All of them face business challenges that no doubt generate vigorous internal debate. But in their public interactions, the banks are great at projecting a magisterial control of their brand and message.
Now for the story of messaging gone awry involving Canadian Imperial Bank of Commerce CM-T. All the bank apparently wanted to do was make some minor changes in accounts holding non-registered guaranteed investment certificates. The end result was a demonstration of how banks can erode client trust in these uncertain times for the global banking sector, personal investing and pretty much everything else financial.
We begin with a Feb. 27 letter that CIBC sent to clients holding GICs in non-registered accounts. The letter explained routine changes to their GIC accounts, and then veered off course with a warning that any aspect of their account agreement could be changed with at least 30 days’ notice. Several Globe and Mail readers wondered if this meant the rate on their GICs could be retroactively changed.
As reported in a March 27 column, CIBC assured clients it would not change the rate or term of their GICs, and it acknowledged that communications on this matter could have been handled better. To clarify matters with customers, the bank sent another letter to walk back its GIC account changes.
“We are writing to let you know that we are not going ahead with these changes at this time,” the April 6 letter said. “Our intention was to update our terms to allow us to enhance our ability to communicate with you electronically, but we recognize that our letter was not clear and may have caused confusion around the amendments to the terms and conditions of your GIC account.”
Five tips for navigating an increasingly tricky GIC market
The 5-per-cent GIC is fading into the sunset - with one exception
One aspect of the original letter was all too clear, though. In its blunt language about changing any term of a GIC account agreement, CIBC also made an offer. If clients were not okay with the changes outlined in the letter, they could close their account without cost over a 30-day period starting April 16 (the date the changes were to have taken effect).
At least one CIBC client saw this offer as an opportunity to exit a GIC he bought last summer at lower rates than are available today. Brian Pilloud says he asked his CIBC branch about this and, after some back-and-forth, was told he could redeem his GIC. But when he e-mailed last week to set this in motion, he was told the offer was not available any longer.
“My biggest issue is that you have to trust the financial institution you deal with to some degree,” said Mr. Pilloud, a certified financial planner (CFP) at a Saskatchewan credit union. “When they say you can do one thing and then say, yeah, actually, we changed our minds, that just puts distrust in my mind.”
CIBC declined to comment on the April 6 letter, but it clearly removes the conditions that would allow clients to redeem a non-registered GIC at no cost.
Mr. Pilloud wasn’t the only one who spied this opportunity. “If you’re locked into a long-term GIC with CIBC and want out without penalty, this may be the answer,” someone wrote in an online forum on the Canadian High Interest Savings Bank Accounts website.
CIBC’s miscommunication on GICs comes at a time of heightened unease among the banking public. One aspect of this is the collapse of two U.S. banks last month and a bailout for the global player Credit Suisse. Amid these events, it’s a bit disconcerting to have a big Canadian bank suggesting it could arbitrarily change the term of products bought in good faith and then back off.
The volatile interest-rate environment is also a factor in CIBC’s misadventures. We’ve seen a generational chance to lock in safe money at attractive rates in the past year, and it may not last much longer. No wonder some people were keen to exit GICs bought at lower rates so they could lock into something paying more.
If interest rates were at the lows of a few years ago and the stability of the global banking system wasn’t a news story, CIBC’s GIC letter would probably have been read in a cursory way and then tossed. But these are tricky times. Banks need to keep up.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
Rob Carrick