The financial services industry loves the fact that people need mortgages, car loans and investments. But, because these are necessities rather than luxuries for most people, consumer protection must be robust. Unfortunately, policy-makers seem short of ideas for sensible safeguards.

In June, the standing Senate committee on banking, trade and commerce finally handed down its report examining consumer protection in the financial services sector, an issue it had been studying and holding hearings on since late 2004.

The report spells out 20 recommendations for ways to improve consumer protection. Many of them are too familiar (such as calling for a single, national securities regulator); others are more original; but most of them are woefully banal. And, of course, many of the recommendations will be ignored. The ones that will be acted upon may provide some incremental improvement in consumers’ situations, but they don’t hold much of a solution to the industry’s real consumer protection problems.

A number of the recommendations focus on improving consumer education and enhancing industry transparency. The report calls for co-operation among governments, schools, consumer groups and the Financial Consumer Agency of Canada to develop a model curriculum on a host of consumer issues, including financial ones. It also recommends increased funding for federal departments that provide consumer education, and possibly for the FCAC.

Along with improving consumers’ knowledge, the committee proposes that the industry be pushed to provide better information. It recommends that the federal government meet with financial institutions to try to get the latter to produce clear and concise contracts, and that the government work with financial advisors to ensure that information about their compensation is adequately disclosed.

Transparency and education are both good, and more is certainly better. But these sorts of measures are not going to do much for consumer protection. Improving education and transparency is easier said than done; securities regulators have tried for years to improve transparency in the investment funds industry without success.

These may be nice ideas, but they can’t be expected to affect the balance of power between the average consumer and a sophisticated, well-resourced industry. Although it helps to take baby steps in the right direction, it is naive to imagine that producers and consumers are ever going to be on an even playing field.

Given the unavoidable information asymmetry, disputes between the industry and consumers are inevitable, so dispute resolution is a critical consumer issue. Indeed, the Senate committee notes that the existing redress mechanisms are perceived to be “needlessly complex, hard to access and unsatisfactory in their outcome.” It adds that, although the perception may not be accurate, until these systems are perceived as being straightforward, fair and accessible, “they will fail to assist consumers of financial services in the manner that they should.”

In an effort to resolve some of these complaints, the report recommends consolidating the three existing ombudsman’s services into a Financial Services Ombudsperson agency, to be appointed by June 30, 2007. It also lays out a series of guidelines for the new agency designed to ensure the service’s independence, transparency, accessibility and efficiency.

However, the guidelines don’t change the fundamental function of the existing services. The FSO would still issue non-binding recommendations; its only real power would be to disclose when a firm doesn’t follow its decision.

It is hard to see how streamlining the existing ombudservices into a single body without fundamentally changing the mechanism in favour of consumers would do much to alter consumers’ perception of a system that they believe is flawed. Indeed, the industry has already proposed consolidating the ombudservices as an efficiency measure of its own.

It appears that consumers who hope for a dispute resolution system they can believe in are going to have to keep waiting. The perceived lack of fair, accessible restitution is a key consumer complaint, particularly in the securities industry — yet it is an issue that policy-makers appear unable, or unwilling, to address.

Back in 2004, Ontario’s standing committee on finance and economic affairs recommended that the government and securities regulators work together to develop a better system for restitution, but the provincial government has yet to act upon its promise to follow through on the proposal.

Another unfulfilled recommendation from the SCFEA report is for a review of self-regulation. The Senate committee also recognizes a lack of confidence in self-regulation, and it acknowledges that industry regulation is generally fragmented, complex and unintelligible to the average consumer. Yet it hopes to address this simply by calling for governments to meet with the self-regulatory organizations to ensure they are minimizing conflicts and providing consumer protection.

@page_break@A similarly vapid recommendation is directed at the insurance sector, in which the committee calls on the FCAC and Industry Canada to meet with the industry on an ongoing basis to ensure that insurance products “meet the needs of Canadians and Canadian businesses in terms of availability, cost and coverage.” If only it were that easy.

In addition, the Senate committee report calls for studies into reasonably priced credit, a review of the barriers to entry to foreign competition and a study of alternative financial services providers (such as the “payday loans”). It wants more study and more resources directed at prosecuting corporate crime, and greater financial support for the RCMP’s so far unproductive integrated market enforcement teams. The committee says it “believes that, in some sense, criminal prosecution is the ultimate form of consumer protection.” IE