Canada needs tighter lending rules

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The outgoing boss of the Toronto-Dominion Bank says that Canada needs tighter lending rules to stem the high levels of consumer debt encouraged by the low interest rates. Ed Clark says that it’s not something that banks would chose to do on their own; a unilateral approach would only make that bank uncompetitive; it needs to come from the federal government. Of course the government has stepped in, not once but four times since the financial crisis, but Clark believes there is more that could be done. He steps down as CEO in November and will be succeeded by the current COO Bharat Masrani. Read the full story.
  • Mike Maguire on 2014-09-17 9:10:39 AM

    This from Ed Clark from TD, the bank that encourages you to take a holiday from your mortgage payments to travel. Maybe it is time that banks hire people that can actually give good financial advice not jut sell them another line of credit or credit card. But I guess if customers actually paid off their debt banks would not make any money.

  • David Larock on 2014-09-17 9:36:08 AM

    Ed is hoping that some empty platitudes on his way out the door will cast a more favourable light on his legacy.

    The record will show that on his watch TD aggressively loosened its credit policies with market-first initiatives like 125% registrations, and that his Bank also quietly implemented anti-consumer mortgage policies like fixed-rate collateral mortgage collateral charges and the cross-collateralization of unsecured TD debts.

    Your actions spoke more loudly than your empty words do now Ed.

  • Andrew on 2014-09-17 9:38:55 AM

    They should begin with the focus on unsecured lending before there are any more changes to the mortgage rules/policies. My experience is that the readily available lines of credits and credit cards make it very easy for the consumer to live far beyond their means. It is time to get serious about this issue. Not nearly as "sexy" as making big announcements about curtailing mortgage debt but in the long run will be far more effective.

  • Deepak on 2014-09-17 9:41:23 AM

    Need I say more...Mike and David summed things up quite well. We do not need tighter lending rules, we need cost of living to ease up and income levels to increase. Is TD not one of the lowest paid banks with credit assistants being paid under $30k annually? Wow! Let TD start with their own staff, help their own people get out of debt and earn more before they start telling the government what to do.

  • Mike Maguire on 2014-09-17 9:48:16 AM

    One clarification though. As a TD shareholder I quite like the rape and pillage attitude. Increased fees, increased rates, keeping customers in debt, keeping salaries and costs down. Ed did a great job and my RRSP thanks you.

  • Leo on 2014-09-17 10:47:37 AM

    I enjoy reading how everyone is a critic of banking policies and those in charge of the banks. Let us not forget that the bank is a corporation, and coroporations are driven primarily by the bottom line, thus its behaviour is geared towards being profitable in the currentl regulatory environment it operates in. No banks (TD included) board of directors is going to approve an initiative that make it less profitable Vs. its competititors becuase the policy is "friendly to the overall economy." That is the whole point of Ed's comment. He sees the value in tighter lending policy, but don't expect any major financial institution implement them (at a competitive disadvantage) unless the others have to play ball in the same arena. Thus the regulatory body has to enforce these policies on all players.........As for the mortgage vacation alternative, if the customer has run into a cashflow shortfall and they have pre-paid enough to lower or eliminate thier mortgage payments until their Cashflow situaiton is rectified, why not take vacation from the payments?? What is the alternative you suggest?........that the client simply misses payments and ruins their credit. Mortgage vacation is not pro-active feature, but a alternative option for clients in cashflow shortfall situation.....but I guess other bank accept the "to bad, so sad, we will just ruin your credit if you cant make payments policy". I guess that is better alternative for the client, right???????

  • Mortgage Guy Geoff on 2014-09-17 10:52:45 AM

    Indeed to All. How incredibly self-serving his comments are...lets tighten mortgage lending even further so we can keep our 18%+ credit card balances high.

    If Mr. Clark truly believed this was the responsible approach then TD would lead the way with conviction. Others would follow suit if the idea was indeed based on economic fundamentals and not continued profit taking.

    Don't get me wrong, I'm all for capitalism, as long as that's what its called. But when you hide behind a thinly veiled attempt at looking out for the societal good and encouraging the government to do your dirty work then you should be thoroughly ashamed.

    He should be careful what he wishes for...pretty soon he will be unemployed and combined with his paycut in 2013 ($10.3M down from $10.75M) he may not qualify.

  • Jennifer Rossides on 2014-09-17 11:35:20 AM

    Funny - coming from the person who started it all with the CT "Powerline" and hooked it up as overdraft on peoples accounts and linked it to a Mastercard. Overspending started with it and the never, never plan. TD with their penalties, high loan and unsecured line of credits. Seriously we need to give these people in glass towers making $200k per year a reality check on what is really happening with the Canadian consumer. Let's bring them down to the national average and see how they make ends meet with these ridiculous restrictions they are putting on mortgages. Never mind how they are cutting the arms off of the self-employed and what that will do the the economy long run.

  • Dustan Woodhouse on 2014-09-17 11:40:35 AM

    Buy Bank Stocks.

  • Angela Wong-Liao - Invis Inc on 2014-09-17 12:21:35 PM

    I believe that we have the tightest lender guidelines in North America, can we afford any further tightening? Credit is very important to the prosperity of our economy and if the credit guidelines is too tight, it can back fire on our economy.

  • Ken on 2014-09-17 12:27:26 PM

    At the same time TD is looking for the Government to tell the banks what to do we need to remember that with the purchase of Chrysler Financial and the Subprime Auto Loan Company (VHF?) that they are at the same time pushing the consumer into deeper and much more expensive credit. They make a ton on the Sub prime Car Loans which essentially pray on the people who can least afford it. Mortgages aren't the issue, consumer debt is growing exponentially and its not only TD that is making a killing on it but all the Chartered Banks make a great deal of money from it.
    The people working in the branches are under so much pressure to sell credit cards, unsecured credit lines and worst of all overdraft protection that they don't ( and aren't given the proper training to) consider the impact on the consumer. Credit is a viable option but control must be demonstrated by both the issuer and the user.

  • Deepak on 2014-09-17 12:28:50 PM

    Actually Jennifer, Ed earns $10.8M annually and I am sure that is just the start of it. Easy for him to say debt loads are too high and things should tighten up. Let's see him give away 90% of his income to his employees so they can take on less debt and pay off existing debt. I am sure he loves driving by his bank manager's Honda Civics in his Maserati's.

  • Ron Butler on 2014-09-17 3:18:48 PM

    I am sure Ed Clark could care less what we think about him. There is an important truth in his comments, banks are ruthless competitors and none of them are going to take their foot off the lending marketing peddle because they think there is a systemic risk associated with real estate values and household debt. Only the government through OSFI or CMHC can do that.

  • Wow on 2014-09-17 3:39:07 PM

    I strongly support what Mr Ed Clark said.

    Tighten mortgage rules is not enough. In fact, people should buy property without mortgage
    (this is the words of some billionaires).

  • Kuldip S Panesar Homeland Mortgage Corp. on 2014-09-17 7:23:17 PM

    Out going Chief E D Clark of TD Bank is advising for tighter lending rules and the Federal Government must step in. How the debt to income ratio goes 164.1 percent if banks have not provided unsecured loans ? .Mortgages rules are already tight and within the stipulated guidelines. More worry is for the unsecured debts rather than mortgage.

  • Ron Butler on 2014-09-17 7:28:54 PM

    I should point out I am not recommending still tighter mortgage underwriting requirements I am only pointing out that no single bank can decide to restrict lending on their own, the analysts and shareholders would roast them; it has to be government that changes the playing field. To that extent Clark is right.

  • Risk Manager on 2014-09-17 9:15:44 PM

    Just an no point in this article did Mr. Clark indicate he was calling for tighter mortgage lending rules. As Ron Butler has correctly pointed out, a CEO's responsibility to shareholders is to grow revenue and profit. They have a fiduciary to their shareholders to do everything within "the rules" to do so. One Bank cannot decide to play under a different set of rules than the rest of its competitors without doing significant damage to its market position and share price, which is a short road to the CEO losing his job!

    As for OSFI, their responsibility is to ensure Canada's Banks remain financially solvent. Without trying to discount the earlier comments about credit card debt and auto finance debt, the fact is the size of these portfolios pales in comparison to any of the big 5 Banks mortgage book. Therefore, OSFI is going to focus on the single biggest area they can...namely residential mortgages. This is the elephant in the room that all of us in the industry need to accept and deal with.

    Realistically, it wasn't all that long ago that 40% TDSR and 32% GDSR was the HIGH end of what was considered acceptable risk. Now, the mitigation is low LTV, self-employed individuals minimizing income tax, projected "income", new to Canada, etc.

    It is easy to say the "Banks" are at fault. Yet even when we try and comply with the new rules being implemented by OSFI, we are consistently being told by the sales force that we are uncompetitive in the marketplace, despite the fact that the financing requests are clearly not affordable based on the verifiable income available to service the debt.

    Getting an approval, whatever it takes, should not be anyone's goal. Being able to look the client in the eye with confidence and say "you can afford this" should be.

  • Ron Butler on 2014-09-18 9:55:54 AM

    Risk Manager makes some good points. The problem we have in the this country is real estate value escalation particularly in TCV and the reasons are simple to understand, low interest rates and foreign buyers. Bankers and governments worry about these value run-ups but frankly it is very hard to figure out a solution, I don't have an answer.

  • Leo on 2014-09-18 11:35:04 AM

    Well articulated Risk Manager. You make some great points about 1). Mortgage Portfolio Weight Vs Unsecured Portofolio 2). Standards of acceptable debts levels over time issued by OSFI 3). and perhaps the most overlooked issue - sage financial advice from the sales force to the customer base (regardless of commision based income motivations). I appreciate your insight and comments.

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