INCOME TAX PREPARATION
Coercive Tied Selling
Coercively SELLING TIED financial products
such as RRSPs and bank loans illegal in Canada
WHAT DO YOU NEED TO KNOW?
The Bank Act of Canada requires banks to inform customers in plain language that coercive tied selling is illegal. To comply with the law, President's Choice Financial has created this article to explain: what coercive tied selling is, AND, what coercive tied selling is NOT. And how to Canadian consumers can get more information if you have any questions, complaints or concerns.
WHAT IS COERCIVE TIED SELLING?
Coercive tied selling is illegal and is prohibited under Section 459.1 of the Bank Act. More specifically, it is against the law for a bank to "impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank". You cannot be unduly pressured to buy a product or service that you don't want from a bank or one of its affiliates, to obtain another bank product or service.
The following two examples will help to explain coercive
tied selling and what is not allowed. Your bank's mortgage
specialist tells you that you qualify for a home mortgage.
However, you are also told that the bank will approve your
mortgage only if you transfer your investments to the bank or
its affiliates. You want the mortgage, but you do not want to
move your investments.
You are advised that you qualify for a Registered
Retirement Savings Plan (RRSP) loan. However, you are also
told that the bank will approve the loan only if you use the
money to buy the bank's mutual funds. You want the loan, but
you want to invest the money elsewhere.
Both of the above practices are against the law. If you
qualify for a product, a banking representative is not allowed
to unduly pressure you into buying an unwanted product or
service as a condition of obtaining the product you want.
WHAT IS NOT COERCIVE TIED SELLING?
Some businesses look for tangible ways to show their interest in your business and appreciation for your loyalty. Sales practices, such as preferential pricing and bundling of products and services, offer potential and existing customers better prices or more favorable terms.
These practices should not be confused with coercive tied
selling, as defined by the Bank Act. Many of these practices
will be familiar to you in your dealings with other
Preferential pricing means offering customers a better
price or rate on all or part of their business. For example, a
printer offers a lower price for each business card if you buy
a thousand cards instead of a hundred. A shoe store offers a
second pair of shoes at half price. Similarly, a bank may be
able to offer you preferential pricing - a higher interest
rate on investments or a lower interest rate on loans - if you
use more of its products or services.
The following two examples will help to explain
preferential pricing in banks.
After approving your application for a home mortgage, your
bank's mortgage specialist tells you that this mortgage would
be available at a lower interest rate if you transferred your
investments to the bank or its affiliates.
After approving your application for an RRSP loan, you are
offered a lower interest rate if you use the loan to buy the
bank's mutual funds.
The above practices are acceptable. The approval of your
mortgage and RRSP loan is not conditional on your taking
another bank product or service. Rather you are offered
preferential pricing to encourage you to give the bank more
BUNDLING OF PRODUCTS AND SERVICES
Products or services are often combined to give consumers
better prices, incentives or more favorable terms. By linking
or bundling their products or services, businesses are often
able to offer them to you at a lower combined price than if
you bought each product on its own. For example, a fast-food
chain advertises a meal combination that includes a hamburger,
fries and a drink. The overall price is lower than if you
bought the three items separately.
Similarly, banks may offer you bundled financial services
or products so that you can take advantage of package prices
that are less than the sum of the individual items.
The following example will help to explain
the bundling of bank products and services.
You plan to open a bank account that charges you for
individual transactions. You are offered a package of services
that includes a comparable bank account, a credit card with no
annual fee and a discount on purchasing traveler's cheques.
The total price for the package is less than if you purchased
each part of the package separately.
Bundling products in this way is permitted because you have
the choice of buying the items individually or ina package.
o ensure the safety of their depositors, creditors and
shareholders, banks must carefully manage the risk on the
loans and credit cards they approve. The law, therefore,
allows banks to impose certain requirements on borrowers as a
condition for granting a loan - but only to the extent
necessary for banks to manage their risk.
The following example will help to explain how banks manage
You apply for an operating loan for your business. To
manage the risk associated with the loan, your bank requires
your business to have an operating account with the bank as a
condition for obtaining the loan.
The above example is legal and appropriate.
Having your business' operating account at the bank allows
your bank to assess possible risks associated with your
business' cash flow and manage the risk associated with the
INDEPENDENT REVIEW OF COMPLAINT
If you believe that you have experienced coercive tied selling in any dealings with any Canadian bank or lending institution, you have a right to an independent review.
As a Canadian banking customer, you may contact the Financial Consumer Agency of Canada (FCAC). The FCAC supervises federally regulated financial institutions to ensure they comply with federal consumer protection laws. The FCAC also helps educate consumers and monitors industry codes of conduct and public commitments designed to protect the interests of consumers.
Federal consumer protection laws affect you in a number of ways. For example, financial institutions must provide you with information about their charges, interest rates and complaint handling procedures.
For more information, you can reach the FCAC by:
telephone: 1-866- 461-3222
1-866 461-2232, en français
web site: www.fcac-acfc.gc.ca
If you have a regulatory complaint, you can contact the
FCAC in writing at:
Financial Consumer Agency of Canada
6th Floor, Enterprise Building
427 Laurier Ave. West
Ottawa, Ontario K1R 1B9
The FCAC will determine whether the financial institution
is in compliance. It will not, however, resolve individual
Need Canadian Credit Help Now?
Visit our Product
Page for Canadian Credit Services and Suppliers.