Canadian credit un-
ions welcome a proposal to reduce to two from 10 the number of credit unions required to form a co-operative credit association.

Co-operative credit associations are federally incorporated financial institutions that can serve members across provincial borders.

With the proposed change, the potential exists for two or more credit unions in different provinces to come together to form a third institution that could offer products and services nationally. Right now, credit unions, which are provincially regulated, are limited to operating in their home province.

The proposal is contained in the 2006 Financial Institutions Legislation Review, a white paper recently released by the federal government.

“We support the proposal to reduce it to two,” says Art Chamberlain, spokesman for Toronto-based Credit Union Central of Canada.

“There has been a sense that a co-operative credit association is one of the ways to get around the interprovincial expansion barriers,” he says. “But because of the number of credit unions it took to set up an organization, it wasn’t a very attractive option. Now that we’ve seen the recommendation for the number to be lowered to two, we’re saying, ‘Yes, we’re supportive of that’.”

Only one such association exists: Saskatchewan-based Concentra Financial, which primarily provides wholesale banking products and services to credit unions.

Credit Union Central of Canada also supports a second white paper proposal that would allow any co-operative credit association that does not accept retail deposits to opt out of membership with Canada Deposit Insurance Corp. Concentra, the only such existing association, doesn’t accept retail deposits; nevertheless, it still has to belong to CDIC, imposing a seemingly unnecessary cost burden.

Insurance advisor groups also are happy with the white paper. In particular, they support government proposals to harmonize disclosure obligations for the branches with online banking, and to improve disclosure of complaint-handling procedures.

The document avoids the hot-button issues of bank mergers and selling insurance in bank branches. These issues would be dealt with in a specific review of the federal Bank Act. Such a review was to have been completed by the end of October, but the federal government extended that October deadline to April 24, 2007.

In a July 21 letter responding to the white paper, Advocis president Steve Howard wrote: “We are pleased that the government does not include specific proposals to amend the insurance business regulations made under the Bank Act to grant banks expanded powers beyond what currently exist in the area of life and health insurance marketing and distribution.”

John Whaley, executive director of the Independent Financial Brokers of Canada, expressed similar sentiments about encroachment by the banks in a letter to the review committee in May.

“There has always been the concern that bank customers will feel pressured into purchasing insurance products because of the creditor/debtor relationship,” Whaley wrote.

The banks will make their case “when there’s an opportunity,” says Caroline Hubberstay of Toronto-based Canadian Bankers Association.

With files from Stewart Lewis