An unprecedented government response for economic relief has been rolled out quickly with many of the details evolving as the programs unfold. Eliminating the two-week waiting period for Employment Insurance was timely and justified.
The Canadian Emergency Relief Benefit (CERB) is a positive response to a desperate situation. Increasing the Canadian Emergency Wage Subsidy (CEWS) from 10 per cent to 75 per cent demonstrated the government may be listening.
The Canadian Emergency Business Account (CEBA) is a no-interest loan administrated by the banks of $40,000 with $10,000 of forgivable if paid back within two years for businesses who qualify and wish to take on more debt. Many small mom and pop shops may not qualify for CEBA, or CERB if they have any earnings at all, subject to change.
My primary economic concern, which no one was talking about is that outgoing Bank of Canada (BOC) Governor Stephen Poloz made three 0.5 per cent decreases in the BOC rate after previously refusing to follow drops made in the U.S. pre-pandemic.
Is there another bailout for the banks or economic relief to be passed on to ordinary Canadians?
I will remind you again, prior to the current economic crisis the banks reported successive record profits while household debt was at record levels and interest rates low. None of the major political parties included this in their campaign platform in the last federal election. I have asked my Member of Parliament why his party did not feel this was important to average Canadians and have yet to receive a response. The Royal Bank reported a $9 billion dollar profit for the last quarter with their competitors not far behind. How did they achieve this?
My own experience is telling.
Three years ago, prior to the “Mortgage Shock Test,” I noticed a disturbing trend largely unnoticed, essentially a bait and switch technique on existing debt obtained post-2008 when rates were lowered to encourage personal spending. On a secured loan with the asset worth two to three times the debt, the renewal rate increased from 3.25 per cent to 11.99 per cent, which was credit card rates. I filed a complaint with Scotiabank’s Ombudsman. The process was as frustrating and about as fair as a National Energy Board (NEB) hearing. After considerable time and letter tossing, they reluctantly offered an “expectation rate” of 6.25 per cent, which is still exceptionally high. They refused to offer me a longer tier at that rate to avoid repeating the process at next renewal. Apparently I”m not as rich as they think I am.
Similarly, the Royal Bank increased interest on my line of credit from 6.73 per cent to 12.73 per cent. After complaining, they reduced it to 9.9 per cent. That wandered up to 11.9 per cent before paid out. My current credit rating is “excellent.” Clearly I was not a risk.
I am concerned the 1.5 percent reduction in BOC rate will not be passed on to consumers and is yet another cash grab by the banks. I’ve heard of instances during the pandemic where those applying for loans or mortgages are offered rates bordering on loansharking or payday loans. The interest rate on my latest credit card statements remains unchanged. It is unreasonable for the banks to continue to report exorbitant profits while ordinary Canadians suffer. The April 8 full-page ad in our local newspaper by Neil McLoughlin, Group Head Personal & Commercial Banking, RBC, was inadequate to the point of insulting. I’m suggesting we bring out the pitchforks and burn their branches down just yet, but my points are sharp and ready.
I understand the banks operate at arm’s length from government and are essentially self-regulating. Legislation may be required to reign in the banks and protect consumers. Should there be a moratorium on foreclosures similar to the one enacted in our province for evictions? Should the 1.5 percent reduction in BOC rates be forced to be passed on to LOC’s and credit card rates? Should renewal rates for loans and mortgages be held at current levels minus the 1.5 per cent? Will the “Shock Test” for mortgages be replaced with a pandemic rate?
Fifty years ago my father advised me: “He may shake your hand in his office, wave or smile at your on the street but the banker is not your friend.” Call my old man a liar? Miss two payments during the ordinary times and you will know who your pals are. The bankers have two friends, both named Bill. First one, name Dollar, second name Bill. Second one, first name Bill, second name Morneau.
It’s a brave new world, we’re all in this together, keep your stick on the ice.