Decision #120

Commissioner's reasons for decision

(Financial Consumer Agency of Canada Act subsection 23(2))

This decision concerns non-compliance of credit card disclosure with the Cost of Borrowing (Banks) Regulations.

In June 2013, the Director of the Compliance and Enforcement Branch (the Director) of the Financial Consumer Agency of Canada (FCAC) issued a Notice of Violation to the bank pursuant to subsection 22(2) of the Financial Consumer Agency of Canada Act (the Act). The Notice of Violation stated:

I have reasonable grounds to believe that the bank has committed a violation by contravening subsection 6(4) of the Cost of Borrowing (Banks) Regulations, as the information disclosed on consumers’ statements in relation to the foreign currency exchange rate for foreign currency transactions (i.e., the provision of a truncated foreign exchange rate) is not clear and is misleading to borrowers.

The Director proposed a penalty of $45,000 for the violation.

In July 2013, the bank provided written representations in response to the Notice of Violation.

I have carefully reviewed the file, including the bank’s written representations. I find on a balance of probabilities that the bank has committed the violation set out in the Notice of Violation. I have taken into account the bank’s written representations and considered the degree of intention or negligence, the harm done by the violations and the bank’s compliance history, and impose an administrative monetary penalty of $25,000.

Applicable regulations

Cost of Borrowing (Banks) Regulations (the Regulations):

6(4) Any disclosure that is required to be made by a bank under these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.

12(5) Subject to subsections (8) and (9), a bank that issues credit cards must provide borrowers with supplementary disclosure statements on a regular periodic basis, at least once a month, that disclose the information referred to in paragraphs 10(3)(a) and (d) to (h) and that, in addition, contain the following information:

(a) an itemized statement of account that describes each transaction and discloses each amount credited or charged, including interest, and the dates when those amounts were posted to the account;

...

12(6) For the purpose of paragraph (5)(a), an itemized statement of account is adequate if it permits the borrower to verify each transaction described by linking it with a transaction record provided to the borrower.

Facts

In July 2012, FCAC received a self-reported complaint from the bank. In the complaint, the customer asserted that the foreign exchange rates displayed on printed credit card statements did not reflect the actual exchange rates used by the bank to calculate the amount charged.

FCAC’s Compliance and Enforcement Branch (CEB) investigated the complaint and confirmed that the bank applied a foreign exchange rate with nine decimal places to calculate the amount charged for each foreign currency transaction that appeared on customers’ credit card statements. However, for display on the customer’s statement, the bank truncated the foreign exchange rate to two decimal places.

For example, with respect to a transaction for [ ], the exchange rate disclosed in the credit card statement was truncated to two decimal places and did not reflect the actual exchange rate used to calculate the charge to the account. If the [ ]foreign exchange transaction were based on an exchange rate of [ ], as disclosed on the credit card statement, the charge to the account would have been [ ]. However, [ ] was charged to the account, as the bank calculated the charge based on the actual rate of [ ].

Furthermore, the display of the foreign exchange rate was rounded either up or down, depending on the third digit of the nine decimal place version of the exchange rate (i.e., if the third digit was between 1 and 5, the disclosed foreign exchange rate was rounded down; between 6 and 9, the foreign exchange rate was rounded up).

The bank does not provide its customers with disclosure that describes the difference between the system calculation and the information disclosed on the credit card statement. However, borrowers can obtain the full nine decimal place value for the foreign exchange rate by viewing their account transactions online or by calling the call centre and speaking with an agent to obtain this information.

During CEB’s investigation, the bank confirmed that it had been disclosing foreign exchange currency rates in this manner over the past two years. The bank acknowledged as well that its disclosure “could have been clearer pursuant to subsection 6(4) due to the fact that we did not disclose to the customers that the foreign exchange rate displayed on the statement was rounded to two decimal places from the original nine decimal exchange rate that was used in calculating the charge.” The bank also acknowledged that the “disclosure could have been more clear” in its June 6, 2013 comments on the draft compliance report.

Commencing [ ], the bank began to display the full exchange rate that the bank applied to foreign currency transactions (to nine decimals) on customer’s credit card statements.

Position of the bank

The bank argues that since the disclosure of the full exchange rate that applies to a foreign currency transaction is not required disclosure under paragraph 12(5)(a) of the Regulations, subsection 6(4) does not apply. Consequently, the bank maintains that it is not in violation of subsection 6(4).

The bank states:

“The purpose of section 12(5)(a) is to ensure that cardholders are provided with sufficient information on a credit card statement so that they can make sure that it corresponds with their sales receipt or other transaction record that they received from the merchant and can confirm that they owe for that transaction. This is stated in section 12(6) of the Regulations which reads as follows:

For the purpose of paragraph 5(a) an itemized statement of account is adequate if it permits a borrower to verify each transaction described by linking it with a transaction record provided to the borrower.

In the case of a Canadian dollar transaction, the first requirement in section 12(5)(a) as to the description of the transaction would be satisfied by a reference to the merchant and the second requirement as to the amount charged would be satisfied if the amount shown as a charge on the account statement corresponds with the amount shown on the sales receipt. If, however, the transaction is not in Canadian dollars, the description of the transaction should also include the amount in foreign currency for the transaction (since this is necessary for verification), and the amount to be charge must be an amount in Canadian dollars as that is the currency in which the account is payable.”

Moreover, the bank submits that

“It was never intended that borrowers were to be provided with information that would enable them to verify mathematical calculations that have been made by a bank. Nor is this the reasonable expectation of borrowers.”

Finally, the bank contends that it would be punitive in the circumstances to impose any penalty, given that there was only one complaint, the bank has fully cooperated with the FCAC at every stage and that the bank has revised the display of the foreign exchange rate on customers’ credit card statements.

Discussion

I - Violation

I have reviewed the compliance officer’s report and I have fully considered the bank’s written representations in coming to the following determination:
Paragraph 12(5)(a) of the Regulations requires a bank that issues credit cards to provide borrowers with supplementary disclosure statements that contain (among other information) an itemized statement of account that describes each transaction and discloses each amount credited or charged, including interest, and the dates when those amounts were posted to the account.

I agree with the bank that paragraph 12(5)(a) of the Regulations must be read with subsection 12(6). Accordingly, with respect to transactions carried out in foreign currency, the requirements of paragraph 12(5)(a) of the Regulations are met if, along with the disclosure of the amount charged, the credit card statement contains a description of the transaction in foreign currency that permits the borrower to adequately verify the transaction with the borrower’s transaction record.
As the bank has provided its customers with credit card statements that contain an itemized statement of account that describe each transaction, including foreign currency transactions, and disclose each amount credited or charged, including interest and the dates when those amounts were posted to the account, it prima facie meets the requirements of paragraph 12(5)(a) of the Regulations. The bank’s compliance with paragraph 12(5)(a) is not at issue in this case.
Even though the bank has met the requirements of paragraph 12(5)(a), pursuant to subsection 6(4) of the Regulations, any disclosure that is required to be made by a bank under these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading. Had the bank, for example, indicated to customers on their credit card statements that the amount on the statement was based on a foreign exchange rate truncated to two decimal places, the disclosure may have been much clearer and less confusing for the borrower.

Here, however, the display of a truncated exchange rate on a consumer’s credit card statement without explanation or qualification alongside the amount that was required to be disclosed under paragraph 12(5)(a) (but based on the full exchange rate that was applied by the bank) resulted in the disclosure being presented in a manner that was unclear and misleading.

It is important to note that it was not the truncated exchange rate in and of itself that was misleading to the consumer. It was the truncated exchange rate displayed alongside the disclosed amount on the statement that was unclear and misleading. Rather than simplify the required disclosure for customers, the truncated rate may have led customers into thinking that they had been charged the wrong amount in Canadian dollars.

Ultimately, the amounts charged to customers for transactions in foreign currency were not presented on customer’s credit card statements in a manner that was clear, simple and not misleading. Accordingly, I conclude on a balance of probabilities that the bank has committed the violation.

Due diligence

Subsection 28(1) of the FCAC Act provides that due diligence is a defence in a proceeding in relation to a violation.

In its written representations, the bank submits that it has “acted diligently” in revising its systems to address the FCAC’s concerns.
In my view, the bank has not shown on a balance of probabilities that it took all reasonable care to prevent the commission of the offence.

II - Penalty

Having concluded that the bank has committed the violation, I may impose a penalty taking into account the factors set out in section 20 of the Act.

I have considered the bank’s written submissions on the proposed penalty, including the bank’s contention that it would be punitive in the circumstances to impose any penalty given that there was only one complaint, the bank has fully cooperated with the FCAC at every stage and that the bank has revised the display of the foreign exchange rate on customers’ credit card statements. Taking into account the bank’s comments as well as the considerations set out below, I believe that a lower penalty than that proposed in the Notice of Violation is warranted in this case.

Harm done to customers

The bank’s customers did not suffer any financial harm as a result of the bank’s violation. The bank’s customers were charged the correct amount for a foreign currency transaction based on the relevant exchange rate to nine decimal places. I also consider (as submitted by the bank in response to the draft compliance report) that the exchange rate applied by the bank does not influence a customer’s decision to complete a purchase.

Nonetheless, I cannot conclude that the bank’s customers have not been harmed by the bank’s actions.

The issue affected all the bank’s customers whose credit card statements included a foreign currency transaction between [ ]. According to the bank’s information for the month of [ ], approximately 13 percent of its cardholders [ ] would have received a statement which included a foreign currency exchange rate transaction. As the bank did not provide information for every month in the 15-month period, the [ ]results can be used as an indicator to estimate the harm.

While it is true that the bank only received one complaint about this issue, this does not mean that the rest of the bank’s customers clearly understood that the amount in relation to a foreign currency transaction on their credit card statement was based on a nine decimal place exchange rate rather than a two decimal place exchange rate. Depending on the foreign currency of the transaction and the price of the item, the apparent discrepancy between the foreign exchange rate said to be applied (to two decimal places) and the amount charged could vary greatly from a few cents to thousands of dollars for large-ticket items.

I acknowledge that borrowers were able to obtain the full nine decimal place value for the foreign exchange rate by viewing their account transactions online or by calling the call centre and speaking with an agent to obtain this information.

But in a global marketplace, where credit card transactions in various foreign currencies are more and more commonplace, it is imperative that consumers be provided up front and at a glance with clear, simple and not misleading information about the amounts disclosed on their credit card statements. Consequently, I find that the bank’s customers were harmed by its failure to present the information required to be disclosed in a manner compliant with subsection 6(4) of the Regulations.

Degree of intention or negligence

I accept that the bank has been forthright in its communications with CEB and that it took the opportunity to promptly correct the display of the foreign exchange rate on customers’ statements as of [ ].

However, the bank has not shown that it took reasonable care to ensure compliance with the Regulations and avoid harm to its customers. In its discussions with CEB during the investigation and its submissions to CEB on the draft compliance report, the bank itself confirmed that the disclosure in relation to the foreign exchange rate and the amount charged on customer credit card statements could have been clearer.

Here, when the bank [ ], it did not take sufficient steps to ensure that its credit card disclosure in relation to foreign currency transactions was presented in a manner that is clear, simple and not misleading and consequently, demonstrated a degree of negligence in this regard.

Compliance history

The bank has had no violations in the past five years. This has been considered in my assessment.

Conclusion

I have considered that the bank has been cooperative throughout the investigation and that the bank remedied the situation in [ ]. That said, for a fifteen-month period, the bank did not take reasonable care to ensure that the disclosure in relation to the amount disclosed for foreign currency transactions in its credit card statements was presented in a manner that is clear, simple and not misleading. This resulted in harm to at least one customer, and it would have been unclear and misleading to the bank’s other cardholders who carried out credit card transactions in foreign currency.

Therefore, I am not persuaded that no penalty should be imposed in this situation. It is important that the bank, and all federally regulated financial institutions for that matter, ensure not only that the required disclosure is disclosed but that it is presented to consumers in a manner that is clear, simple and not misleading in accordance with subsection 6(4). That said, given the considerations above, it is my view that a lower penalty than proposed in the Notice of Violation ought to be assessed.

To conclude, on a balance of probabilities, I find that the bank has committed the violation set out in the Notice of Violation. I impose an administrative monetary penalty of $25,000.

It is not my intention to publicize this decision pursuant to section 31 of the FCAC Act.

Ottawa, September 23, 2013

Lucie M.A Tedesco

Commissioner

Financial Consumer Agency of Canada

Page details

Date modified: