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Our office has the unique opportunity to speak to many RBC clients and employees. We consider it important to convey trends in issues raised to this office and to provide value in problem resolution to both RBC clients and employees in response to frequently asked questions.
Please also refer to the Office of the Ombudsman Case Studies for examples of banking and investments situations.
Credit Scoring
At some point in life, just about everyone applies for a credit card or loan yet most people don't know the process that is used to approve or decline a loan. The process of risk assessment and evaluation is called credit scoring. Here's how statistical experience and analysis is used to evaluate credit requests at RBC Financial Group.
What is credit scoring?
When you apply for credit, be it a loan or a credit card, the financial institution reviews all of the factors that indicate whether or not you would be a good candidate for credit. Credit scoring analyzes an applicant's characteristics to predict future credit behaviour. Most financial institutions have statistical information to build mathematical models. When you fill in the credit application form, the questions about your bank relationship and job and residential stability are compared to database samples of others with similar characteristics. If this is the first time you have applied for credit, the financial institution usually looks at things like your savings account, how you manage your chequing account -- are there a lot of overdrafts? -- and your history in paying monthly bills and other financial commitments. If this isn't your first credit application, the financial institution looks at your credit bureau report and at how you manage your other credit cards and loans. Then, based on a credit scoring formula, you and your repayment risk are evaluated and ranked. This is your Credit Score.
How can a mathematical formula determine whether or not I will be a good credit risk?
These mathematical equations predict who is statistically likely to repay their loan or credit card. Credit scoring eliminates any bias. There is no discrimination; it boils down to financial management. A lender can look at the application, verify that all credit policies are met and then rank the risk statistically. The models are tested and updated constantly. Credit scoring also allows for faster service on your credit application.
If my score is low, will my request automatically be declined?
The credit scoring process is designed to restrict automatic declines. If a low score appears, someone is assigned to look at the application to re-evaluate the information. Often an application can fall into a "grey" zone. Applications that are marginal are automatically re-examined.
Is credit scoring used on just personal loans and credit card applications?
Credit scoring is also used for small business credit applications because how you manage your personal finances often indicates how you will manage your business finances. Since the most common major purchases a borrower makes are a home and car, credit scoring looks at their payment record as a good indication of how they will handle any other credit payments.
I'm self-employed. Will that show up as a negative when I apply for a loan?
The strength of credit scoring is that it does not look at any single characteristic. It's the combination of an applicant's personal and financial history that is significant. Being self-employed is not seen as a negative.
What can I do to help my application achieve a high score?
Make sure you complete the application accurately and in full, from how long you've lived at your present address to your employment history and financial circumstances. Each piece of information will form part of the credit-scoring formula, so a complete application will result in a clear overall picture. You may also want to verify information the lender obtains from other sources, for example, your credit bureau report. Does your report accurately reflect your personal financial status, including credit repayment history? You can obtain a copy of your credit report by calling Equifax at 1-800-465-7166 or Trans Union at 1-800-663-9980.
Day-to-day banking
Why should I be concerned about my credit rating?
Your personal credit rating is an asset over which you have direct control. At many stages of our lives, we may not think we need to be concerned about our credit score. However its importance may loom large just when we need it most. For example, suppose you are a student and you miss loan or interest payments as your available cash is tight. You decide you will deal with the issue of missed payments later as you have educational commitments to meet now. A few years later, you approach a bank to negotiate a mortgage and your request is declined because your credit rating indicates a poor loan payment history.
Things to think about: Protecting your credit rating is critical - this means that you need to have foresight and vision throughout your life. Creditors review credit bureau reports when making loan decisions; credit bureau histories reflect payment experience over a lengthy period of years. The decisions you make today may limit your ability to obtain credit in the future. In the absence of proven bank or creditor error, your historic credit rating will not be changed even though you begin to maintain a steady repayment history; creditors rely on accurate historic credit bureaus reporting based on your actual loan payment experience.
How can I avoid confusion about banking services terminology?
Financial services terminology can sometimes be confusing to individuals not using product-specific terms frequently. Asking questions takes time, but in the end, it will help eliminate confusion for you.
- As an example, negotiating a residential mortgage is an activity people may complete 2 or 3 times in their lifetime. One of the most frequent root causes of residential mortgage negotiation disputes is a lack of understanding of terms such as "prepayment penalty", "amortization period" or cash back options. If you don't understand these terms before you sign your mortgage documents, you may not be aware of future financial costs should you seek to renegotiate or repay your mortgage before the final maturity date.
- As another example, you may engage in unusual or infrequent transactions involving large dollar amounts or foreign currency. You may receive email communications from unknown parties. Should you elect to participate in transactions which involve depositing such items in your account, you need to ask questions and make informed decisions with respect to the risks involved. Understand the risk of a cheque or deposit being returned for any reason; understand the meaning of the term "cheque hold policy".
Things to think about: If you don't understand a term or concept, ask more questions until you clearly understand. Take notes so that you can refer to explanations when needed. Be aware of the origination of a payment and the party from whom you are accepting a payment. If you are being requested to participate in a transaction that appears to be too good to be true, it likely is. Take responsibility for your transactions- after all, it's your money!
How can I reduce my exposure to debit or credit card fraud?
As regularly conveyed in the media, debit or credit card fraud is a risk of which we should all be aware. Card holders are responsible to protect their debit and credit cards and PINs. Never share your card and PIN. Sometimes consumers believe they can safely divulge their personal identification numbers (PIN) to trusted individuals, however, if you approach your financial institution, you will likely be able to develop an alternate arrangement to meet your needs. You must be aware of the risks you are exposing yourself to if, for example, the trusted individual neglects to protect your PIN or inadvertently discloses the PIN to others.
Things to think about: Review the client card service agreement advice and terms, understand how to choose, renew, and protect your Personal Identification Number and physical cards; be aware of federal, provincial or state Debit or Credit Card Codes of Practice; understand your personal responsibilities and accountabilities.
What is phishing and how can I safeguard myself?
This office receives an average of three to four "phishing" emails daily. These remind us of the importance of safeguarding our privacy and exercising caution when communicating or conducting business over the internet. For more information, please visit E-Mail and Web Fraud (Phishing) or Financial Consumer Agency of Canada.
Estate planning and wills
About half of all Canadians have not prepared a will. But dying without a will, or with one that is out of date, can leave people vulnerable to needless taxation, legal challenges, delays and family conflict while the estate is being settled. Avoid conflict by carefully developing your will and ensuring it is administered properly. Here are some things to consider.
I have a modest income and few investments. Do I really need a will?
Wills aren't just for the wealthy. A will ensures your possessions will be distributed according to your wishes. If you die without a will, your assets will be distributed using a government formula. A will also enables you to choose your executor, who is the person or institution who will carry out your instructions. Without a will, the courts will appoint an administrator, who may not be the person you would have chosen. A will can specify income available to your spouse or children, as instructed by you. In the will, you can state your choice of guardian for children under 18, and provincial courts will consider your choice. If you want to set up trusts for relatives, a will also lets you state what types of trusts you wish to create, specify any conditions, and indicate how much money is to be allocated to each trust.
I want to cut legal costs. Can I write out a will on my own, without using a lawyer?
A will that is prepared in your own handwriting and signed by you without a witness is called a holograph will. This type of will can cause serious problems, because your wishes may not be interpreted in the way you intended. If the will is ambiguous, or leaves out part of your estate, it may be partly or entirely ineffective. Some provinces do not recognize holograph wills.
What kind of person should I choose as the executor of my estate?
Some people think they're bestowing an honour when they appoint someone as executor of an estate. In fact, it's a heavy imposition that demands a lot of time, effort and paperwork. Even modest estates require great care and skill from the executor, who carries out a wide range of duties. Executors must be able to deal effectively with many different people and companies, including beneficiaries, accountants, lawyers, Revenue Canada, insurance companies, stock brokers, and real estate agents, to name just a few. For example, if property must be sold, your executor will have to weigh various offers. The executor may also have to balance the interests of beneficiaries whose concern is capital growth with those interested in income. The executor will be accountable for investment decisions which may cause conflict among beneficiaries with competing interests. Your executor should be trustworthy; willing and able to do the job; impartial toward all beneficiaries; decisive; and experienced.
I don't want to cause conflict among friends or relatives by choosing one of them as my executor. What are my options?
You can appoint a financial institution as your executor or co-executor. This spares the people you care about from carrying the whole burden and provides an impartial, professional manager for your estate. If you feel that you need a close friend or relative to provide helpful personal insight, you can appoint the financial institution as co-executor, which would administer the estate and make all major decisions with the other executor. You should also consider appointing a corporate executor if, for example, your estate is complex, you need to provide for children with special needs, or your spouse has no interest in managing the estate. You should determine what professional costs and fees may be involved before appointing an executor.
Why do wills have to be probated? It seems like an expensive formality.
Probate is the legal process by which your will is confirmed legally valid. After your death, normally your executor, together with a lawyer, will file for probate with your provincial court. A Grant of Probate confirms the appointment of the executor, and confirms that the will is your last will. Usually, a notice of the probate is published so that all creditors with a claim against the estate can come forward.
Insuring my loan or mortgage
Most people recognize the need for having life and disability insurance. Yet many question the need to have insurance on a loan or mortgage. Here are some things to consider when insuring a loan through a financial institution.
What kind of insurance is available through my bank?
Most financial institutions offer you the option of life and disability insurance on your mortgage and loans. Life insurance typically pays off the outstanding balance of your loan or mortgage in the event of death, while disability insurance pays your loan or mortgage payments while you are disabled. The insurance is often underwritten by a reputable third party insurance company. You may choose to take just the life insurance, or you can buy both life and disability insurance. You'll need to check with your lender to see what policies they offer.
I already have life insurance. Why should I take more when I borrow?
A mortgage or a loan increases your financial obligations. Your life insurance may not be enough to pay off your mortgage and continue to provide an income stream for your family. If you need to have your assets sold quickly to provide for your family, they may not bring in their true value. Many financial planners recommend that your life insurance coverage be several times your gross annual salary. It is important to review your needs when a new financial obligation is assumed. The comprehensive insurance offered through your financial institution normally provides a low-cost option. Premiums are based on the amount of your mortgage or loan. Premium rates do not increase due to age during the life of your existing mortgage or loans as long as your balance or amortization period is not increased. The cost of the insurance is included in calculating your mortgage or loan payments.
I'm covered at work. Why do I need disability coverage?
Most employer benefit plans only cover a portion of your salary while you're disabled, and some long-term disability plans have an extended waiting period before benefits start. Lower income during a disability may affect your current standard of living, and may not cover additional medical expenses. Unlike insurance offered through your work, should you leave your current employer and lose your benefits, the insurance you buy through your financial institution remains in place for the term of the loan or mortgage as long as the terms of the loan remain the same.
I've never had any health problems and I don't foresee having any. Why do I need disability coverage?
Most people don't plan on being ill or injured. Having insurance on your loan or mortgage through your financial institution provides cost-effective protection to reduce the financial strain on you and your family during a difficult time. However, the choice is yours to purchase the protection or not.
Can my financial institution insist that I take out insurance when I get a loan or mortgage?
No. A financial institution cannot insist that you purchase insurance from them when applying for a personal loan or residential mortgage.
My mortgage is up for renewal. What happens to my insurance?
If you increase the amount of your mortgage or your amortization period, you will need to fill in a new mortgage insurance application. Remember, if you move your mortgage to another financial institution, any existing insurance is cancelled. Any new insurance can be purchased from the new lender. If you renew your mortgage with the existing lender on the same terms (other than interest rates), your insurance will continue.
Investments
What are investment risk tolerances and return objectives?
Understanding your financial plan and the composition of your financial portfolio is a critical activity, both for your short and long-term financial stability. There are many investment courses, self-help books, and internet websites to assist you in making investment decisions. Adequately planning for, and understanding when, you will require funding for specific purposes, for example, a new home, an extended vacation, university tuition, or retirement, is critical to understanding the degree of risk you are prepared to assume and the return on capital objectives for your portfolio.
Things to think about: Understand the role of a financial planner or investment advisor and your own responsibility in decision-making. Most investment advice complaints escalated to this office consist of situations where a portfolio has declined in value. These situations highlight the importance of regularly reviewing your investment account statements and understanding your income objectives and risk tolerances. Review and confirm your risk tolerance and investment objectives; it may be useful to discuss the Know Your Client information held by your investment advisor. After all, your advisor will use this information to make investment recommendations.
Opening accounts and cashing cheques
Opening a bank account and cashing cheques can be confusing if you're not sure what your rights and responsibilities are.
I don't have a job. Can I open a bank account?
Yes. Unemployment won't keep you from opening a bank account as long as you can provide proof of identification and an address. Banks generally require two suitable pieces of ID. Identification that is typically accepted for opening accounts includes major credit cards, bank cards, passports, Canadian citizenship cards, Indian Status certificates and social insurance cards. Acceptance of driver's licenses, health insurance cards and senior citizen's cards may be subject to provincial government regulations. For example, in Ontario, the health insurance card cannot be used, but the province of Quebec allows the use of the health insurance card, driver's license and senior citizen's card providing you volunteer them when asked for proof of identification. Photo ID is not mandatory. If you are moving to a new area, it's a good idea to get a letter of reference from your current financial institution.
Can the bank refuse to open an account for me?
Yes. Even with acceptable identification, the bank may decline to open an account if, for example, there is a record of account misuse. The bank may check your credit history with other financial institutions or make a credit bureau inquiry with your permission.
Why can't I get my cheque cashed the same day I open an account?
The bank has an obligation to "know" a client, including the assurance that the cheque presented is good for funds. The only way a financial institution can validate a cheque drawn on another financial institution is to wait for the cheque to be processed. The hold period can range from five to seven business days for cheques drawn on other financial institutions in Canada, and 20 to 25 business days for foreign currency cheques. (Obtain details regarding "hold" policies from your financial institution; the conclusion of a hold period does not ensure the cheque is guaranteed)
Is there anything I can do to reduce the time that cheques are held before funds are released?
Yes. If you can arrange to have funds credited to your account electronically, they will be immediately accessible. So, if you're expecting cheques from the federal, provincial or municipal government, ask these authorities for payment by direct, or electronic, deposit. Your branch can provide you with a federal government direct deposit enrolment form.
Are there any cheques I can cash without opening an account?
Yes. Providing you can produce proof of identity, you can cash cheques issued by the federal government and by clients of Royal Bank and Royal Trust.
Is there a minimum deposit required for a new account?
No. But if, for example, you open a chequing account and order a supply of personalized cheques, you will be asked to deposit enough money to cover their cost, in case the cheque order is processed before you are able to make your first deposit.
Safeguarding your personal information
When it comes to being trusted with personal information, governments and banks are considered among the most trustworthy. Nevertheless, RBC Financial Group recognizes that privacy of information remains an important client concern. The Ombudsman for RBC Financial Group answers some common questions on the subject.
How does RBC ensure the information they have about me remains confidential?
RBC has very stringent policies and practices in place to safeguard the confidentiality of client information. These range from state-of-the art technology to protect bank systems, to employee rules which state that client information can only be used for serving the client -- and even that is with the client's consent. Staff renew their pledge to protect customers' personal information each year when they sign an agreement to abide by these rules. An exception to this rule is when providing the information is required by law.
How is the information used?
Client information is used to offer products and services the bank believes would be of benefit to the client. For example if RBC believes you could benefit from a particular product, as long as they have your consent, your information may be used by the bank to promote that product to you.
A study by Angus Reid confirmed that customers not only endorse and value this practice, they expect the bank to provide them with useful and timely information that will help them make decisions about managing their finances.
Does the bank share my information with others?
If the bank has the client's permission, information is shared only with member companies of RBC Financial Group. Clients consent to -- or opt out of -- the use of their information when they sign account and cardholder agreement forms. Even with permission, strict guidelines govern what information can and cannot be shared, and with whom.
The bank does, from time to time, share your information with outside suppliers, but only if they are acting as an agent for the bank. In these circumstances, only enough information to complete the task is provided. For example, the company contracted to print RBC cheques would need only the client's name, address, branch and account number.
Can I prevent or restrict the bank's use of my information?
Yes. Customers can instruct the bank at any time to stop using their information for the purposes of promoting products or services simply by calling their branch. Clients are reminded of this option yearly when they receive their client card renewal agreement, or sooner if they purchase a new product or service from RBC.
If a client opts out of this use of their information, it will not be used for marketing purposes by either RBC or member companies of RBC Financial Group. Clients who decide to opt out should ensure they use other means to stay abreast of new products or features that may interest them.
Does the bank sell client lists to others?
No. The bank does not sell, give or trade lists to others. If a client is contacted by a telemarketing company acting as an agent of the bank, the person will indicate they are calling on behalf of RBC. Any company hired to act as an agent of the bank must have an established privacy policy which meets the same high standard as RBC's.
In my small town, everyone knows each other. What's to stop local bank staff from looking at my personal information?
One of the rules pertaining to the protection of client confidentiality is that employees may not access or use for personal reasons, or provide to others, any information that is not ordinarily available to the public. Any staff member who violates this rule is subject to disciplinary action by the bank.
Small and Medium-sized businesses
Why should I keep my banker aware of my small and medium-sized business results?
Growing a small or medium-sized business requires energy and creativity. Sometimes, the pressures from meeting payrolls or production and contract deadlines means you are not monitoring your cash flow regularly or effectively.
Things to think about: Respond to requests for information from your banker or, better still, anticipate that your banker will have questions if your financial results indicate cash flows have changed. Compare your actual financial results to your projected results and understand the reasons for differences. Structure debt repayments to match the estimated useful life of assets and cash flow streams. Early intervention and explanation with your financial service provider will ensure your lender is aware of your financial progress and is not surprised by financial results. Work with trusted financial and legal advisors and consultants to understand cash flows, balance sheet structures, and determine whether restructuring loan repayments is an option.
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