Canada Gazette, Part I, Volume 146, Number 10: Regulations Amending the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations
March 10, 2012
Bank Act, Cooperative Credit Associations Act, Insurance Companies Act and Trust and Loan Companies Act
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issue and objectives
The Canadian approach to consumer protection for federal financial institutions is founded on competition, disclosure, and access to effective redress. It focuses on providing a competitive environment while mandating disclosure of information in order for consumers to be able to meaningfully exercise choice and, in some cases, prohibiting business practices that are not beneficial to consumers. Competition provides more choices to consumers, and allows them to find financial products and services that best suit their individual needs at competitive prices. Disclosure ensures that consumers have the relevant information to make the best decisions in light of the choices available to them.
The Government of Canada has recently focused its efforts on ensuring that all Canadians have the knowledge and the tools to act on the information they have available to them. Increasing financial literacy is the Government’s long-term goal as it is vital to making the best financial decisions. The dynamic nature of the financial sector creates added complexity, which in turn increases the probability that consumers may misunderstand or be misled about the nature of the products and services being offered.
The Government has introduced a series of consumer protection measures in recent years that focus on putting consumers in a better position to make educated financial decisions. In 2010, the Government enhanced disclosure and improved business practices with respect to credit cards through amendments to the Cost of Borrowing Regulations and the introduction of the Credit Business Practice Regulations. These changes included new credit card measures to limit business practices that are not beneficial to consumers, such as the requirement to seek express consent for credit card limit increases. Most recently, the Negative Option Billing Regulations, which have been proposed (via publication in the Canada Gazette, Part Ⅰ) in 2011, would require federally regulated financial institutions to first obtain consumers’ express consent before providing an individual with a new product or service.
A number of credit card issuers offer credit card cheques allowing funds to be withdrawn directly from a credit card. These cheques are considered to be cash advances, which generally accrue higher interest rates, as well as fees, and do not provide an interest-free grace period. The use of these unsolicited credit card cheques by borrowers may increase the debt levels of Canadians.
Budget 2011 continued to illustrate the Government’s commitment to assist consumers in managing credit indebtedness and making better informed financial decisions by proposing to ban the distribution of unsolicited credit card cheques by federal financial institutions. The proposed Regulations follow up on the Budget 2011 commitment.
Description and rationale
The proposed Regulations would amend the Credit Business Practices Regulations to require federal financial institutions to receive the express consent of borrowers before distributing credit card cheques.
The proposed Regulations would specify that (1) a federal financial institution may not provide credit card cheques to a borrower without first obtaining the borrower’s express consent to do so, and (2) if the borrower’s consent to receive credit card cheques is given orally, the institution must, not later than the date of the first statement of account that is provided after the date of that consent, provide confirmation of that consent to the borrower in writing, in paper or electronic form.
These draft Regulations build on a well understood approach already developed in section 6 of the Credit Business Practices Regulations whereby credit card limit increases are only allowed with express consent by a borrower.
Financial institutions will be able to choose how to implement these Regulations. For example, they may choose the channel by which they receive the consumer’s consent: through mail, by phone or during a visit to a branch. It is likely that financial institutions will utilize existing communication channels and/or consent processes with borrowers to obtain consent to distribute credit card cheques. As such, it is anticipated that there will be negligible administrative burden and cost to financial institutions.
Providing consumers with information that leads to a better understanding and management of their credit improves consumer decision-making. Moreover, ensuring that information is available improves the transparency of the market by providing consumers with the ability to compare competing products and services more accurately. Consumers will be able to make an active choice to receive credit card cheques, which will allow better informed financial decisions.
Interested industry groups representing federal financial institutions offered views following the Budget 2011 announcement. Taking their views into account, regulations were chosen as the best mechanism to formalize requirements for issuers on the distribution of unsolicited credit card cheques.
Implementation, enforcement and service standards
The proposed Regulations would come into force on the date on which they are registered. The draft Regulations give the Financial Consumer Agency of Canada (FCAC) regulatory oversight. The Compliance and Enforcement Branch (CEB) of the FCAC monitors and investigates compliance issues at an industry-wide level as well as within individual financial institutions. The CEB focuses on overseeing and promoting compliance with consumer provisions by banks and federally regulated trust and loan companies, life insurance companies, retail associations and property and casualty insurance companies, in accordance with the requirements of various financial institution statutes. In order to promote compliance among members of the financial services industry, the FCAC has a number of supervisory compliance tools. These include actions such as on-site examinations of federally regulated financial institutions, desk reviews of documentation, compliance agreements, and other more administrative tools such as letters of concern. The FCAC can also initiate relevant enforcement actions (findings of violations, penalties) to address compliance deficiencies.
The FCAC applies these tools in manners appropriate to the compliance issues identified, with a view to achieving the timely correction of issues in the marketplace. This is accomplished by the FCAC assisting financial institutions’ efforts to correct contraventions, while encouraging them to develop appropriate policies and procedures to comply with consumer provisions that apply to them.
Financial Institutions Division
Department of Finance
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
PROPOSED REGULATORY TEXT
Notice is hereby given that the Governor in Council proposes to make the annexed Regulations Amending the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations, pursuant to
- (a) sections 458.3 (see footnote a) and 575.1 (see footnote b) of the Bank Act (see footnote c)
- (b) section 385.252 (see footnote d) of the Cooperative Credit Associations Act (see footnote e)
- (c) sections 488.1 (see footnote f) and 606.1 (see footnote g) of the Insurance Companies Act (see footnote h); and
- (d) section 443.2 (see footnote i) of the Trust and Loan Companies Act (see footnote j).
Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Jane Pearse, Director, Financial Institutions Division, Department of Finance, L’Esplanade Laurier, 15th Floor, East Tower, 140 O’Connor Street, Ottawa, Ontario K1A 0G5 (tel.: 613-992-1631; fax: 613-943-1334; email: finlegis@fin. gc.ca).
Ottawa, March 1, 2012
Assistant Clerk of the Privy Council
REGULATIONS AMENDING THE CREDIT BUSINESS PRACTICES (BANKS, AUTHORIZED FOREIGN BANKS, TRUST AND LOAN COMPANIES, RETAIL ASSOCIATIONS, CANADIAN INSURANCE COMPANIES AND FOREIGN INSURANCE COMPANIES) REGULATIONS
1. (1) The heading before section 6 of the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations (see footnote 1) is replaced by the following:
CONSENT FOR INCREASES IN CREDIT LIMITS AND TO PROVIDE CREDIT CARD CHEQUES TO BORROWER
(2) Subsection 6(3) of the Regulations is repealed.
2. The Regulations are amended by adding the following after section 6:
6.1 (1) An institution must not provide credit card cheques to a borrower without first obtaining the borrower’s express consent to do so.
(2) If the borrower’s consent to receive credit card cheques is given orally, the institution must, not later than the date of the first statement of account that is provided after the date of that consent, provide confirmation of that consent to the borrower in writing, in paper or electronic form.
6.2 The use by the borrower of any service related to the credit card account, including the simple use of the credit card, does not constitute express consent for the purposes of sections 6 and 6.1.
COMING INTO FORCE
3. These Regulations come into force on the day on which they are registered.