Academic journal article Texas International Law Journal

Consumer Protection Issues and "Non-Banks": A Comparative Analysis

Academic journal article Texas International Law Journal

Consumer Protection Issues and "Non-Banks": A Comparative Analysis

Article excerpt

TABLE OF CONTENTS

INTRODUCTION.................... 328

I. 2008 FINANCIAL CRISIS RESPONSE....................329

A. Historical Underpinnings....................329

B. Structure....................330

II. WHO REGULATES NON-BANK FINANCIAL INSTITUTIONS?....................332

III. THE NEED FOR EFFECTIVE REGULATION....................333

IV. The Office of the Superintendent of Financial Institutions (OSFI)....................334

A. Background....................334

B. Structure....................335

C. OSFI Intervention....................336

D. OSFI's Definition of Bank....................339

V. CANADIAN DEPOSIT INSURANCE COMPANY (CDIC)....................340

A. History....................340

B. Resolution Tools....................340

VI. FINANCIAL CONSUMER AGENCY OF CANADA....................343

A. History....................343

B. Oversight Role....................344

C. Shift to Supervisory Framework....................346

VII.CONSUMER FINANCIAL PROTECTION BUREAU.................... 348

A. History....................348

B. Role....................348

C. Complaint Database.................... 350

D. Shortcomings.................... 351

VIII. CANADA V. THE UNITED STATES.................... 353

CONCLUSION.................... 354

INTRODUCTION

The same millennials who spend all their money on avocado toast might not be looking to traditional banks to obtain mortgages or invest their limited funds because they don't have the requisite credit scores or resources to save money. This generation has also seen too many movies about Wall Street disasters and may have decided they don't want to give Leonardo DiCaprio money to "buy wolves." They've been working any number of jobs that don't offer pensions or benefits; they often live paycheck to paycheck; and the prospect of borrowing money from or depositing money at a mainstream bank when they need to eat lunch today or pay rent right now seems impossible. Non-bank financial institutions fill a big gap for millennials and others without a long and consistent credit history and confidence in capital markets. However, as will be shown in this article, non-bank financial institutions conduct business in Canada with far less oversight relative to their bank counterparts as a result of sweeping and loosely-worded regulation. An ineffective regulatory system leaves the door open to egregious violations slipping through the cracks without prompting formal inquiries into misconduct.

The 2017 Canadian federal budget, together with the Home Capital crisis, reignited discussion surrounding financial institutions and the regulations that govern them, which were last front and center following the 2008 financial crisis. Canada and the United States share numerous commonalities between their banking systems, but responded differently to the 2008 financial crisis. Nearly a decade later, both countries have had vastly altered results as a by-product of these regulatory happenings impacting both bank and non-bank financial institutions, but more importantly, the consumers who rely on these institutions. This article argues that more work on the Canadian regulatory framework for Canadian non-bank financial institutions is necessary, at least from a consumer protection perspective. For the purpose of this article, non-bank financial institutions are broadly defined to include all prudentially regulated non-bank deposit-institutions. The primary focus is on provincial credit unions and trust and loan companies but also includes other financial service providers, such as financial technology companies. Each of these institutions is subject to other forms of provincial and federal regulation, but the focus for this article is on the federal financial regulatory framework for financial institutions. This article suggests that the post-2008 American regulatory approach, which is now threatened to be rolled back by the current administration, offers a good model to ensure that Canadian non-bank financial institutions are more heavily scrutinized, and thus, ultimately Canadian consumers are better protected. …

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