Provincial Governments Allowed to Regulate Chartered Banks

The Supreme Court of British Columbia released judgment on November 2, 2001, in Bank of Nova Scotia et al. v. Superintendent of Financial Institutions et al. Mr. Justice Ian Pitfield ruled that provincial governments could regulate chartered banks when they sell credit insurance, via third party telemarketers.

The dispute began when the Bank of Nova Scotia retained Optima Communications Inc., a telemarketing firm, to enroll its credit card holders in a group insurance plan that covered the cardholders’ outstanding credit balances in the event of a death, disability or involuntary unemployment. An application was completed by the telemarketer over the phone and the cardholder was not required to purchase insurance to continue using the card.

The bankers argued that the telemarketing activities were part of banking, which is regulated by Parliament, or alternatively, that if the activities were subject to provincial regulation they were restricted to the interpretation of the exemption from the licensing requirement found in the FIAO incidental to the bank’s business. The province argued that the bank’s activities were part of the business of insurance that was a matter within provincial jurisdiction and not incidental to the bank’s business.

Mr. Justice Pitfield agreed with the province, holding that “the sale or solicitation of credit insurance by BNS or its employees at a time other than that at which the line of credit is granted, requires BNS and those of its employees engaged in the credit insurance transaction to be licensed in the Province of British Columbia.”

Doug Rae, Q.C., Stanley Martin and Edward Purdy of Fasken Martineau DuMoulin LLP represented the Bank of Nova Scotia. The Canadian Life and Health Insurance Association, represented by Bryan Baynham, Q.C., of Vancouver’s Harper Grey Easton intervened in support of the province as did the B.C. Insurance Council, represented by David McKnight of Vancouver’s Alexander Holburn. The Canadian Banker’s Association, represented by Neil Finkelstein and Jeff Galway of Blakes Cassels & Graydon LLP in Toronto, intervened in support of the Bank of Nova Scotia. The province was represented by Sarah Macdonald of the Provincial Attorney General’s office.