Decision #111

Decision Stemming from a Notice of Violation^{Footnote 1} 

The violation

The Deputy Commissioner of the Financial Consumer Agency of Canada (FCAC) issued a Notice of Violation against the company stating reasonable grounds to believe that it had committed one violation by contravening a combination of Section 428 of the Trust and Loan Companies Act and Section 6 of the Disclosure of Interest (Trust and Loan Company) Regulations, because:

• the company's advertisement for its savings product failed to disclose how interest is to be calculated as per Section 428 of the Trust and Loan Companies Act.
• the company failed to comply with Subsection 6(b) of the Disclosure of Interest (Trust and Loan Companies) Regulations in that there are other circumstances that will affect the rate of interest which have not been disclosed in the advertisement.

The Deputy Commissioner did not propose a penalty for this violation. However, the Deputy Commissioner directed that a compliance agreement be entered into to further compliance with the applicable consumer provisions.

Subsequent to the Notice of Violation, the company did not file written representations; therefore it was deemed to have committed the violation. It agreed to enter into a compliance agreement.

The facts

In May 2010, an individual complained to FCAC about the company's newspaper advertisements for its savings product. The complainant advised that the advertisement did not disclose details about how the company calculates interest.

FCAC's investigation revealed that the advertisement for the savings product disclosed an interest rate; however, it did not disclose how the amount of interest was calculated (i.e. compounded daily). Moreover, the advertisement did not refer to the fact that the interest rate may fluctuate as a result of market fluctuations and that the company reserves the right to change the interest rate at any time.

According to the company, this particular advertisement had appeared multiple times in newspapers and magazines.

The law

According to section 428 of the Trust and Loan Companies Act, no person shall authorize the publication of any advertisement that indicates the rate of interest offered by a company on an interest-bearing deposit unless the advertisement discloses, in accordance with the regulations, how the amount of interest is to be calculated.

FCAC's investigation revealed that the company failed to comply with section 428 of the Act in that its advertisement for its savings productfailed to disclose how interest is to be calculated.

Moreover, under Section 6 of the Disclosure of Interest (Trust and Loan Companies) Regulations, a company that advertises in respect of interest-bearing deposits shall disclose how the amount of interest applicable to each deposit is to be calculated by means of a statement in the advertisement that clearly discloses the manner, if any, in which (a) the balance of a deposit account will affect the rate of interest, and (b) any other circumstance that will affect the rate of interest.

Compliance considerations

The statute requires a company that advertises the interest rate offered on an interest-bearing deposit to disclose how the amount of interest is to be calculated. The regulations require the disclosure of any circumstance that could affect the interest rate. These requirements help ensure that consumers have information to make informed decisions when choosing a deposit account.

Initially, the company confirmed that the interest rate was variable and that it reserved the right to change the interest rate at any time. It further stated that circumstances such as market fluctuation could have an impact on whether it changes the interest rate. It also confirmed that interest on its savings product compounded daily.

However, the company subsequently provided contradictory information when asked if it believed it met the regulatory requirements of section 428 of the Act and. It also appeared to imply that since the interest calculation is beneficial to customers, there is no need to disclose the method by which interest is calculated.

FCAC believed that the details included in the earlier confirmation described circumstances that affected the interest rate and that therefore should be disclosed in its advertisement. FCAC also believed that the legislation required that regardless of how the interest calculation affects the customer, the method for calculation must be disclosed.

While correspondence from the company indicated that it had policies and procedures in place when creating and approving advertisements, these policies and procedures did not seem adequate to ensure that all the legislative requirements were met.