The government can easily fix new regulatory roadblock for credit unions

Last month an advisory from the Office of the Superintendent of Financial Institutions (OSFI) placed onerous conditions on credit unions and seemed to be doing favours for Canada’s big banks in the process. The edict, which was slipped through on June 30th when most Canadians were gearing up for Canada Day, celebrations, forbids credit unions from using simple, common terminology including “bank”, “banking”, and “banker”.   The interpretation comes from a section of the Banking Act that is 80 years old and was intended to protect consumers from deceitful practices and flim-flam artists. 

Using this interpretation to frustrate credit unions was never the intention of this section of the law when it was drafted.  It was put in place to ensure businesses couldn’t just call themselves banks without meeting criteria designed to protect people and their money.  Now, instead of protecting consumers, the advisory from the OSFI is creating confusion and casting doubt on the legitimacy of credit unions. 

Currently, more than 5.6 million Canadians trust credit unions for all manner of financial services. In Ontario alone there are 94 credit unions and caisses populaires with 608 branches, which is the most for any province.  Here in the north, where bank closures are an unfortunate part of modern business practices, credit unions often fill the void that is created when the big banks leave town.  This helps to maintain crucial business sections in a community as banks and credit unions can act like an anchor for other businesses. This has happened in numerous locations across Algoma-Manitoulin-Kapuskasing in recent years. Additionally, credit unions routinely give back to the communities in which they operate.    

That’s why New Democrats are calling on the government and specifically, the Minister of Finance to step in and bring some common sense to the situation.  We believe that it is possible to fix the legislation so that it protects consumers from shady operations while respecting the good work that credit unions do in Canada. We are also concerned that applying the advisory to credit unions will create a competitive disadvantage for these financial institutions.

If the OFSI advisory is applied without changes or exemptions, it is estimated that credit unions will be on the hook for approximately $80 million dollars to comply with the regulations.  That is what it’s expected to cost if these institutions are forced to make changes to signage, websites, and legal documents.  Add to that the difficulties and cost associated with finding new ways to describe banking without using the terms in question. There is no way the burden won’t then fall to the consumers.  What makes it unfortunate is that the whole exercise is totally unnecessary since credit unions have a long and stable history in Canada.

Clearly there is room for the government to intervene and work toward a compromise that will protect consumers from organizations that are not banks while allowing credit unions to use common place terms that describe the financial services they offer – like they have for the 80 years this law has been on the books.  That’s why New Democrats are echoing the call of the Canadian Credit Union Association to find a prompt solution that will allow these institutions to continue with the use of these everyday terms.  It is hoped the government will announce their intention to do so before the advisory begins to cost credit unions and ultimately, consumers.