Canadian credit unions are looking forward to Ottawa opening the doors for competition in the financial service sector so they can face the big banks.
The optimism comes as Prime Minister Mark Carney’s federal budget, which was narrowly passed on Monday, signaled it wants to boost competition in financial services, a much sought after move by credit unions.
If successful, this move could finally give lending institutions a meaningful foothold in the national market that is dominated by a handful of players, Michael Hatch, vice president of government relations for the Canadian Credit Union Association (CCUA) told BNN Bloomberg on Tuesday.
“The budget bill that we saw last night is a first step in terms of starting that process, and we’re very encouraged by it,” said Hatch.
While no legislation has been introduced, the federal budget released on Nov. 4 included early steps toward reviewing the framework that governs how provincial credit unions can become federally regulated institutions.
A federal framework, created in 2012, for provincial credit unions to operate nationally already exists, but Hatch argues the process is so costly, complex, and time consuming, that it is barely used.
“Now what we see is finally a federal government and a regulator, frankly, willing to look at this process to make it a little bit simpler, not to lower the standards necessary to join the federal market,” said Hatch.
There are three federally regulated credit unions in Canada: UNI Financial Cooperation, Coast Capital Savings, and Innovation Federal Credit Union.
The CCUA represents approximately $301 billion in assets, and provides services to 187 credit unions in Canada outside of Quebec.
Competition as a cost-of-living tool
Hatch argues the government has limited direct levers to lower prices in sectors like cost of living, groceries and travel.
And while there is no ‘magic wand’ to reduce prices, competition helps.
“If you increase competition, that will have a downward impact on prices and inflation over time. And that’s one no-cost option that’s available to the government,” said Hatch.
The Competition Bureau has taken a similar stance.
In a submission last year, the watchdog warned that Canada needs more robust competition in financial services, stating “the need to strengthen competition is especially important in the financial sector, where borrowing costs have rapidly increased to their highest levels in a generation.”
Hatch said while the bureau’s role is to look at mergers and consolidation across sectors, consolidation looks different for credit unions which are owned by the people who bank with them.
He said while mergers often reduce consumer choice in other industries, credit union consolidations are necessary to build the scale required to compete with the country’s largest banks.
“So whereas mergers and consolidation can often be seen as associated with a reduction in consumer choice, the opposite is true in our case, and that is a case that we’re making,” Hatch said.
A major lender to small businesses
Credit unions collectively are the largest lender to small businesses in Canada, according to Hatch, who said the sector’s community presence and local decision-making give them an advantage over larger institutions.
“If you’re a barber shop or a laundromat or a restaurant in Swift Current, Saskatchewan or Sydney, Cape Breton, and you’re dealing with a credit union, you don’t have to wait for a lending decision to come down from HQ on Bay Street in Toronto,” said Hatch.
Credit unions operate from 2,214 locations in Canada and are the only physical financial institutions in 380 Canadian communities according to the CCUA. They also represent 16 per cent of the market share in mortgage lending and support 277,000 small and medium-sized businesses.
“We punch above our weight in terms of small business lending,” said Hatch.
“It’s a hugely important component of our membership base.”
