Yesterday, I posted some information about some voluntary commitments that the banks had made relating to residential mortgages, powers of attorney and joint accounts. Clearly, the commitments were meant to address two hot topics in the industry, the continuing escalation of house prices, with the resulting high levels of consumer debt, and the aging population. While it is difficult to find fault with any of the commitments that the banks made, or with the Government’s interest in these areas, they mark the third occasion this year where the Minister of Finance used the tool of a voluntary commitment to essentially introduce new regulation.
Why are voluntary commitments a form of regulation? Under the Financial Consumer Agency of Canada Act, the Commissioner of the Agency, Canada’s consumer protection watchdog for banks, has the responsibility to monitor the implementation of any voluntary commitment made by a bank and has the power to examine a bank to determine whether the commitment has been implemented. This is not dissimilar from the responsibility and powers of the Commissioner in respect of any of the consumer provisions of the Bank Act and its regulations. Therefore, voluntary commitments are more than just what the name suggests, voluntary commitments.
A voluntary commitment as a form of regulation has a number of advantages over amending the Act or introducing new regulations. From the perspective of a bank, presumably the bank has much greater ability to influence the scope and language of the commitments than it would have if they were imposed as requirements under a new law or regulation. Further, although the implementation of the commitments are overseen by the Commissioner, they do not fall under the penalty provisions of the Act as they would if they were a new statutory consumer provision.
Similarly, there are advantages for the Minister. Presumably, it takes less time to negotiate a voluntary commitment than it would to introduce a new law and follow the full parliamentary process. Further, as the banks that give the commitment are part of the process, there should be high level of buy-in from the industry.
However, voluntary commitments do have some apparent drawbacks. For example, unlike a law or a regulation, a commitment applies only to those banks that sign on. The annoucement relating to the most recent commitments stated that the commitments are from “eight major banks” and “smaller banks”. However, neither the eight banks nor any of the smaller banks are mentioned by name. A voluntary commitment released in May of this year relating to low-cost and no-cost bank accounts stated that it was from the eight largest banks with no mention of the smaller banks. How then is a consumer to know if their bank has made a particular commitment?
Unlike a voluntary commitment, new laws and regulations are subject to public review and comment before they are made law. This transparency protects both consumers and banks by allowing them a full opportunity to review and comment on the proposal in public.
Formal voluntary commitments have been used sparingly in the past. Since 2001 when the concept of a voluntary commitment was introduced into the Financial Consumer Agency of Canada Act, there have been only nine commitments relating to banks, three between 2001 and 2009, one in 2010, two in 2012 and now three in 2014. Seeing regulators and the industry work together cooperatively to devise new protections for consumers is certainly a good thing. However, it will be interesting to see whether this is a new trend in regulation or only an unusual blip.