Commissioner’s reasons for Decision
1. By notice of violation issued on May 16, 2019, in accordance with subsection 22(2) of the Financial Consumer Agency of Canada Act (Act), staff of the Supervision and Enforcement Branch of the Financial Consumer Agency of Canada (FCAC Staff) allege that Canadian Western Trust Company (CWT) breached the Cost of Borrowing (Trust and Loan Companies) Regulations (Regulations) in relation to fixed-rate and variable-rate mortgage products.
2. Specifically, FCAC Staff allege that from January 2010 and as at May 16, 2019 (the date that the notice of violation was issued), CWT failed to disclose to borrowers certain non-interest charges and fees—such as application, renewal and mortgage discharge fees—in the information box for fixed-rate mortgages and variable-rate mortgages contrary to paragraph 6(2.1)(b) of the Regulations (Violation). FCAC Staff propose a penalty of $200,000 for the Violation.
3. In representations dated June 14, 2019 (Representations),Footnote 1 CWT admits that the Violation occurred as alleged in the notice of violation. However, CWT submits that the proposed penalty should be reduced. In addition, CWT objects to its name being made public in this case.
4. Consequently, the two issues for decision in this case are whether to (i) impose the penalty amount as proposed, a lesser penalty or no penalty; and (ii) make public the name of CWT together with the nature of the violation and the penalty imposed, under section 31 of the Act.
5. I have considered the record before me, including the compliance report attached to the notice of violation and the Representations relevant to CWT. I have identified no reason to reduce the amount of the penalty proposed, therefore it stands as proposed. I have also decided that making the name of CWT public in this case would be appropriate. My reasons follow.
6. The facts that describe the Violation are undisputed.
7. Between January 2010 and May 2019, CWT failed to disclose to borrowers certain non-interest charges applicable to two of its credit products in the manner required by the Regulations.
8. CWT provided disclosure documents to borrowers where the information box on the front page did not include certain fees. The fees in question were application, renewal and mortgage discharge fees.
9. As of the date of the notice of violation, this breach was continuing.
Analysis and Conclusion
10. CWT admits to having committed the Violation. Consequently, the issues for decision are whether to impose or reduce the penalty amount proposed and whether to exercise my discretion under section 31 of the Act to make public the name of CWT together with the nature of the violation and the amount of the penalty. My analysis and conclusions are organized by issue.
11. In its Representations, CWT requests a reduction in the proposed penalty from $200,000 to $50,000. In support of this request, CWT presents the view that the nature of the breach, the degree of harm and the specific measures that CWT has implemented to enhance its compliance framework and internal controls do not warrant the imposition of the proposed penalty.
12. Specifically, CWT states that the proposed penalty amount is not commensurate with the degree of harm to consumers which it asserts was “minimal in the circumstances.” CWT maintains that a relatively small number of customers were affected and that while it admits that the required disclosure format was not provided to customers, CWT did provide the same information in other ways.
13. In addition, CWT points to the lack of evidence of reckless behaviour or negligence in this matter. CWT asserts that there was no intent to conceal, understate or otherwise mislead consumers and points to the lack of a single customer complaint as evidence to support this assertion.
14. CWT points out that the source and nature of the breach results from the same cause as that which led to the notice of violation against its parent company: Canadian Western Bank in FCAC file 800-349976. CWT argues that the Violation is, in effect, the same breach, and therefore, it would be punitive to impose a further penalty for what is in effect the same deficiency.
15. I have considered CWT’s Representations along with the information contained in the compliance report and the notice of violation. FCAC Staff acknowledge that the required information was contained in alternate forms of disclosure.
16. It is CWT’s obligation to understand its regulatory requirements and to ensure its customers receive the benefit of this disclosure. The Regulations came into force in January 2010, were supplemented by FCAC guidance (CG-4 Information box examples for the Cost of Borrowing Regulations), including examples, and are explicitly prescriptive. There was every opportunity for CWT to develop compliant disclosure. I note that CWT self-assessed and attested to compliance with the Regulations in response to FCAC inquiries in 2010.
17. I further note that the breach occurred over nine years and was continuing as of the date of the notice of violation.Footnote 2 The lack of early identification of the issue, the repeated failures to achieve agreed milestones in addressing this breach and the inability to reach full compliance demonstrate CWT’s negligence in the fulfilment of its compliance obligations.
18. The degree of harm resulting from non-compliant disclosure is inherently imprecise as it is impossible to know with certainty what specific information a customer relied on at any point in time. However, the purpose of the Regulations is to ensure that all consumers receive a clear and consistent minimum standard of disclosure in order to enable them to make informed financial decisions.
19. I note that the total amount of improperly disclosed fees relating to the Violation may have been as high as $32.8 million, potentially affecting an estimated 15,106 customers.Footnote 3
20. CWT’s positive compliance history and the steps it has taken to improve disclosure documents and relevant policies, procedures and control measures are acknowledged by FCAC Staff. FCAC Staff also acknowledge that this breach was self-reported by CWT in June 2017, however, the report was filed close to eight months after FCAC raised its concerns.
21. As a result, I find the penalty proposed for the Violation to be appropriate to encourage compliance. The penalty amount of $200,000 stands as proposed.
22. Turning to the matter of the exercise of my discretion to make public the name of CWT, I note that CWT is opposed and views the combination of the penalty and the publication of its name as punitive relative to its level of blameworthiness. CWT believes the publication of its name would punish it rather than encourage compliance.
23. I have considered CWT’s Representations relative to this issue, including CWT’s compliance history and that CWT has accepted responsibility and has made significant investments in improving its internal controls, systems, policies and procedures to prevent future breaches.
24. It is my view that making public CWT’s name in this case is an appropriate measure and a suitable specific deterrent. Publication would encourage CWT to learn from this issue and improve its ability to fulfill its regulatory obligations.
25. Publication would also have a deterrent effect on other regulated entities generally, to ensure disclosure requirements are met and any failures are remedied as expeditiously as possible. Publication is therefore consistent with FCAC’s purpose to protect and educate consumers and to promote the clear and consistent disclosure of all the costs of borrowing.
26. Therefore, I conclude that it would be appropriate to exercise my discretion in this case to make public that CWT committed the Violation, together with the nature of the violation and the penalty imposed.
Judith N. Robertson
Financial Consumer Agency of Canada
Ottawa, July 14, 2020
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