Category Archives: Corporate Watch Feature Posts

Reining in Canada’s Financial Giants – Are Consumers Getting a Fair Break?

While arm’s-length regulators at both the provincial and federal levels do the heavy lifting when it comes to regulating Canada’s financial services, it is ultimately politicians such as Ontario Finance Minister Charles Sousa and Federal Finance Minister Bill Morneau, who are accountable for protecting the interests of consumers in their dealings with Canada’s banks and other  financial institutions.

Introduction

In an important piece in the July 31 issue of the New Yorker Magazine on the decline in the prosecution of white collar crime in the U.S., author Patrick Radden Keefe cites a telling 2002 incident involving ex-FBI director James Comey. Keefe relies on the description of the incident contained in the journalist Jesse Eisinger’s recently published book, “The Chickenshit Club”.

Keefe writes:

When James Comey took over as the U.S. Attorney for the Southern District of New York, in 2002, Eisinger tells us, he summoned his young prosecutors for a pep talk. For graduates of top law schools, a job as a federal prosecutor is a brass ring, and the Southern District of New York, which has jurisdiction over Wall Street, is the most selective office of them all. Addressing this ferociously competitive cohort, Comey asked, “Who here has never had an acquittal or a hung jury?” Several go-getters, proud of their unblemished records, raised their hands.

But Comey, with his trademark altar-boy probity, had a surprise for them. “You are members of what we like to call the Chickenshit Club,” he said.

What Comey was saying, of course, was that avoiding risky prosecutions aimed at reining in Wall St. might have been seen as career enhancing under the previous U.S. Attorney responsible for keeping an eye on Wall St. but with Comey as boss, such an approach was going to be a career killer.

This post is the first of a series of Canada Fact Check investigations asking the question: does Canada have a Chickenshit Club problem when it comes to the development and enforcement of financial services regulation?

The answer for impatient readers? The next 12 – 18 months will tell and Canada Fact Check will be there to tell the inside story.

Here’s what we know now.

Finance Minister Morneau’s response to CBC investigations of hyper-aggressive bank sales practices

On March 6, the CBC’s Erica Johnston broke the first of a number of CBC stories on shady sales practices in Canada’s banking industry. The CBC reports revealed a constant pattern amongst big banks and credit unions of signing consumers up for products or services without providing all the required information, particularly about fees, costs and penalties related to the products. In many cases, bank employees were signing people up for products without even notifying them.

On March 15, in response to the CBC reports, Finance Minister Morneau turned to the Financial Consumer Agency of Canada (FCAC) and announced that the Agency would be conducting a separate industry review to examine Canada’s financial institutions’ sales practices. The FCAC has the primary mandate to represent the interests of consumers on “systemic” policy matters effecting federally regulated financial institutions such as banks, trust companies, life insurance companies and property and casualty (auto, property, etc.) insurance companies.

The FCAC has indicated that it expects to publish its initial findings by the end of 2017. Furthermore, FCAC officials expect to conclude the review of bank sales practices in June, 2018 and will publish a final report soon after. Finally, FCAC may conduct additional specific investigations flowing from the industry review. For example, if a FCAC  follow-up investigation determines that a specific violation has occurred, the Commissioner may make public the nature of the violation, which financial institution committed it, and the amount of any monetary penalty levied by the FCAC on the financial institution. Continue reading

Uber in Canada: what governments must do to protect the public interest

16-03-29 Uber

.As governments across the country grapple with the implications of the so-called sharing economy, they need to remember that the interests of the Canadian public and the interests of corporate behemoths such as Uber, are not the same.

This is the fourth post in a four-part series of articles on Uber.

The argument in posts 1, 2, and 3 can be summarized as follows:  Uber’s flagship UberX service is unambiguously illegal in most cities in Canada because municipal and provincial taxi licensing law (British Columbia and Quebec license taxis at the provincial level) considers UberX a taxi service and Uber refuses to apply for a taxi licence for UberX under these laws. And it doesn’t apply for a taxi license for UberX because it does not want UberX to operate under the same rules as the rest of the taxi industry and incur the same licencing fee, insurance, and consumer safety costs that the rest of the industry pays.

Nor does it want its UberX service to charge the same regulated fares as its taxi competitors – it wants to be able to charge “surge pricing” which sometimes increases the fare for an Uber passenger as much as 10-fold over the regular fare.

In other words, while Uber is competing for the exact same passenger dollars as the rest of the taxi industry, Uber wants to play by its own rules when it comes to industry regulatory costs and fares.

Why? Simple – without its own set of rules that reduce its costs, the UberX service can’t afford to undercut the fares of existing taxi brokers – by far its most important competitive advantage. Put differently, Uber’s business strategy is simply a political strategy designed to pressure Canadian licensing authorities into creating a separate, cheaper set of taxi rules for UberX to operate under.

How does Uber justify having new licensing rules written just for itself – rules that significantly reduce its costs relative to the costs it would incur operating under the same rules that other taxi companies operate under? Why does Uber think it deserves special treatment?

In Uber’s public statements, it is its unique technology that sets it apart from other taxi services. Uber likes to advertise itself as a technology company that provides a “digital application service” to connect passengers to drivers. In other words, according to Uber its defining feature is that it provides a software platform that connects a customer with a service. And because it is essentially a technology company, unlike other cab companies, it needs its own rules.

The problem with this rationale is obvious – by now, many taxi companies employ Uber-like digital technology that puts drivers in touch with passengers (in addition to traditional phone dispatch). And it goes without saying that the established taxi industry doesn’t think a whole new set of rules are needed just so they can deploy their nifty new apps. Continue reading

Uber in Canada: Cutting corners on taxes and benefits

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Uber pays no Corporate Income Tax in Canada and it avoids paying for all forms of employee benefits by declaring its drivers “independent contractors”. The truth is that Uber is not a benign intermediary between drivers and passengers but rather a $50 billion corporate behemoth designed by an army of lawyers to exploit regulatory grey areas for the expressed purpose of undercutting fares charged by its competitors.

This is the third installment of a four part series on Uber’s entry into Canada.

To summarize Parts 1 & 2: at the heart of Uber’s global business strategy is a political strategy. Because Uber has difficulty competing with established taxi companies under existing taxi industry rules, it needs to pressure Canadian licensing authorities into creating a separate set of taxi rules for it to operate under. Put bluntly: without its own set of rules that reduce its costs, Uber can’t afford to undercut the fares of existing taxi brokers – by far its most important competitive advantage.

There are four deal-breakers for Uber in any new set of licencing rules that it pries from governments through its ferocious lobbying: 1) the new rules must allow UberX to charge “surge pricing” with no maximum cap (think New Year’s Eve, an 8.9 times multiplier, and a $1,115 charge for a 60-minute ride in Montreal) while its competitors must continue to charge fixed-rate fares; 2) the new rules must exempt Uber from the commercial insurance coverage that is mandatory for licensed taxis so Uber drivers can carry a new, less comprehensive kind of “hybrid” insurance policy that is cheaper than commercial coverage; 3) Uber must be exempted from the existing licensing fees that govern both cab owners and drivers – and be given its own licensing fee regime with much lower fees; and 4) the background safety check rules for Uber drivers should not be so onerous as to scare off potential Uber drivers. For Uber this usually means that it objects to rules requiring that driver safety checks be done through local police departments.

Because getting new rules that lower its costs is so crucial to Uber’s business strategy, when Uber doesn’t get the above provisions in a new set of rules from taxi regulators, it will either leave the market (e.g. Calgary) or simply operate illegally outside the existing rules (e.g. Toronto and many other Canadian cities). For example, even though Calgary gave Uber much of what it wanted in a new set of rules passed by Calgary City Council in late February, Uber still pulled out of the Calgary market because the specifics of the new licensing fee and driver background check rules weren’t to its liking.

There are two other major areas where Uber plays by different rules that give it an advantage over its competitors: 1) its (apparently legal) international tax avoidance strategy; and 2) its (legally contested) claim that Uber drivers are independent contractors as opposed to employees. These issues, of course, are not regulated within municipal (or provincial) taxi licensing regimes but are nevertheless central to Uber’s Canadian (indeed global) growth strategy.

The rest of this post deals with Uber’s global tax avoidance and labour strategies.

Continue reading

The secret strategy behind the Uber invasion of Canada

File illustration picture showing the logo of car-sharing service app Uber on a smartphone next to the picture of an official German taxi sign in Frankfurt, September 15, 2014. A Frankfurt court earlier this month instituted a temporary injunction against Uber from offering car-sharing services across Germany. San Francisco-based Uber, which allows users to summon taxi-like services on their smartphones, offers two main services, Uber, its classic low-cost, limousine pick-up service, and Uberpop, a newer ride-sharing service, which connects private drivers to passengers - an established practice in Germany that nonetheless operates in a legal grey area of rules governing commercial transportation. REUTERS/Kai Pfaffenbach/Files (GERMANY - Tags: BUSINESS EMPLOYMENT CRIME LAW TRANSPORT)

Even though Uber is competing for the exact same passenger dollars as the rest of the taxi industry, Uber wants to play by its own rules when it comes to fares, insurance, and licensing fees. Uber even objects to being subject to the same background checks on its drivers as the rest of the taxi industry.

This is the second of  four Canada Fact Check articles on Uber’s entry into Canada.

The main argument in Part 1 was that Uber’s flagship UberX service is unambiguously illegal in most cities in Canada because the law considers UberX a taxi service and Uber refuses to apply for a taxi licence. And it doesn’t apply for a taxi license for its UberX service for the simple reason that it does not want its UberX service to operate under the same rules as the rest of the taxi industry and incur the same licencing fee, insurance, and consumer safety costs that the rest of the industry pays. In other words, while Uber is competing for the exact same passenger dollars as the rest of the taxi industry, Uber wants to play by its own rules when it comes to fares and industry regulatory costs.

But Uber also knows that sooner or later the fact that its UberX service is operating illegally is going to catch up with it. In other words, it knows that UberX eventually has to operate under some sort of government sanctioned regulatory regime in Canada. And that’s why, long-term, it needs to have Canadian licensing jurisdictions implement separate sets of taxi rules tailored to its business model. Not tailored to its “innovative” technology as Uber and some of its boosters might claim, mind you, but tailored to the way Uber maximizes its profits.

To accomplish this, Uber has written its own taxi rules and hired well connected, high powered lobbyists with close ties to politicians such as Toronto’s Mayor Tory, to shop Uber written rules around to key Canadian licensing jurisdictions. And Edmonton is the first major Canadian city to make the Uber authored rules law.

To summarize: at the heart of Uber’s global business strategy is a political strategy. Because Uber doesn’t have the business smarts to compete with established taxi companies under existing industry rules, it has to operate either illegally or pressure local licensing authorities to create a separate set of taxi rules for its main service – UberX – to operate under. Continue reading

Why Uber is Bad For Canada

16-02-02 uber

Taxi drivers in cities across Canada have taken to the streets to pressure municipalities to enforce existing taxi industry regulations in the face of the Uber challenge.

Just over five years after it began offering rides in San Francisco, the Uber passenger service now operates in 342 cities spread across more than 60 countries. It retains some 327,000 freelance drivers in the U.S. and hundreds of thousands more around the world. In Uber’s most recent round of financing, investors assigned it a value of $51 billion—a milestone it reached faster than Facebook had before it. According to a recent report by Reuters, Uber has told prospective investors that it will reach $10.8 billion in global ride payments in 2015—giving it $2 billion in revenue when it takes its 20% cut. It projected those numbers, the Reuters report says, to more than double to $26.12 billion this year.

While it primarily offers car rides today, Uber is aiming to be much more. With its UberRush service, the company has experimented with delivery. Uber CEO Travis Kalanick has described Uber as a new platform to help replace inefficient 20th-century transportation systems. Continue reading