Money: Banking and the Law

by Gordon Crann and Alan Redway

Before 1987 the “four pillars” of Canada’s financial sector were legally separated into banks, trust companies, insurance companies and stock brokers. Since then, you can get most of these financial services, with the partial exception of insurance, at the same institution.

There are still some important legal differences depending upon the type of financial service you are looking for.

For instance, most low-risk investments are covered by deposit insurance to protect you up to a limit of $100,000 if the company fails. A low-risk investment might be Canadian funds deposited in savings accounts and in fixed-income investments for terms no longer than 5 years (usually Guaranteed Investment Certificates or GICs) as long as they are at federally regulated banks and trust companies, or at provincially regulated credit unions and caisses populaires.
Riskier investments, such as stocks, bonds or mutual funds, and foreign currency deposits are not covered by deposit insurance. In these cases it is very important that you make sure the company you are investing your money with has a reputation for sound financial management.

Opening An Account

Once you have decided what institution you want to invest your money in, then the next step is to open an account.

As long as you can show acceptable identification, then you have the legal right to open a bank account. You can use the following identification:

  • Any two pieces of identification from List A or List B below, one of which must be from List A; or
  • One piece from List A below, if your identity can be confirmed by a client in good standing with the bank or by a person of good standing in the community where the bank is located.

List A includes:

  • A valid driver’s license issued within Canada;
  • A current Canadian passport;
  • A Certificate of Canadian Citizenship or Certification of Naturalization;
  • A Permanent Resident Card;
  • Citizenship and Immigration Canada Form IMM1000 or IMM1442;
  • A Social Insurance Number (SIN) card issued by the Government of Canada; or
  • A provincial health insurance card.

List B includes:

  • An employee identity card with a photograph from an employer well known in the community;
  • A signed credit card or automated banking machine (ABM) card issued by a member of the Canadian Payments Association; or
  • A foreign passport.
  • Some banks also accept a Confirmation of Permanent Residence (IMM5292) as acceptable identification.

A bank can refuse to open an account if:

  • The bank thinks you will use the account to break the law;
  • You committed a crime against a bank within seven years;
  • The bank thinks you gave false information when applying for the account;
  • The bank thinks that opening the account might bring harm to its customers or staff; or
  • You cannot show acceptable identification.

If a bank refuses to open an account for you, make sure you get a note stating this, then ask the bank how to complain. The note must also tell you how to contact the Financial Consumer Agency of Canada.

Getting a Credit Card, Loan, Line of Credit or Mortgage

Most people during their life need to borrow funds or access money on credit. The most common way to do this is to apply for a credit card, personal loan, line of credit or mortgage. All the funds you borrow must be repaid, usually in instalments and with interest.

The amount you are allowed to borrow usually depends upon your income and your credit history. It will also depend upon whether the credit card, loan or line of credit will be unsecured or secured by collateral (some thing equal or greater in value to the amount being borrowed). Mortgages are always secured by real estate.

In some cases, you may be required to have another person co-sign a loan or mortgage as a guarantor (this person guarantees to pay whatever money you owe if you cannot pay).

One problem many newcomers have when borrowing money is that Canadian financial institutions may not recognize credit histories from outside Canada.
If this is a problem you face, then consider applying for a secured credit card as a way to build your credit rating and establish a positive Canadian credit history.
Depending on the credit limit, the required security deposit for a secured credit card can range from $75 to $10,000.

If you do not make your credit card payments, however, the bank has the right to take the money from your security deposit (usually a GIC or term deposit).
Once you have used the credit card for a certain period, paid your bills on time and established a positive credit history, you will be eligible for an unsecured credit card and your security deposit will be returned to you.

The Financial Consumer Agency of Canada publication entitled “Secured Credit Cards” found at
http://www.fcac-acfc.gc.ca/eng/publications/ccc/0104/pdfs/Secured-e.pdf
provides useful information on how secured credit cards work and lists some of the financial institutions were they are available in Canada.

You should always read the loan, credit card, line of credit or mortgage agreement and make sure you understand your obligations before signing. However, a mortgage is the only one of these borrowing agreements where a lawyer will usually become involved.

BIOS:
Gordon Crann and Alan Redway, Q.C. are lawyers with Redway & Butler LLP, Barristers & Solicitors. They provide legal advice and assistance in all areas of the law, except criminal law. Alan is a former Federal Housing Minister, MP for Don Valley East and Mayor of East York. Gordon is a former East York Councillor.

CNM