What we heard: Public consultation on the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances
Introduction
In spring 2023, the Financial Consumer Agency of Canada (FCAC) undertook a public consultation on the proposed Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances (the Guideline).
The Guideline sets out FCAC’s expectations for federally regulated financial institutions (FRFIs) about providing tailored support to consumers who are at risk of defaulting on their mortgage as a result of exceptional circumstances such as those created by the current combined effects of high household indebtedness, the rapid increases in interest rates and the increased cost of living.
The consultation period for the Guideline was 45 calendar days. FCAC received 36 submissions from a variety of stakeholders, including regulated entities, industry groups, consumer groups and individual Canadians. FCAC engaged stakeholders through multiple roundtables and bilateral discussions, and sought input from its federal and provincial regulatory partners to develop and finalize the Guideline.
FCAC thanks all stakeholders who submitted comments during the consultation.
This report provides an anonymized summary of the comments received during the public consultation, as well as FCAC’s responses.
Summary of comments
FCAC reviewed all comments received during the consultation. This review led to amendments to the Guideline.
Some comments were considered to be out of scope with legislative or regulatory requirements. These comments were noted for future reference and could inform future policy considerations as well as FCAC’s National Financial Literacy Strategy.
General comments
Comment:
The proposed Guideline has a broad scope of application, which may incentivize risk-taking consumer behaviour.
Response:
The Guideline was amended to refine the scope of application to natural persons who have an existing residential mortgage loan on their principal residence and who are experiencing severe financial stress as a result of exceptional circumstances, and are at risk of defaulting on their mortgage.
Comment:
What is the Guideline based on?
Response:
FCAC issues guidelines as a regulatory tool to promote FRFIs’ compliance with legislative requirements by providing clarity and additional detail regarding FCAC’s regulatory expectations. Guidelines establish best practices and standards that FCAC expects regulated entities to incorporate within their business operations.
Given the challenges of the current economic environment, FCAC has published a Guideline setting out how it expects FRFIs to provide tailored support to consumers who have mortgages and who are experiencing severe financial difficulty.
Comment:
Clarify the circumstances where the Guideline applies, as well as the duration of its application.
Response:
The scope of Guideline has been amended to clarify that it applies to natural persons who have an existing mortgage loan on their principal residence and who are experiencing severe financial stress as a result of exceptional circumstances, and are at risk of defaulting on their mortgage. The “exceptional circumstances” referenced in the Guideline is provided as an example, but there may be other exceptional circumstances in the future. FCAC will continue to monitor the economic environment and will adjust its regulatory approach as appropriate.
Comment:
Consider delaying implementation.
Response:
No change was made. The Guideline came into effect on July 5, 2023, the day it was published.
FCAC is concerned that consumers who are at risk are currently experiencing periods of severe financial difficulty due to exceptional circumstances including the combined effects of high household debt, the rapid rise in interest rates and increased cost of living. The purpose of the Guideline is to set out how FCAC expects FRFIs to contribute to protecting at-risk consumers of financial products and services by providing them with tailored support.
Comment:
Cap mortgage rate increases at 2 percent.
Response:
This comment is out of scope for the consultation, but is duly noted for future reference.
Introduction
Comment:
The Guideline is prescriptive and relief measures should be proportionately scaled.
Response:
The Guideline does not recommend specific mortgage relief measures. It expects FRFIs to provide tailored support for consumers at risk based on an appropriateness assessment, with consideration to the consumer’s circumstances, including their financial needs.
The Guideline was amended to include a proportionality statement as part of paragraph 6. Paragraph 6 states that FRFIs may tailor their policies and procedures to align with the nature, size and complexity of their business, distribution channels, and products and services.
Comment:
Current practices of proactively monitoring consumers and indicators of exceptional circumstances may not be sufficient to identify potential financial stress.
Response:
The Guideline clarifies expectations related to proactively monitoring consumers, by expecting FRFIs to establish and implement effective policies and procedures, which includes proactively monitoring for and identifying early signs of financial stress.
Comment:
Proactively monitoring consumers raises privacy concerns.
Response:
This comment is out of scope for the consultation, but is duly noted for future reference. Proactive monitoring of mortgage loan obligations is a standard risk-management practice and allows for early engagement and a timely evaluation of options.
All applicable legislation, regulations and guidance continue to apply in addition to the expectations set out in the Guideline.
Fairness
Comment:
Clarify whether the Guideline intends to limit competitive rates between institutions.
Response:
The Guideline was amended to more clearly reflect that FRFIs should not take advantage of a consumer at risk’s lack of options at the time of renewal by offering a less advantageous rate based on the consumer’s inability to adjust their mortgage agreement or to switch to another lender. FRFIs should make every effort to offer consumers a rate that is best suited to the consumers' financial needs.
Comment:
The requirement to waive internal fees and costs may have unintended consequences for pricing mortgage products in the future, as well as a current impact on FRFIs’ operations.
Response:
The Guideline was amended to include a more focused scope of application. The Guideline applies to natural persons who have existing consumer mortgage loans on their principal residence and who are experiencing severe financial stress as a result of exceptional circumstances, and are at risk of defaulting on their mortgage.
Supporting consumers to avoid mortgage default where possible is a sound practice that benefits all parties.
Comment:
Ensure expectations regarding capitalization of interest align with existing legislative provisions.
Response:
The Guideline was amended to clarify expectations about the capitalization of interest and to focus on determining long-term, sustainable solutions for consumers who are at risk of defaulting on their mortgage. Specifically, the Guideline was amended to include the expectation that, for a period of 12 months or less, no interest should be charged on interest that has been capitalized.
Comment:
Clarify the impact of credit score expectations on effective underwriting practices and incentivizing future financially risky behaviour.
Response:
The Guideline was amended to clarify expectations regarding credit scores. After mortgage relief measures are implemented as a result of an FRFI and consumer at risk agreeing on a new mortgage-payment arrangement, FCAC expects that the consumer’s credit report should not reflect late payments or delinquency, assuming late payment or delinquency is in accordance with the new mortgage-payment arrangement.
Appropriateness
Comment:
Introduce a cap on extended amortizations.
Response:
It is not within FCAC’s mandate to limit the lengths of amortizations. FCAC expects that when appropriate mortgage relief measures include extending an amortization period, the extension should be for the shortest period possible.
Comment:
Clarify the meaning of "reasonable timeframe" when developing a plan to restore amortization to its original period after extension.
Response:
The Guideline was amended to clarify expectations regarding extending amortization. It specifies that FRFIs must develop a plan with the consumer to restore amortization to its original period. Financial institutions are in the best position to assess what a "reasonable timeframe" would be based on the consumers current circumstances and financial needs.
Comment:
The proposed Guideline introduces new disclosure requirements for FRFIs prior to obtaining express consent to make use of mortgage relief measures.
Response:
The Guideline was not amended. It maintained disclosure expectations and the expectation to obtain express consent prior to making use of a mortgage relief measure. The Guideline intends to ensure that consumers at risk have the information they need to make timely and informed decisions about their mortgage.
Comment:
Include expectations for a consumer to sell their principal residence (consumer-led selling).
Response:
The Guideline was amended to include expectations regarding the communication of the various considerations related to consumer-led selling.
Accessibility
Comment:
The Guideline expands current obligation to train staff.
Response:
The Guideline was not amended. The Guideline clarifies FCAC’s expectation that employees who offer, sell or service mortgage loans and employees who provide information and assistance to consumers at risk should have adequate training.
Administrative processed controls
Comment:
Clarify reporting expectations for FRFIs.
Response:
The Guideline was amended to clarify administrative expectations for FRFIs. FCAC will provide FRFIs with additional information regarding reporting requirements.
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