Backgrounder: Financial Consumer Agency of Canada Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances 

This backgrounder presents an overview of the Financial Consumer Agency of Canada’s (FCAC) Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, published on July 5, 2023.  

Purpose 

The guideline contributes to the protection of consumers of financial products and services. It sets out how FCAC expects federally regulated financial institutions (FRFIs)¹ to provide tailored support to consumers with an existing residential mortgage loan on their principal residence who are experiencing severe financial stress, as a result of exceptional circumstances, and are at risk of mortgage default. 

Rationale 

FCAC shares concerns about the severe financial stress being experienced by some consumers with mortgages due to exceptional circumstances, including the current combined effects of high household indebtedness, the rapid increases in interest rates and the increased cost of living.

Protecting consumers at risk

FCAC expects FRFIs to provide support to consumers at risk including:

• those whose payments on their variable-rate mortgages fluctuate with interest rates and whose payments have thus increased materially.
• those with fixed payments on variable-rate mortgages who have seen a materially larger portion (or all) of their payments allocated towards the increased interest costs or who may be facing negative amortization.
• those with fixed-rate mortgages reaching near-term maturity who may be facing a material increase in payments.

Key expectations on FRFIs

FCAC does not recommend any specific mortgage relief measures. 

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

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

FCAC expects FRFIs to establish and implement effective policies and procedures that respect the principles of fairness, appropriateness, and accessibility for Canadian consumers.

Examples of expectations under fairness 

FCAC expects FRFIs to: 

• offer similar mortgage relief measures to consumers at risk who have similar circumstances and needs.
• assess and implement the most appropriate and individualized mortgage relief measures for the consumer, as soon as feasible.
• provide temporary relief, such as waiving prepayment penalties, to consumers when they make lump sum payments to avoid negative amortization. 
• not take advantage of a consumer at risk at the time of renewal by offering a less advantageous rate based on the consumer’s inability to adjust their mortgage credit agreement or switch to other lenders. 

Examples of expectations under appropriateness

FCAC expects FRFIs to: 

• provide extended amortization for the shortest period possible, taking into consideration the ability for the consumer at risk to restore the amortization to the original period. FRFIs should also develop a plan with the consumer to restore amortization to its original period and ensure the total amortization period is reasonable.
• disclose information that is clear, simple and not misleading to consumers before they obtain their express consent for any mortgage relief measures. This includes information such as the impact of relief measures on the total cost of servicing a mortgage. 

Examples of expectations under accessibility

FCAC expects FRFIs to: 

• proactively contact consumers at risk and provide information regarding mortgage relief measures so that consumers can make timely and informed decisions.
• ensure that information about mortgage relief measures is readily available to consumers through the financial institution’s communication channels, including phone, online, and in-person.
• provide reputable educational tools and resources to support consumers to make sound financial decisions.
• proactively encourage consumers to reach out to their lender if they are concerned that they may not be able to service their mortgage debts.

Effective date

The guideline took effect on the date of its publication (July 5, 2023).

 

^[1] FRFI refers to banks, including federal credit unions, authorized foreign banks, federal trust companies, federal loan companies, federal insurance companies and foreign insurance companies