House Standing Committee on Finance (February 13, 2024)
ISSUE: FCAC’s Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances

Key points

• FCAC shares concerns that some consumers with mortgages are experiencing periods of severe financial difficulty due to exceptional circumstances.
  • They include the combined effects of high household debt, the rapid rise in interest rates, the increased cost of living, and the financial impact of the COVID-19 pandemic.
• Given the challenges of the current economic environment, FCAC published a Guideline in July 2023. It sets out how it expects federally regulated financial institutions to provide tailored support to consumers with mortgages for their principal residence who are experiencing severe financial difficulty.
• FCAC expects financial institutions to proactively monitor and contact consumers at risk and discuss the most appropriate mortgage relief measures with them, based on individual needs and circumstances.
• The Guideline reflects new legislative requirements under the Financial Consumer Protection Framework on the fair and equitable treatment of consumers. They include obligations to offer and sell appropriate products and services to consumers, based on their financial needs and circumstances.
• FCAC advises consumers to contact their financial institution if they are at risk of not keeping up with their mortgage payments. Consumers who communicate their situation quickly to their financial institution will have more options available to them.
• FCAC consulted industry, stakeholders and members of the public in finalizing the Guideline to benefit from a wide range of perspectives.

Qs & As

1. What is an FCAC Guideline? What purpose does it serve?

• Guidelines provide clarity and additional detail regarding FCAC’s regulatory expectations.
• They are intended to help regulated entities comply with market conduct obligations set out in legislation, public commitments and codes of conduct that protect consumers of banking products and services in Canada.
• The Mortgage Guideline is based on best practices in financial consumer protection. It will help ensure financial institutions adopt fair and consistent relief measures to consumers who are at risk of defaulting on their mortgage for their principal residence.

2. Is the Guideline necessary? Aren’t financial institutions already providing relief measures?

• FCAC recognizes the good work of banks in working with mortgage holders during the COVID-19 pandemic and in response to the current economic environment.
• During these challenging times, FCAC expects financial institutions to continue proactively working with their customers to provide appropriate and tailored relief measures, based on individual needs and circumstances.
• The Guideline will help ensure consumers are treated fairly and consistently when dealing with their financial institution.

3. What type of relief measures should financial institutions follow when offering relief measures to consumers?

• FCAC does not recommend any specific mortgage relief measures.
• FCAC expects FRFIs to consider all available mortgage relief measures that may be appropriate for consumers who experience severe financial stress, such as:
  • waiving prepayment penalties
  • waiving internal fees and costs
  • not charging interest on interest
  • extending amortization for the shortest period possible

• Additional details on extended amortizations:
  • Financial institutions should extend amortization for the shortest period possible, taking into consideration the ability of the consumer at risk to restore the amortization to the original period.
  • Such temporary measures provide the consumer the time to fully assess their options and work towards the most appropriate long-term solution.

• FCAC’s expectations are based on best practices in financial consumer protection. They will help ensure financial institutions adopt fair and consistent approaches based on the circumstances and financial needs of consumers.

4. Is the guideline grounded in legislative obligations? (Lines based on SEB briefing note)

• FCAC’s guideline expects FRFIs to tailor their relief to individuals and individual cases and determine what is appropriate for the consumer, once a consumer is considered to be at risk.
• This leverages the obligations that came into force with the FCPF, such as the requirement that products be appropriate for consumers.
• The intent of the Guideline is to provide consumers tailored support and additional time (breathing room) to assess and identify the most appropriate course of action for their individual circumstances (e.g., refinancing a mortgage vs. considering sale of their principal residence).

For background:

• The Mortgage Charter does not mention that renewal options being offered are expected to be ‘appropriate’ for the consumer, in line with FCAC’s Guideline. FCAC’s Guideline expects that FRFIs will undertake an appropriateness assessment of mortgage relief measures, in accordance with expectations set out in FCAC’s Guideline on Appropriate Products and Services.

5. Why does the guideline not apply to investment properties or secondary homes?

• With this guideline, FCAC is focused on helping Canadians with a mortgage manage their most significant debt and avoid situations where they can no longer keep up to their payments.
• For many consumers, mortgaging a home is the biggest financial decision they will make in their lifetimes.
• FCAC’s guideline will help these consumers weather today’s exceptional period of higher interest rates, which can lead to higher mortgage payments.

6. What does “mortgage default” mean in the Guideline?

• For the purposes of the Guideline, the term mortgage default refers to situations where a consumer has not met the terms of their mortgage agreement. This could include missing a regular payment.

7. How should financial institutions have regard to the circumstances and financial needs of consumers?

• FCAC’s Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks provides useful direction to financial institutions.
• Financial institutions should pay particular attention to FCAC’s expectations to:
  • “Know your consumer” by collecting and recording information to understand a consumer’s circumstances so that the appropriateness of products or services can be assessed.
  • “Know your product” by understanding the features, charges, risks and benefits of the product and service offered and sold.