The Spirit of the Law

The last few months have proved to be quite busy on the public square, with discussions going back and forth on the issue of banks and insurance.

As the ultimate consumer advocate, we brokers are a little surprised at some of the erroneous and factually dishonest comments that have been made on this issue. I’d like to take a few paragraphs to set the record straight.

People, mainly from the banking sector, have thrown around such phrases as “we abide by the spirit and intent of the legislation” when it comes to Canada’s banks promoting insurance products online, in adjacent insurance offices and in the bank branch. Well, I think it would be worth- while to remind ourselves about the actual spirit and intent of the legislation.

Section 416 of the Bank Act states: “A bank shall not undertake the business of insurance except to the extent permitted by this act or the regulations.” From this section, we take away the principle that a bank shall not undertake the business of insurance, followed by certain specific exceptions.

The intent and spirit of the law is clear. It is outlined in simple terms in this section.

Now let’s examine the activities being undertaken by banks and see whether they fall under this principle.

First, the Insurance Brokers Association of Canada (IBAC) has information that leads brokers to believe that banks are promoting auto and home insurance policies in their branches. Clearly this goes against the principle outlined above, since the Bank Act contains a specific prohibition against such activity (Section 416.2).

Secondly, banks are building insurance offices adjacent to bank branches, causing consumers to believe they are one. At the same time, this activity creates the impression that the insurance office and branch are separate and distinct, so that regulators are led to believe the Bank Act prohibition noted above does not apply. This also goes against this principle.

Thirdly, banks are promoting insurance on their bank Web sites, along with promotions on their ATMs. These also go against the principle that banks are not to undertake the business of insurance except in exceptional circumstances defined by law.

How is anyone to believe that these activities are in line with this section of the act?

The banking community in Canada has recently made curious comments on this. Chris Hodgson, head of Canadian banking for Scotiabank, said in a Globe & Mail story published on Aug. 19, 2009: “I think at some point it’s inevitable that broader financial institutions will be involved in insurance in a broader way. It’s coming, it’s just a question of timing.”

I’m astounded to see that bankers in Canada have crystal balls that predict the future when it comes to legislation. Nor did I know that they now drafted and passed legislation, and not the elected Parliament of Canada.

Statements like Mr. Hodgson’s show bankers’ complete ignorance of the current legislation and contempt for the legislative process of the Canadian Parliament. Their actions suggest a cavalier attitude towards concepts such as the rule of law.

We believe government should take this responsibility seriously and put in place a regime that will not allow activities that are contrary to the intent of the law to continue. Consumers are at a major disadvantage when insurance products are peddled at the point at which credit is granted. Parliament realized this many years ago and put this principle in legislation. It is now time for this intent to be properly enforced.

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I’m astounded to see that bankers in Canada have crystal balls that predict the future when it comes to legislation. Nor did I know that they now drafted and passed legislation, and not the elected Parliament of Canada.