institutions, insurance agencies, or my company would negotiate a deal that's not profitable for us. So I would think that as long as both parties know what's going on, and if a bank or institution decided to reduce their interest rate or terms of whatever package they're selling, they know what they're doing, and I would assume that's in their best interest. If you're limiting somebody's ability to access that service, then there might be a question.

Mr. Gary Pillitteri: Thank you.

The Chairman: Are there any other questions?

On behalf of the committee, Mr. Mackenzie, I'd like to thank you very much for your intervention. We'll certainly bear your comments in mind as we decide what measures we should be taking in relation to the proclamation of this act. Thanks.

The meeting is adjourned.