Let's Talk: Consumer Protection

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Have you ever felt cheated and you've been treated unfairly by your financial institution? Have you ever wondered what would happen to your money if your bank went bankrupt? Then you've come to the right place. This time, I'm going to explain what protection consumers have to help you better understand what happens when you deposit money in your accounts.

Canadian Deposit Insurance Corporation (CDIC)

This free federal protection covers your deposits at banks who are members of CDIC in the event that it goes bankrupt. This is unlikely because Canadian banks are considered very safe but you never know what could happen in the future. The protection covers up to a maximum of $100,000 per person per eligible account. It should be noted that the maximum limit per eligible account applies as a whole for combined non-registered accounts and not individually. This means the $100,000 coverage is for both the chequing and savings accounts. They DO NOT each get $100,000 coverage. You can use this calculator to find out how much of your deposits are covered. If you are over the $100,000 limit, consider having some of your assets at another member bank insured by CDIC. You can read more about CDIC here. Below is a list of what is and isn't covered:

 Covered:
  • Chequing and savings accounts
  • GICs and term deposits of all time period
  • Joint accounts
  • Eligible TFSA, RRSP, RRIF (meaning no investments in these accounts)
  • Deposits held in trusts
  • Deposits held for paying taxes on mortgaged properties
  • Certified cheques and drafts
  • Money orders
  • Debentures issued by loan companies
  • Foreign currency
Not Covered:
  • Investments in mutual funds, stocks, bonds
  • Cryptocurrency 
  • RESP, RDSP
  • Treasury bills

Changes Effective April 30, 2021

Covered:
  • Eligible RESP, RDSP
  • New requirements for deposits held in trust accounts
Not Covered:
  • Mortgage tax accounts will no longer be considered separate but added under the coverage of combined non-registered accounts like the chequing and savings accounts

 I also want to quickly mention coverage for credit unions. They are all provincially regulated but typically they have an unlimited amount of protection unlike CDIC's $100,000 limit. Their clients may make eligible deposits as much as they want without spreading it out across numerous banks. Personally, if you have that much money, I think you'll be better off investing it rather than letting it sit in a bank account to be insured. Anyways...

Canadian Investor Protection Fund (CIPF)

Similar to CDIC, CIPF insures its members in the event of insolvency. This means they can't pay their debts. CIPF is mostly for your investments at eligible financial institutions, while CDIC is for your deposits at banks. The process to receive your assets is quite simple. You first need to see if the company is a member of CIPF. If it is, you need to meet the requirements to qualify. Then understand what is covered and what isn't. Get in touch with an insolvency official and transfer your assets to another company. It's important to understand that the value of your investments aren't covered. This means if you originally bought 100 shares at $10,000 and the value dropped to $5,000, you would only receive your 100 shares at $5,000. More information can be found on CIPF's website.

 You are Qualified if:
  • You are a client of the company
  • The company becomes insolvent
  • The company fails to return your assets
You are Unqualified if:
  • You contributed to the company's insolvency
  • You are a director, partner or in any other position of control of the company
  • You control 5% of more of the company either through shares or a partnership
  • You are registered with another security regulator


 Covered:
  • cash
  • securities (stocks, bonds, mutual funds, GICs, ETFs)
  • future contracts
  • segregated insurance funds
Not Covered:
  • Losses resulting from:
    • a decrease in the investments
    • unsuitable investments
    • fraudulent or misleading information presented to the client
    • important information not disclosed to the client
    • bad investment advice
    • the insolvency of the company that issued the client their securities
  • Securities held directly by the client through a certificate
  • Other exclusions in CIPF coverage policy

 How Much is Covered:
  • $1 million on general accounts (cash, margin, TFSA) 
  • $1 million on registered retirement accounts (RRSP, RRIF, LIF) 
  • $1 million on RESP where the client is the subscriber (contributor) of the account

Assuris

Similar to the previous two, this federal regulator covers its members in the event that they become insolvent but it only applies for life insurance policies. It's also not an acronym for anything. It's just called Assuris. If the company you are currently with becomes insolvent, Assuris will be there to help you transfer your life insurance to another of its members. More details can be found here. Below is a chart with the benefits covered and the amount.


Ombudsman for Banking Services and Investments (OBSI)

The OBSI is an independent and neutral third party that deals with unresolved complaints between clients and their banks. They are not a regulator like the previous organizations I discussed. This means they cannot force a financial institution to comply with them. They instead either make financial or non-financial recommendations and if the financial institution refuses to comply then they basically, publicly shame them. This can cause the media to pick up the news, which can cause stock prices to fall and other losses in addition to bad publicity. The OBSI actually has a very good record of financial institutions complying with their recommendations, which I believe speaks volumes about how much damage can be done if they are ignored. However, there are usually steps you can take with your bank to hopefully resolve the issue before it becomes that serious. Read more about them in detail here. These are the steps you should follow to escalate your concerns:
  1. Talk to your bank either on the phone or at a branch (I can understand if you have frustrations but don't be rude though).
  2. Escalate the issue with your bank to a higher manager to determine if it can be resolved.
  3. Find out if your bank is a member of OBSI (most likely are)
  4. If they are, call or email OBSI in 90 days if you don't hear back from your bank.
  5. Submit a formal complaint to OBSI within 180 days after you are given a response from your bank but are still unsatisfied.
  6. OBSI will confirm whether they can investigate the issue or if it's outside their rules.
  7. If they can, you will need to provide your information and permission for them to contact your bank.
  8. OBSI will then investigate the issue with a neutral stance and look at facts such as timestamps and logs because everything done at a bank is recorded or should be recorded.
  9. A recommendation is made if OBSI agrees that you are to be compensated. If OBSI believes you are not owed any compensation, they will write you a letter explaining the reasoning. At that point, you are free to pursue the issue in court.
  10. You can also ask for your case to be reviewed. 

Financial Consumer Agency of Canada (FCAC)

FCAC is a federal agency that monitors and supervises financial institutions, promotes financial literacy and helps raises awareness for consumers and their rights and responsibilities with regards to the financial services industry. It's a great resource to bookmark and refer to if you ever want to learn about what Canada is doing to protect you. Of course, it isn't as great as my blog but I thought I would mention it just in case you needed an additional resource. You can check out their website here.

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