The Canadian banking industry is shocked that the government is moving to prohibit the banks from marketing insurance on their websites without consulting consumers or the industry.

On Wednesday, federal Finance Minister Jim Flaherty said he had written the banks telling them to stop marketing their insurance activities on the bank websites, and said he intends to pass legislation to make the practice illegal in the future.

The Canadian Bankers Association issued a news release in reaction to the decision.

“We are completely shocked that Mr. Flaherty would want to limit how and where consumers can access information about insurance,” the association said. “Further, Mr. Flaherty has taken this step without any public consultations with Canadians or the banking industry.”

The CBA also criticized the timing of the announcement.

“In the middle of an economic crisis, when others including Canada’s banks are working cooperatively with government and all parliamentarians, is no time to surprise Canadians with changes that limit access to basic financial products,” the association said.

Consumers will be the ones to suffer as a result of the new legislation that Flaherty intends to introduce, according to the CBA.

“It is clear that the losers here are consumers, who will be denied access to the information they need to make informed financial decisions.”

The association noted that for years, the Bank Act has allowed the banks’ insurance company subsidiaries to provide insurance to their customers over the Internet. In June, the Office of the Superintendent of Financial Institutions looked at the issue and ruled that a bank website is not a bank branch, and that banks are in compliance with the Bank Act when they promote insurance products on their websites.

“We heard no concerns from the government when OSFI issued its ruling,” the CBA said.

But the Independent Financial Brokers association said it has received numerous complaints from members as the banks’ online presence has grown. It argues that the definition of a bank branch should include ‘virtual’ branches, and applauds the government’s decision.

“We are pleased that [the Finance Department has] agreed that virtual branches are indeed regulated and should be treated the same as physical structures,” said the IFB.

The association argues that the banks have been pushing the boundaries of existing legislation by opening insurance branches adjacent to bank branches and by marketing insurance to consumers on their bank websites.

“They have purposely obfuscated the lines of differentiation for consumers, for their own gain,” said the IFB.

“We welcome this Minister’s position and look forward to a more level playing field of competition – one where we all play by the same rules.”

IE