Canadian Banks Commit the Cardinal Sin

Bank of Montreal (TSX:BMO)(NYSE:BMO) was just the latest financial institution to be slapped on the wrist by the Ontario Securities Commission for overcharging clients. Yet Canadians keep investing in banks. You shouldn’t trust them farther than you can throw them.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The settlement announced December 15 by the Ontario Securities Commission (OSC) that will see Bank of Montreal (TSX:BMO)(NYSE:BMO) repay almost $50 million in fees taken by the bank in error from the accounts of 60,393 clients is the latest chapter in an ongoing saga of Canadian financial institutions overcharging clients for services rendered.

The OSC has made six no-contest settlements with Canadian financial institutions over the past two years—BMO, $50 million; Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), $73 million; Toronto-Dominion Bank (TSX:TD)(NYSE:TD), $14 million; Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), $20 million; Quadrus Investment Services, $8 million; and CI Financial Corp. (TSX:CIX), a whopping $156 million—as the industry continues to grapple with transparency issues despite new CRM2 reforms being implemented to reduce those issues.

The reality is that more financial institutions could step forward in the future, including the only big bank yet to do so, Royal Bank of Canada (TSX:RY)(NYSE:RY).

Why? Because the fish rots from the head.

Each of the six settlement agreements has been clear to point out that the fees taken from customers were done so inadvertently without any ill will or bad intentions. “We have taken steps to prevent this from ever happening again,” said BMO spokesman Ralph Marranca about the settlement.

If you believe that, you’re a bigger boy scout than I ever was.

The banks and other financial institutions are guilty of what you’d call “sins of omission.” They obviously had an inkling of this but, in my opinion, were willing to turn a blind eye until TD came forward in 2014, reporting four instances where its investment clients were overcharged for fees paid between 2000 and 2014.

The rest came forward in a domino effect that, to date, has seen $321 million returned to clients at six different financial institutions.

The moral of the story is, you shouldn’t trust these financial institutions farther than you can throw them. There interests are not in alignment with your interests, no matter how much of a dividend they pay.

In September, I highlighted a prime reason why our economy wasn’t doing nearly as well as it could be, placing a great deal of blame at the feet of the Canadian banks, which have hoodwinked the federal government’s Canada Mortgage and Housing Corporation crown corporation into backstopping mortgages instead of business loans, dramatically reducing the capital available to small businesses—generally considered the true drivers of job creation in any developed country.

Don’t get me wrong, I’m not suggesting you shouldn’t invest in Canadian financial services companies.

I’m bullish on three of the six which have settled with the OSC—CIBC, CI Financial and BNS—but I do think it’s important to remember that the wonderful dividends they’re paying you come in part from situations such as the overcharge settlements they’re currently experiencing.

All I’m saying is that when you invest in a bank or financial services company, you’re robbing Peter (you, the customer) to pay Paul (you, the shareholder).

If you can live with that knowledge, as I can, go right ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

More on Bank Stocks

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »

You Should Know This
Bank Stocks

TD Bank Stock Faces Challenge From U.S. Senate!

Toronto-Dominion Bank's (TSX:TD)(NYSE:TD) latest deal is being blocked by the U.S. Senate.

Read more »

question marks written reminders tickets
Bank Stocks

Is TD Bank (TSX:TD) or Royal Bank (TSX:RY) Stock a Buy?

Canadian banks appear oversold. Is this the right time to buy TD or Royal Bank stock?

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

2 Top TSX Financial Stocks to Buy for a Retirement Fund During the Market Correction

These top TSX financial stocks now look oversold for a self-directed TFSA or RRSP portfolio.

Read more »

Growth from coins
Dividend Stocks

Dividends Aren’t Guaranteed, Yet 3 TSX Stocks Keep Raising Payouts

No company will guarantee dividend payments, but three TSX Dividend Aristocrats will not break their dividend-growth streaks.

Read more »

Bank Stocks

Should You Buy TD Bank (TSX:TD) Stock Now?

TD stock looks oversold. Is this the right time to buy?

Read more »

Bank Stocks

Passive Income: Buy Bank of Nova Scotia (TSX:BNS) Now

Looking to buy a big bank stock? Investors should look to buy Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) for income and…

Read more »