Canadian Banks Urged To Cut Rates, Suspend Payments As Profits Soar

Canada’s major banks are making bigger profits today than they were before the COVID-19 pandemic, and some consumer advocates say they should be carrying more of the cost of supporting struggling households and businesses.

They are calling on Canada to follow Australia and Britain’s lead in charging “excess profit” taxes on banks, while urging lenders to cut their customers a break in a time of crisis.

As of midday Friday, nearly 80,000 people had signed a petition organized by Democracy Watch calling on the banks to halve their interest rates to consumers and suspend debt repayments for anyone who needs it. 

The petition also calls for a cap on bank CEOs’ salaries, and for independent audits of banks’ books to see how much profit they charge in each section of their business a move consumer advocates say would expose “gouging” where it exists.

Watch: Canada’s banking industry ‘not motivated to innovate.’ Story continues below.

Credit card interest rates are “so obviously an area of gouging,” said Duff Conacher, co-founder of Democracy Watch. “The (banks’) prime lending rate has gone down by almost seven percentage points since 2010, and credit card rates have dropped zero percentage points.”

Canada’s big six banks raked up a total $13.9 billion in profit in the first quarter of fiscal 2021, which ended Jan. 31, up some 14 per cent from the same period a year earlier, before pandemic lockdowns had begun.

Each of the Big Six saw their profits rise, led by CIBC (up 34 per cent) and Bank of Montreal (up 27 per cent).

Much of that increase came from trading thanks to a booming stock market and from much lower provisions for loan losses. Retail banking the part of banks’ business that deals with regular consumers showed little growth over the year.

Some progressive voices, such as the NDP, have suggested a temporary “excess profit tax” on businesses that see a windfall during the pandemic. Conacher would like to see a permanent new tax on banks, similar to the ones the U.K. and Australia have instituted in recent years.

The U.K charges an 8-per-cent surcharge on bank profits, while Australia in 2017 launched an additional tax on the total amount of lending on the books of its big four banks, amounting to about 10 per cent of their profits.

Laws like that are “a way of recognizing that the banks have enormous market share and are gouging,” Conacher said.

Rather than an arbitrary cap on credit card interest rates, as some U.S. states have done, Conacher would rather have the banks submit to independent audits of their books that would show exactly how much money they make in each section of their business, something they don’t need to do under current reporting laws.

“If an auditor-general released a report showing a 2,000-per-cent profit margin (in some part of a bank’s business), people would be outraged. Interest rates would come down the next day,” Conacher told HuffPost Canada.

Canada’s lenders offered some emergency support to their retail customers at the start of the pandemic, dropping credit card rates to around 11 per cent, from their regular 20-per-cent range, for customers in financial trouble. 

They also allowed deferrals of up to six months on mortgage payments, which 15 per cent of mortgage borrowers took advantage of at the peak last summer. But interest continued to accrue on those mortgages, meaning those borrowers will end up paying more than they otherwise would. 

Discrimination in lending

Democracy Watch is also calling on Ottawa to catch up with the U.S. on laws against discriminatory lending practices. 

The group is calling for audits of banks to reveal lending according to race, gender and neighbourhood.

If that happens, “I think we’ll find discriminatory patterns of lending based on race, including (against) Indigneous people, and based on gender,” Conacher said.

“And you’ll see that banks essentially do take money out of some neighbourhoods and don’t lend back to them.”

Conacher notes Canada has no equivalent to the U.S. Community Reinvestment Act, a 1977 law that requires banks to reveal how much lending they do in low-income neighbourhoods, and to rectify the situation if they are not reinvesting in certain communities where they have customers.

Conacher is calling on the federal government to require banks to reopen branches in low-income neighbourhoods, which they were allowed to close in the 1990s under then-Finance Minister Paul Martin.

Those bank branches were often replaced by predatory payday lenders, Conacher said.

“You go around Toronto, a lot of the Money Marts are in former bank branch locations. They just stepped right in. It’s just ridiculous.”

Finance Minister Chrystia Freeland’s office did not immediately respond to a request for comment for this story.

The federal Liberals have taken some flak from the left on the issue of banks, with the NDP last summer saying the government has done little to stop banks from “profiteering” amid the pandemic.

“During the Second World War, there were laws against profiteering,” NDP Finance Critic Peter Julian said. “We need similar leadership from the federal government at this critical time.”