Correcting the Record (July 01, 2006)

Some time ago, the Canadian Bankers Association (CBA) requested we “correct” an online news piece published on the Canadian Underwriter (CU) Web site. The article was about a Supreme Court challenge related to the sale of creditor insurance in Alberta bank branches.

In Canada Western Bank v. Alberta, eight major banks asked the Supreme Court of Canada to reverse rulings made by the Alberta courts. They want the nation’s highest court to consider the following question: Does Alberta legislation regulating insurance agents apply to federally-regulated banks that promote the sale of insurance to their customers?

Thus far, the Alberta courts have said yes, but the banks say no.

The banks took issue with two statements contained in CU’s online item.

(1) CU News item: “The court action focuses on insurance restrictions in Alberta, but banks want other provinces to relax regulations that prevent them from selling insurance through branches.”

CBA: This statement falsely implies a connection between the banks’ lobby in the Bank Act and the issue in the Alberta case, which is “really just a jurisdictional issue for us.” There is no connection between the two issues, the CBA says.

(2) CU news item: “Currently under Canada’s Bank Act, which is up for review this year, banks can promote insurance through the mail and the Internet but not within their branches. Bank leaders have called publicly over the past month for removal of these restrictions.”

CBA: Not true. The CBA is not calling for changes that would allow banks to retail insurance products in their branches. The CBA believes banks should be allowed to promote information about – but not sell – insurance products within their branches.

Of course while were busy “correcting” the public record, let us recant in advance some other, entirely groundless observations. We withdraw in advance, for example, any suggestion the banks’ lobby during the Bank Act review would benefit from a Supreme Court of Canada decision that upheld the banks’ central argument in the Alberta case.

Let’s say the Supreme Court agreed with the banks’ lawyers that promoting (creditor) insurance is integral to banking. Would bankers ever dream of taking this enduring legal pronouncement back to the politicians during the heat of the Bank Act lobby? We doubt it, and so consider the statement retracted. The Supreme Court case is just a “jurisdictional issue,” after all. It’s about whether banks should follow the same rules as insurers when promoting creditor insurance in Alberta bank branches and is therefore wholly unrelated to the Bank Act issue, which is about the banks being allowed to promote insurance information in their branches.

Still, it is interesting to read the Alberta judgments because it’s worth knowing how the banks’ lawyers argued the case. One of their central arguments was that banks had an “inter-jurisdictional immunity” from the Alberta regulatory regime. In other words, if promoting (creditor) insurance is essential to what banks do, then this “banking” activity should be regulated by the federal government (which regulates banks) and not the province (which regulates insurance). To succeed in this argument, the banks’ lawyers had to prove the promotion of insurance is essential to banking.

The trial judge’s response to the banks’ argument was pretty blunt: “From the perspective of the banks, the primary purpose of insurance would appear to be to generate profits for the bank,” Queens Bench of Alberta Justice F.F. Slatter noted in his judgment. “The promotion of insurance is not a part of the credit decision to the bank.”

Ouch! So much for the banks being able to take the Alberta decision to the finance minister during the Bank Act lobby.

Actually, one last “correction” to make: Apparently not all bank presidents agree with the CBA’s more moderate public position on the Bank Act (suggesting the CBA needs to do a better job at keeping the banks’ representatives “on message”). The desire to gain competitive advantage being what it is today, its fair to say bank presidents and CEOs would probably sell insurance products in their branches if they had the chance; they don’t want to stop at merely “promoting insurance information.” If that’s all they get this time around, then expect banks to argue during future Bank Act reviews that it isn’t logical to “offer information” about insurance without being able to sell it. If we turn out to be wrong about this prediction, we will gladly take the CBA’s next call demanding another “correction.”