Decision #107

Summary of Commissioner's Decisions and Other Compliance Actions

2010 Regulations to Amend the Cost of Borrowing Regulations and

Credit Business Practices Regulations

The Regulations to Amend the Cost of Borrowing Regulations and the Credit Business Practices Regulations came into force on January 1, 2010. They had been published in the Canada Gazette, Part II on September 30, 2010. In a letter to the industry in October 2009, the Commissioner communicated her expectation that all financial institutions would take the necessary steps to comply with the new requirements by January 1 and September 1, 2010. In November 2009, she followed with a letter explaining that by the end of the first week of January 2010, the Financial Consumer Agency of Canada (FCAC) would circulate a questionnaire to all federally regulated financial institutions affected by the regulations that would ask them to self-assess the extent to which they complied with the portion of the new regulations that came into force January 1.

FCAC's examination process to assess compliance with the new regulatory requirements has given rise to a variety of compliance actions, including a number of Commissioner's Decisions. As all these compliance actions stem from the same regulatory changes, and as the circumstances reviewed in the Commissioner's Decisions are largely similar, this summary and the accompanying table are more informative than merely publishing individual decisions.

FCAC examined 153 federally regulated financial institutions for compliance with the new regulatory requirements. Of those examined, 70 were affected by the changes to the regulations. Enforcement actions were taken with 30 institutions. In the course of the examinations, two institutions were found not to have activities subject to the changes to the regulations.

Most of the compliance issues were related to the new cost of borrowing requirements; only a few were related to the new credit business practices requirements. A significant number of financial institutions were unable to comply with the coming-into-force date of the new regulations (requiring statement redesign or system changes) because of delays or failures by third-party service providers. A number of financial institutions initially produced information boxes that did not meet the requirements of the new regulations. In some cases, full compliance was achieved in a matter of weeks; in others, more time was required.

But some financial institutions produced no information boxes at all, including six that had self-assessed as fully compliant as of January 1, 2010. A significant number of financial institutions failed to understand fundamental requirements of the new regulations at all, or failed to have a proper plan for implementing them. A significant number of self-assessments were inaccurate.

In general, six provisions of the Regulations to Amend the Cost of Borrowing Regulations gave rise to Notices of Violation:

Subsections 6(2.1) to (2.4)

Some FRFIs failed to provide:

• For disclosure statements in respect of loans, including residential mortgages, lines of credit, or credit cards, information boxes as per subsection 6(2.1) to (2.4) of the Cost of Borrowing Regulations

• Disclosure statements, located either in a consolidated manner in a single location in the agreement, or provided before entering into the agreement or with the agreement for a loan, mortgage or a line of credit, as per subsection 6(2.1) or 6(2.2) of the Cost of Borrowing Regulations.

Some FRFIs failed to present:

• Information in the information box in an easily readable font style and font size of at least 12 points, with bold font for titles and numbers, including numbers that refer to an interest rate, a time period, a date or a dollar amount, and 10 points for any other text as per subsection 6(2.4) of the Cost of Borrowing Regulations.

Subsection 6(6)

At least one FRFI failed to provide:

• Disclosure statements for a loan in a timely manner as per subsection 6(6) of the Cost of Borrowing Regulations.

Subsection 6.1(1)

Some FRFIs failed to provide:

• To two or more borrowers, required disclosures unless a designated borrower is identified by some or all co-borrowers as per subsection 6.1(1) of the Cost of Borrowing Regulations.

Section 7

At least one FRFI failed to disclose:

• In credit agreements for mortgages that there is no requirement to provide prior disclosure before entering into a credit agreement when certain conditions are met as per subsection 7(2) of the Cost of Borrowing Regulations.

Subsection 11(2) and 11(3)

At least one FRFI failed to provide:

• For disclosure statements in respect of applications for a credit card, information boxes as per subsection 6(2.1) to (2.4) of the Cost of Borrowing Regulations

• The information specified in paragraphs 11(1)(a) to (c), if an applicant for a credit card applies by telephone or any electronic means.

Section 13

Some FRFIs failed to provide:

• Consumers, in writing, any resulting changes to the initial disclosure statement 30 days after the day on which an amendment to a credit agreement for a line of credit, loan and residential mortgage is made as per section 13 of the Cost of Borrowing Regulations.

Two provisions of the Credit Business Practices Regulations gave rise to a Notice of Violation:

To deal with the range and severity of compliance issues, a variety of compliance approaches were initiated, including action plans and compliance agreements. Notices of Violation were issued against 30 financial institutions, with nine of these also carrying administrative monetary penalties. Eight financial institutions did not file written representations and were therefore deemed to have committed violations. For the remaining financial institutions that did file written representations, the Commissioner's Decision upheld that a violation had been committed.

The decisions to impose an administrative monetary penalty against each of the nine financial institutions took into account several considerations, including:

1.the nature of the compliance issue(s) in each case, and

2.whether the institution proved to be non-compliant upon further examination, having originally self-assessed as fully compliant as of January 1, 2010.

The amount of the administrative monetary penalty in each case was based on the criteria for penalties set out in section 20 of the Financial Consumer Agency of Canada Act.

In most of these cases, a compliance agreement was required and has been agreed to. Compliance agreements or action plans were agreed to as well in cases were no administrative monetary penalty was imposed.

The following tables give further details on the thirty cases where notices of violation were issued. [Summary Table – Enforcement Actions 2010 Regulations to Amend the Cost of Borrowing Regulations and Credit Business Practices Regulations]