Wednesday July 15, 2015

Mortgage broker says banks aren't giving Canadians the interest savings they deserve

Bank of Canada Governor Stephen Poloz responds to a question on the banks interest rate cut decision during a news conference in Ottawa, Wednesday July 15, 2015. (Photo: THE CANADIAN PRESS/Adrian Wyld)

Bank of Canada Governor Stephen Poloz responds to a question on the banks interest rate cut decision during a news conference in Ottawa, Wednesday July 15, 2015. (Photo: THE CANADIAN PRESS/Adrian Wyld) (Adrian Wyld/Canadian Press)

Listen 6:57

Mortgage broker Calum Ross thinks Canadian consumers are being short-changed.

On Wednesday, the Bank of Canada slashed its overnight rate to 0.5 per cent. That puts the cost of borrowing at an historic low. But so far, banks have only passed on a fraction of this week's savings to frontline consumers. 

Ross says highly-profitable banks have no real justification for pocketing the difference between Wednesday's Bank of Canada cut and their own lending rates.

"It's tough to argue that it's anything but [a money grab]," Ross tells As It Happens guest host Laura Lynch. "This does go directly to their profit margin. Being completely fair, the banks in Canada are not short of profit."

Calum Ross

Calum Ross is an independent mortgage broker who argues that the big banks are mistreating their customers by not passing on the full Bank of Canada rate cuts. (Photo: calumross.com)

Before the 2008 financial crisis, the banks usually matched cuts in interest rates by the Bank of Canada. Since then, it's been less predictable.

When the Bank of Canada last cut interest rates in January, it was by 0.25 per cent. The banks followed by cutting only 15 basis points. This week, the trend continues.

"There are some people who are saying they are building future loss provisions because, obviously, there is a lot of consumer debt in the economy," Ross says.

He doesn't buy that argument.

"There has not been an increase in defaults in Canada, so, while there is a lot of consumer debt that's in the market place, Canadian consumers are wealthier now than they ever have been," Ross says. "And with rising real estate values, the big banks have a lot of collateral."

He says that the rate cuts that banks have not passed on to consumers are beginning to add up.

"It's significant math. In the last few years, they've built in . . . more than one per cent and so for a $400,000 mortgage, you're talking about $4,000 a year."

He wonders why there isn't more push-back.

"When our big banks in Canada are making more than 30 per cent domestic return on capital and they've got an awful lot of margin built into variable rate mortgage loans, one has to ask, 'Why the government is not intervening?'"

He understands that consumers are happy that money is still relatively cheap, but he thinks they should be angry at the banks.

"I'm absolutely shell shocked that we have not had more public outcry and, quite frankly, more federal intervention from the regulators."