Vol. 145, No. 11 — March 12, 2011
ARCHIVED — Access to Funds Regulations
Statutory authorities
Bank Act, Cooperative Credit Associations Act and Trust and Loan Companies Act
Sponsoring department
Department of Finance
REGULATORY IMPACT
ANALYSIS STATEMENT
(This statement is not part of the regulations.)
Issue and objectives
As users of financial services, consumers have a significant stake in almost all financial sector issues. As financial products and practices evolve, the impacts on consumers need to be monitored and their interests, at times, protected through regulatory action.
In Budget 2010, the Government of Canada proposed to take action to prohibit negative option billing and require timelier access to funds. These regulations act on these matters.
Description and rationale
Canadians have concerns with business practices of financial institutions in the area of negative option billing. In addition, the Government is committed to continue to promote access to basic banking for Canadians.
The proposed Negative Option Billing Regulations and Access to Funds Regulations would have various impacts on federally regulated financial institutions, depending on current practices. As with any new regulatory requirement, financial institutions would have to incur some costs to make changes to their systems in order to implement the new requirements.
The enhanced disclosures and protections afforded by the proposed regulations would be beneficial to a broad spectrum of Canadian consumers. More and better information would be provided by federally regulated financial institutions to consumers to allow for better product choice and to provide timelier access to funds.
Negative Option Billing Regulations
Budget 2010 announced that the Government would bring forward regulations to prohibit negative option billing in the financial sector and to require financial institutions to offer products and services on an opt-in basis only, where consumers have sufficient disclosure about the terms and conditions before accepting.
The proposed Negative Option Billing Regulations would require federally regulated financial institutions to first obtain consumers’ express consent before providing an individual with a new product or service.
In order for consumers to better understand and more easily make informed financial decisions, the proposed Regulations would require that all disclosure set out under the proposed Regulations be made in a manner that is clear, concise and not misleading. In addition, while federally regulated financial institutions are already subject to disclosure requirements when providing financial products and services, the proposed Regulations would set out requirements for financial institutions to disclose a summary of the key information related to the optional product or service (e.g. credit balance insurance, fraud alert) that is in relation to another product or service offered by the financial institution before obtaining an individual’s express consent, including fees and costs related to the optional product or service.
Once express consent is obtained, federally regulated financial institutions would be required to provide a comprehensive disclosure of the terms and conditions for a new optional product or service. For example, financial institutions would need to disclose the description of the product or service, the term of the agreement, charges, cancellation information and the steps required to use the product or service.
Federally regulated financial institutions also would be required to provide individuals receiving optional products and services with advance notice for end of promotions and changes to the terms and condition of the optional product or service. Furthermore, the proposed Regulations would require financial institutions to refund charges on a prorated basis following the cancellation of an optional product or service by an individual.
Access to Funds Regulations
In Budget 2010, the Government announced its continued commitment to ensure affordable access to basic banking services for all Canadians. To provide timelier access to funds, the proposed Access to Funds Regulations would reduce the maximum cheque hold period for retail depositors and small- and medium-sized enterprises and provide retail depositors with timelier access to the first $100 deposited by cheque. The provisions of the Cheque Holding Policy Disclosure Regulations, which would be repealed with the coming into force of the proposed Regulations, are incorporated in the proposed Regulations.
Federally regulated deposit-taking institutions may apply a hold on funds deposited by cheque, in order to protect institutions and depositors from losses. Since 2007, a subgroup of federally regulated financial institutions, i.e. members of the Canadian Bankers Association, voluntarily agreed to have a maximum cheque hold period of seven business days. To provide timelier access to funds and to assist consumers in accessing critical funds more rapidly, the proposed Regulations would reduce the maximum cheque hold period to four business days for cheques not exceeding $1,500 (and seven business days for cheques above $1,500) and would provide consumers with faster access to the first $100 deposited by cheque.
The proposed Regulations would apply to regular paper-based cheques deposited in Canada that are not damaged, are drawn on a financial institution located in Canada, and are issued in Canadian dollars.
The proposed Regulations would include some exemptions where the proposed Regulations would not apply, allowing federally regulated financial institutions to manage risk. For instance, financial institutions would be able to exclude small- and medium-sized enterprises with escalating overdraft balances or negative changes in credit scores. Financial institutions would also be able to exempt new accountholders for a period of 90 days to undertake important assessments and develop client histories in order to mitigate fraud and other risks.
To limit certain risks (e.g. fraud) in cashing cheques, the proposed Regulations would reflect the various means through which financial institutions accept deposits. Financial institutions would be required to provide immediate access to the first $100 deposited by cheque in person in branch, and on the next business day for cheques deposited by any other means (e.g. automated teller machines).
In addition, federally regulated deposit-taking institutions would be required to provide depositors in person with a statement of refusal if they refuse to provide their depositor with immediate access to the first $100 deposited. The proposed Regulations would also require financial institutions to provide their customers with 30 days’ advance notice prior to any changes in the maximum cheque holding rules for cheques that fall under these Regulations and those that do not, i.e. cheques drawn in another currency.
Consultation
Discussions have been held with the financial industry, regulators and consumer groups to develop the proposed Regulations so that they strengthen consumer protections while minimizing the impact on the financial industry.
Implementation and enforcement
The proposed Regulations do not require any new mechanisms to ensure compliance and enforcement of the Regulations. The Financial Consumer Agency of Canada already administers the consumer provisions in the federal financial institutions’ statutes. Therefore, the Agency would ensure compliance with the new requirements, using its existing compliance tools, including compliance agreements and administrative monetary penalties.
Jane Pearse
Director
Financial Institutions Division
Department of Finance
L’Esplanade Laurier, 15th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-1631
Fax: 613-943-1334
Email: finlegis@fin.gc.ca
Notice is hereby given that the Governor in Council, pursuant to sections 458.2 (see footnote a), 458.3 (see footnote b), 459.4 (see footnote c), 575.1 (see footnote d) and 576.2 (see footnote e) of the Bank Act (see footnote f), sections 385.251 (see footnote g), 385.252 (see footnote h) and 385.28 (see footnote i) of the Cooperative Credit Associations Act (see footnote j) and sections 443.1 (see footnote k), 443.2 (see footnote l) and 444.3 (see footnote m) of the Trust and Loan Companies Act (see footnote n), proposes to make the annexed Access to Funds Regulations.
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 3, 2011
JURICA ČAPKUN
Assistant Clerk of the Privy Council
ACCESS TO FUNDS REGULATIONS
INTERPRETATION
1. The following definitions apply in these Regulations.
“business day” does not include a Saturday or a holiday. (jour ouvrable)
“eligible enterprise” means a business with authorized credit of less than $1 million, fewer than 500 employees and annual revenues of less than $50 million. (entreprise admissible)
“institution” means any of the following:
(a) a bank, as defined in section 2 of the Bank Act;
(b) an authorized foreign bank, as defined in section 2 of the Bank Act;
(c) a retail association, as defined in section 2 of the Cooperative Credit Associations Act;
(d) a company, as defined in section 2 of the Trust and Loan Companies Act. (institution)
“point of service” means a physical location to which the public has access and at which an institution carries on business with the public and opens or initiates the opening of retail deposit accounts through natural persons in Canada. (point de service)
APPLICATION
2. (1) These Regulations apply to institutions, to the affiliates that they control and to the agents and representatives of those institutions and affiliates.
(2) Sections 3 and 4 apply only with respect to paper-based cheques deposited in Canada that are encoded with magnetic ink to allow for character recognition, are not damaged or mutilated such that they are not readable by cheque clearing systems, are drawn on an institution’s branch located in Canada and are issued in Canadian dollars.
MAXIMUM CHEQUE HOLD PERIOD
3. An institution must make available for withdrawal any funds deposited by cheque to a retail deposit account or to a deposit account held by an eligible enterprise within the following periods:
(a) in the case of a cheque not exceeding $1,500, within four business days after the day of the deposit if the cheque is deposited in person to personnel at one of the institution’s branches, or within four business days after the business day following the deposit if the cheque is deposited in any other manner; and
(b) in the case of a cheque greater than $1,500, within seven business days after the day of the deposit if the cheque is deposited in person to personnel at one of the institution’s branches, or within seven business days after the business day following the deposit if the cheque is deposited in any other manner.
AVAILABILITY OF FIRST $100
4. An institution must make the first $100 of all funds deposited by cheque on any one day to a retail deposit account available for withdrawal
(a) immediately, for cheques deposited in person to personnel at one of the institution’s branches; and
(b) on the business day following deposit, for cheques deposited in any other manner.
EXCEPTIONS
5. Section 3 does not apply in respect of a deposit that is made by an eligible enterprise if the institution has reasonable grounds to believe that there is a material increased credit risk, based on such factors as
(a) an escalating overdraft balance that is not being reduced by deposits received;
(b) a negative change in the credit score or other behaviour scores that may impact the credit risk of the enterprise;
(c) an unexplained change in the history of cheques deposited to the account;
(d) high numbers of cheques deposited that are returned as dishonoured items from other institutions that may impact the available balance in the account; or
(e) notice of any bankruptcy proceeding or creditor action against the enterprise.
6. (1) Sections 3 and 4 do not apply in respect of
(a) a deposit that the institution has reasonable grounds to believe is being made for illegal or fraudulent purposes in relation to the depositor’s account;
(b) an account that has been open for less than 90 days;
(c) a cheque that has been endorsed more than once; or
(d) a cheque that is deposited at least six months after the date of the cheque.
(2) An institution that relies on this section as grounds for refusing to comply with section 3 or 4 must provide the depositor in writing with notice of its refusal and a statement indicating that the depositor may contact the Financial Consumer Agency of Canada if they have a complaint, including contact information for the Agency,
(a) immediately, if the cheque was deposited in person to personnel at one of the institution’s branches; or
(b) upon request, if the cheque was deposited in any other manner.
DISCLOSURE OF POLICY
7. An institution must disclose in writing to any person who opens a retail deposit account to which they may deposit cheques
(a) the maximum periods for which an institution may hold funds deposited by cheque before making them available for withdrawal, as prescribed in section 3; and
(b) the institution’s policies concerning the maximum period during which the institution may hold funds deposited by cheque in any situation to which section 3 does not apply.
8. An institution must disclose the information referred to in section 7 to its customers and to the public by means of a written notice, copies of which must be displayed and made available at each of the institution’s branches where personal deposit accounts are offered, at each of the institution’s points of service and on each of the institution’s websites through which it offers products and services in Canada.
NOTICE OF CHANGE IN POLICY
9. An institution must disclose any change that is made to the information referred to in section 7
(a) by means of a notice that is displayed, for a period of at least 60 days immediately before the effective date of the change, at each of the institution’s branches where products or services are offered, at each of the institution’s points of service and on each of the institution’s websites through which it offers products and services in Canada; and
(b) by providing every customer in whose name a retail deposit account is kept and to whom a statement of account is provided with a notice in writing at least 30 days before the effective date of the change or, if the customer has instructed the institution in writing to provide such a notice to another person, by providing that other person with a notice in writing at least 30 days before the effective date of the change.
REPEAL
10. The Cheque Holding Policy Disclosure (Banks) Regulations (see footnote 1) are repealed.
COMING INTO FORCE
11. These Regulations come into force on the day on which they are registered.
[11-1-o]
Footnote a
S.C. 2007, c. 6, s. 34
Footnote b
S.C. 2009, c. 2, s. 271
Footnote c
S.C. 2007, c. 6, s. 37
Footnote d
S.C. 2009, c. 2, s. 274
Footnote e
S.C. 2007, c. 6, s. 93
Footnote f
S.C. 1991, c. 46
Footnote g
S.C. 2007, c. 6, s. 168
Footnote h
S.C. 2009, c. 2, s. 278
Footnote i
S.C. 2007, c. 6, s. 170
Footnote j
S.C. 1991, c. 48
Footnote k
S.C. 2007, c. 6, s. 366
Footnote l
S.C. 2009, c. 2, s. 291
Footnote m
S.C. 2007, c. 6, s. 368
Footnote n
S.C. 1991, c. 45
Footnote 1
SOR/2002-39