Many long-term readers probably know by now, I’m licensed in Ontario to assist my clients on multiple aspects of their finances, this includes to plan for their investments, mortgage and insurance coverage. Having broad spectrum of knowledge allows me to understand a lot more about the ins and outs of the financial industry.
From time to time, I would have clients who are satisfied with our investment proposals, but they fear if they do not their investment accounts at the bank, then the bank would not approve their mortgage. This kind of practice is called “Coercive tied selling“. Imagine you are going into a McDonald’s restaurant, and they are telling you in order to purchase a small coffee, you must also purchase their fries, cheeseburger, and apple pie. What would you think about this?
Fortunately, we have strong regulations to ensure clients’ interests are being protected. Below are what I found on the CIBC’s website. https://www.cibc.com/ca/legal-trademarks/tied-selling.html#coercive
“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 you understand 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.”
Similar wordings and examples could be found on the websites of different banks.
- President Choice’s Financial: http://www.banking.pcfinancial.ca/mkt/common/legalinfo/abouttiedselling-en.html?region=NU&language=en&signinop=OB
- Royal Bank of Canada: http://www.rbc.com/Coercive_Tied_Selling_ENG_FINAL.pdf
- TD: https://www.td.com/to-our-customers/understanding-tied-selling/tied-selling.jsp
- BMO Bank of Montreal: http://www.bmo.com/bmo/files/images/3/1/CoerciveTiedSelling_eng.pdf
- Scotiabank: http://www.scotiabank.com/ca/en/0,,358,00.html
In Canada, it is your right to buy a burger at BurgerKing, a coffee at Starbucks, and your fries at McDonald’s. If you run into any banking staff who does not understand about this, let them know about this rule, and protect your rights.
As a professional who works independently in the brokerages environment, I could help my clients to get access to many mortgage lenders, many insurers, and many investment companies. Your interest will only be protected if you have the choice to choose the financial solutions that could fulfill your needs.
Disclaimer:
The above details are for general understanding only, not intend to provide any financial advice. The details may be subjected to change without notice. Although we tried to post the details as accurate as we could, they are not guaranteed to be error-free, and may not be applicable to your specific situation. Please always consult a financial professional before making any decisions.