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Federally regulated credit unions to help or hinder consumers?

Gail Johnson

With nearly one-third of Canadians belonging to either a credit union or a caisse populaire, the move to federally regulate credit unions will have a lasting effect on a broad swath of Canadian consumers seeking an alternative to Canada's Big 5 banks.

Currently, credit unions are provincially regulated. Once the recently passed legislation comes into effect, credit unions will have the option of falling under the federal Bank Act, just like the nation's banks.

"This will make it easier for credit unions to operate across the country and for consumers to access their services," says Dave Schurman, FirstOntario Credit Union's executive vice president and COO.

Here's an example: right now, if you live in British Columbia but end up moving to Alberta, you'd have to find a new credit union to join. But with the new rules, you'll simply be able to find a local branch, just as you would with a bank.

Federal regulation means more consumer protection

Should a credit union opt in to federal regulation, more consumer safeguards could arise as these institutions will likely fall under Federal Consumer Agency of Canada, which seeks to protect consumers by ensuring the conduct of financial institutions comply with federal regulation and legislation.

Federal credit unions will continue to function under the same co-operative spirit that made them a popular banking option, maintaining such principles as:

  • each member has one vote
  • services are primarily for members
  • open membership

But make no mistake about it: Your credit union is going to get bigger and consolidation will continue to be the new norm.  The 10 largest credit unions now represent 41 per cent of credit union system assets, according to the Government of Canada.

More Canadian seeking banking alternatives

The changes come at a time when more than 10 million Canadians belong to a credit union or caisse populaire. Many people turn to credit unions because they've had enough of paying high monthly banking fees only to hear about staggering bank profits -- $7.76 billion in the third quarter of 2012, for instance.

"We have a very strong banking system in Canada, so banks are important," Schurman says. "But they're companies designed to make money while credit unions are designed to provide financial services at a fair price.

According to a survey conducted earlier this year by FirstOntario Credit Union, the average Canadian has been with the same bank for more than 15 years, yet more than 40 per cent of those surveyed are unhappy with the service fees their bank charges them.

"Credit unions got started in the early 1900s because people wanted to take their financial affairs into their own hands," he adds. They're owned by members, who elect a board of directors and an audit committee. As a public corporation, a credit union is required by law to hold an annual meeting to report to its shareholders. "They're owned by the community of which they're a part."

More competition for big banks

Just how the new rules will affect big banks remains to be seen.

"For banks, the impact is unclear at this point," says Maura Drew-Lytle, the Canadian Bankers Association's director of media relations and communications. "If anything, it would mean more competition in the marketplace and more choice for consumers, something we are in favour of."

Marion Wrobel, the CBA's vice-President of policy and operations, spoke at the House of Commons Special Committee on Cooperatives in July, when the legislation was passed.

"A strong and healthy financial system is the cornerstone of a strong economy and the CBA believes that credit unions are an integral part of a strong and competitive financial system," she said. "The CBA strongly supports the federal government's efforts at establishing a legal framework for credit unions to be incorporated and regulated at the federal level.

According to Wrobel, credit unions account for 15 per cent of deposits, 12 per cent of residential mortgage originations, and 19 per cent of lending to small and medium-sized enterprises across the country.

Oct. 18 is International Credit Union Day, when credit unions around the world will be celebrating the credit union movement and educating people about the differences between credit unions over big banks.