Vol. 146, No. 21 — October 10, 2012
SOR/2012-188 September 20, 2012
COOPERATIVE CREDIT ASSOCIATIONS ACT
INSURANCE COMPANIES ACT
TRUST AND LOAN COMPANIES ACT
Regulations Amending the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations
P.C. 2012-1089 September 20, 2012
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, hereby makes 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).
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(2) Subsection 6(3) of the Regulations is repealed.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 issued on a credit card account 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 of any service related to the credit card account by the borrower, including the simple use of the credit card, does not constitute express consent for the purpose of sections 6 and 6.1.
COMING INTO FORCE
3. These Regulations come into force 9 months after the day on which they are registered.
(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 have been made and will come into force in August 2012. These Regulations 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 can result in increasing 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 Regulations Amending the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations (the Regulations) follow up on the Budget 2011 commitment.
Description and rationale
The Regulations amend the Credit Business Practices Regulations by requiring federal financial institutions to receive the express consent of borrowers before distributing credit card cheques.
The Regulations specify (1) that 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.
The 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 the Regulations. For example, they may choose the channel by which they receive the consumer’s consent: through mail, 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 a result, it is anticipated that there will be a 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 more accurately compare competing products and services. Consumers will be able to make an active choice to receive credit card cheques, which will allow better-informed financial decisions.
On March 10, 2012, the Regulations were published in the Canada Gazette, Part Ⅰ, for a 30-day comment period. Two submissions were received from interested stakeholders who proposed amendments to the Regulations regarding the express consent of the borrower to receive credit card cheques. These proposed amendments would be inconsistent with the Government of Canada policy on express consent, which is that consent be obtained at the moment when the consumer is most able to consider the impact that this product could have on his/her financial situation, rather than obtaining consent in the abstract for a period of time.
A technical amendment to the Regulations was made to link the credit card cheques and the borrower’s credit card account with a financial institution.
In response to stakeholder views, the date upon which the Regulations will come into force has also been amended to the date that is nine months after registration to allow time for affected stakeholders to comply with the Regulations.
Implementation, enforcement and service standards
The financial institutions legislation gives the Financial Consumer Agency of Canada (FCAC), which monitors and investigates compliance issues at an industry-wide level as well as within individual financial institutions, regulatory oversight. The FCAC 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 Canada
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
S.C. 2009, c. 2, s. 271
S.C. 2009, c. 2, s. 274
S.C. 1991, c. 46
S.C. 2009, c. 2, s. 278
S.C. 1991, c. 48
S.C. 2009, c. 2, s. 284
S.C. 2009, c. 2, s. 286
S.C. 1991, c. 47
S.C. 2009, c. 2, s. 291
S.C. 1991, c. 45