TORONTO â€” Canada's financial consumer watchdog is launching a review of business practices among the major banks following reports citing unnamed employees who alleged the lenders were signing customers up for services without their consent.
Lucie Tedesco, commissioner of the Financial Consumer Agency of Canada, said Wednesday she is concerned by the accusations and issued a statement reminding the lenders of their obligations to obtain prior consent before increasing credit limits and providing clients with new products.
"Financial institutions' compliance with these rules is non-discretionary and the message must be disseminated from the boards of directors on down to customer-facing staff," Tedesco said.
"Through the industry review we are announcing today, we will examine financial institutions' business practices in relation to express consent and disclosure, including the identification of any factors that may be contributing to non-compliance."
The review, which is set to begin next month, comes after the CBC reported that some employees from Canada's five biggest banks alleged that they felt pressured to upsell, trick and even lie to customers to meet sales targets that were unrealistic.
TD (TSX:TD), the focus of early stories about the issue, has said it doesn't believe the reports accurately reflect the bank's workplace.
Scotiabank (TSX:BNS), Royal Bank (TSX:RY), CIBC (TSX:CM) and the Bank of Montreal (TSX:BMO) said in emailed statements that they put clients' needs first, they regularly seek feedback from their employees and customers, and work to resolve any issues.
"While there will be instances in which we make mistakes, we will always be committed to working with our employees and our customers to make things right," Scotiabank said in its statement.
The Canadian Bankers Association said its member banks will co-operate "fully and constructively" with the review.
"We are confident that the banks' strong policies, procedures, and controls are functioning well," the association said in an email.
Edward Jones analyst Jim Shanahan likened the situation to similar allegations facing Wells Fargo last year. In that case, the U.S. bank issued an apology and paid large penalties after regulators concluded that its employees had opened millions of unauthorized accounts and credit cards on behalf of clients.
"I can't remember ever hearing of anything of this magnitude happening in Canada," Shanahan said. "It hasn't reached scandal proportions yet, but it's certainly blowing up."
Shanahan said banks are feeling intense pressure from investors to continue growing their earnings and profitability in spite of headwinds such as rock bottom interest rates and higher capital requirements. That pressure trickles down to executives and, ultimately, customer-facing sales representatives, Shanahan said.
"I don't think we've heard the worst of this yet. This is going to probably get a lot worse before it gets better."
The financials sector was down 0.28 per cent on the Toronto Stock Exchange in early afternoon trading Wednesday, with all five of the major Canadian banks in the red.
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Alexandra Posadzki, The Canadian Press