Vol. 146, No. 6 — March 14, 2012
SOR/2012-23 March 2, 2012
COOPERATIVE CREDIT ASSOCIATIONS ACT
INSURANCE COMPANIES ACT
TRUST AND LOAN COMPANIES ACT
Negative Option Billing Regulations
P.C. 2012-216 March 1, 2012
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 458.3 (see footnote a), 459.4 (see footnote b), 575.1 (see footnote c) and 576.2 (see footnote d) of the Bank Act (see footnote e), sections 385.252 (see footnote f) and 385.28 (see footnote g) of the Cooperative Credit Associations Act (see footnote h), sections 488.1 (see footnote i), 489.2 (see footnote j), 606.1 (see footnote k) and 607.1 (see footnote l) of the Insurance Companies Act (see footnote m) and sections 443.2 (see footnote n) and 444.3 (see footnote o) of the Trust and Loan Companies Act (see footnote p), hereby makes the annexed Negative Option Billing Regulations.
NEGATIVE OPTION BILLING REGULATIONS
1. The following definitions apply in these Regulations.
“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 subsection 2(1) of the Insurance Companies Act;
- (e) a foreign company, as defined in subsection 2(1) of the Insurance Companies Act;
- (f) a company, as defined in section 2 of the Trust and Loan Companies Act. (institution)
“optional product or service” means a product or service that is offered or provided to a person by an institution, an affiliate that it controls or an agent or representative of the institution or affiliate for an additional fee and is available only with an agreement for a primary financial product or service provided by the institution. (produit ou service optionnel)
“primary financial product or service” does not include a product or service that is offered or provided by a company or a foreign company as defined in the Insurance Companies Act to insure a risk. (produit ou service financier de base)
2. These Regulations apply only in respect of natural persons who subscribe, or apply to subscribe, to any of an institution’s products or services for non-business purposes.
CONSENT FOR NEW PRODUCTS OR SERVICES
3. (1) Before providing a person with a new primary financial or optional product or service, an institution must first obtain the person’s express consent to do so, either orally or in writing.
(2) If the consent is provided orally, the institution must provide the person without delay with confirmation in writing of their express consent for the new product or service.
(3) The use by the person of the new product or service, or any product or service related to the new product or service, does not constitute express consent for the purpose of subsection (1).
(4) Any communication from an institution seeking a person’s express consent must be made in language, and presented in a manner, that is clear, simple and not misleading.
DISCLOSURE — OPTIONAL PRODUCTS AND SERVICES
MANNER AND CONTENT OF DISCLOSURE STATEMENT
4. (1) Any disclosure statement that is required to be provided by an institution under these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.
(2) Any disclosure statement that is sent by mail is considered to have been provided on the fifth business day after the postmark date.
5. (1) Before a person provides their express consent to receive an optional product or service from an institution, the institution must provide them, orally or in writing, with an initial disclosure statement that contains the information referred to in paragraphs 6(a) to (d) or a summary of that information.
(2) An institution that provides the initial disclosure statement orally must also, without delay, provide it in writing.
6. Unless it has previously disclosed in writing the information required under this section, an institution that enters into an agreement with a person for an optional product or service must, within 30 days after entering into the agreement, provide the person with a subsequent disclosure statement containing all relevant information about the product or service, including:
- (a) a description of the product or service;
- (b) the term of the agreement;
- (c) the charges for the product or service or the method for determining the charges and an example to illustrate the method;
- (d) the conditions under which the person may cancel the product or service;
- (e) the date from which the product or service is available for use and, if different, from which charges apply; and
- (f) the steps required to use the product or service.
7. Any disclosure statement made in relation to an optional product or service that is provided on an ongoing basis, other than one provided in relation to a credit agreement, must specify that the person may cancel the product or service by notifying the institution that it is to be cancelled, that the cancellation will be effective as of the last day of the billing cycle or 30 days after the notification is received, whichever is earlier, and that on receipt of the notice, the institution must, without delay, refund or credit the person with the amount of any charges paid by the person for any part of the product or service that is unused as of the day the cancellation takes effect, to be calculated in accordance with the formula set out in section 9.
NOTICE OF CHANGES
8. (1) An institution that makes any changes to the terms and conditions that apply in respect of an agreement for an optional product or service must, not less than 30 days before the day on which the changes take effect, disclose in writing to any person who subscribes to the product or service the changes to the information that was required to be disclosed in the initial disclosure statement.
(2) If a person agrees to a promotional, preferential, introductory or special offer for an optional product or service, the institution must disclose to the person in a subsequent disclosure statement
- (a) not less than 30 days before the expiry of an offer that comes to an end after a set period of time, the date on which the offer will come to an end and the charges that will be imposed for use of the product or service after that date; or
- (b) without delay after the last use that is subject to an offer that expires after a set amount of use, the fact that the offer has come to an end and the method of imposing charges for subsequent use of the product or service.
CANCELLATION OF OPTIONAL PRODUCTS OR SERVICES
9. An institution that receives from a person a notice of cancellation of an optional product or service that is provided on an ongoing basis, other than one provided in relation to a credit agreement, must, without delay, refund or credit the person with the amount of any charges paid by the person for any part of the product or service that is unused as of the day the cancellation takes effect, calculated in accordance with the formula
A × (B – C) ⁄ B
A is the amount of the charges;
B is the period between the imposition of the charges and the time when the services were, before the cancellation, scheduled to end; and
C is the period between the imposition of the charges and the cancellation.
COMING INTO FORCE
10. These Regulations come into force on August 1, 2012.
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
To enhance the financial consumer protection framework for federally regulated financial institutions, the Government is moving forward with two sets of regulations.
The first set of Regulations, the Negative Option Billing Regulations, addresses the issue of negative option billing by prohibiting this practice in the financial sector. It requires federally regulated 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 second set of Regulations, the Access to Funds Regulations, aims to provide timelier access to funds by reducing the maximum cheque hold period for retail depositors and small- and medium-sized enterprises and provides retail depositors with timelier access to the first $100 deposited by cheque.
The enhanced disclosures and protections afforded by these regulations are beneficial to a broad spectrum of Canadian consumers. More and better information is 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
The Negative Option Billing Regulations require federal financial institutions to first obtain a consumer’s 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 Regulations require that all disclosure set out under the Regulations be made in a manner that is clear, concise and not misleading. The Regulations 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 offered in relation to another product or service before obtaining an individual’s express consent. This includes fees and costs for the optional product or service.
Federally regulated financial institutions are required to provide a comprehensive disclosure of the terms and conditions for a new optional product or service once express consent is obtained and advance notice for end of promotions and changes to the terms and condition of the optional product or service. Furthermore, the Regulations 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. The Access to Funds Regulations 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 Cheque Holding Policy Disclosure Regulations are repealed with the coming into force of these 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 Regulations 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 provide consumers with faster access to the first $100 deposited by cheque.
The Regulations apply to regular paper-based cheques deposited in Canada that are encoded with magnetic ink to allow for character recognition, are not damaged, are drawn on an institution’s branch located in Canada, and are issued in Canadian dollars.
The Regulations include some exemptions where the Regulations do not apply, allowing federally regulated deposit taking institutions to manage risk. For instance, financial institutions are able to exclude small- and medium-sized enterprises with escalating overdraft balances or negative changes in credit scores. Financial institutions are also 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 Regulations reflect the various means through which financial institutions accept deposits. Deposit taking institutions are 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 are 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 Regulations also require deposit taking 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.
After pre-publication of the regulations on March 12, 2011, in Part Ⅰ of the Canada Gazette, comments were received from a wide range of stakeholders representing a diverse set of views. Overall the comments were supportive of the regulations.
The majority of the comments sought clarification and were addressed through revisions to the wording of the regulations. For example, stakeholders asked that language in the regulations be amended to clarify the policy intent of the application of the regulations. Wording changes in section 2 in both sets of regulations ensure that the Government’s policy intent for the regulations to apply to institutions and only their affiliates, agents and representatives that enter into arrangements with an institution to further the sale of products or services of the institution or affiliate is reflected.
Technical amendments were made to the Negative Option Billing Regulations to allow federally regulated financial institutions to waive disclosure of a change in cheque hold periods if the result is a decrease of the cheque hold period. This allows the consumer to benefit immediately from a shortened hold on their cheques as opposed to waiting for the 30-day notice period.
Amendments to the wording in both sections 4 and 9 were made to the Access to Funds Regulations to clarify intent. Section 4 changes were made to ensure that clarity of the policy intent was better communicated. Wording to ensure that the first $100 of each cheque deposited on any one day to a retail deposit account was available to the depositor was added. Further in section 9, technical amendments were made to allow federally regulated financial institutions to waive disclosure of cheque hold periods if the result is in a decrease of the cheque hold period. This allows the consumer to benefit immediately from a shortened hold on their cheques as opposed to waiting for the 30-day notice period.
Some comments have not been reflected in this final version of the regulations as stakeholders requested changes that were inconsistent with or expanding the policy intent of the regulations. For example, one comment expressed concern about the sharing of confidential information by financial institutions with the Financial Consumer Agency of Canada (FCAC) in the Access to Funds Regulations. The Government is confident section 17 of the Financial Consumer Agency of Canada Act addresses the issue of confidentiality. Another submission called for the elimination of all references to “primary products or services” in the Negative Option Billing Regulations, which does not reflect the Government’s policy intent to ensure that no product or service can be offered to a consumer without prior express consent.
Implementation, enforcement and service standards
The pre-published regulations were intended to come into force at the time of registration; however, financial institutions have indicated that they will require some system changes to accommodate both the additional access to funds for consumers through automatic banking machines and to capture consumers’ express consent. To allow sufficient time, both the Access to Funds Regulations and the Negative Option Billing Regulations are now set to come into force on August 1, 2012.
The regulations do not require any new mechanisms to ensure compliance and enforcement of the regulations. The FCAC already administers the consumer provisions in the federal financial institutions statutes. Therefore, the Agency will ensure compliance with the new requirements, using its existing compliance tools, including notices of violations, compliance agreements and administrative monetary penalties, when applicable.
Financial Institutions Division
Department of Finance Canada
L’Esplanade Laurier, 15th Floor, East Tower
140 O’Connor Street
S.C. 2009, c. 2, s. 271
S.C. 2007, c. 6, s. 37
S.C. 2009, c. 2, s. 274
S.C. 2007, c. 6, s. 93
S.C. 1991, c. 46
S.C. 2009, c. 2, s. 278
S.C. 2007, c. 6, s. 170
S.C. 1991, c. 48
S.C. 2009, c. 2, s. 284
S.C. 2007, c. 6, s. 231
S.C. 2009, c. 2, s. 286
S.C. 2007, c. 6, s. 283
S.C. 1991, c. 47
S.C. 2009, c. 2, s. 291
S.C. 2007, c. 6, s. 368
S.C. 1991, c. 45