Decision #141

Commissioner’s decision and reasons

Summary

1. By notice of violation issued on August 5, 2020 (Notice of Violation), in accordance with s. 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 The Toronto-Dominion Bank (TD or Bank) violated s. 446 of the Bank Act.

2. Section 446 of the Bank Act and s. 3 of the Disclosure of Charges (Banks) Regulations require that a bank disclose, to its customers and to the public, charges applicable to deposit accounts and the usual amount charged by the bank for services it normally provides to its customers and to the public (Disclosure Requirements).

3. In the Notice of Violation, and as discussed more fully in the compliance report issued on July 7, 2020 and attached to the Notice of Violation (Compliance Report), FCAC Staff allege that from 2012 to 2018 the Bank failed to accurately disclose the charges applicable to certain deposit accounts and the usual amount it charged for services as required under s. 446.

4. The amount of the penalty proposed is $400,000.

5. In its written representations dated September 4, 2020 (Representations), the Bank accepts that the alleged violation occurred. However, the Bank questions FCAC Staff’s assessment of negligence and, therefore, the appropriateness of the proposed penalty amount. In addition, the Bank submits that its name should not be made public in this proceeding.

6. The issues for decision in this case are whether to (i) find that the violation alleged in the Notice of Violation has been committed; (ii) impose the penalty amount proposed, a lesser amount or no penalty; and (iii) make public the name of the Bank.

7. I have considered the record before me, namely the Compliance Report, the Notice of Violation, and the Representations. I find that a violation of the Disclosure Requirements was committed and that the proposed penalty amount is appropriate in the circumstances. I have also decided that making the name of the Bank public in this case would be appropriate. My reasons follow.

Background

8. The Disclosure Requirements in s. 446 of the Bank Act have remained essentially the same since January 1, 2003, despite some minor changes to the wording of that section in 2012. The current version states the Disclosure Requirements as follows:

9. In March 2012, in conjunction with its decision to discontinue offering a free account plan for seniors,^{Footnote 1}  TD introduced a new fee schedule. In the new TD disclosure document provided to customers, the table of the monthly charges by account type included a reference to a “senior’s rebate”. The details of the rebate (25% off the monthly fee) and eligibility (age 60 and over) were set out in a footnote. The actual charge for eligible accounts held by seniors was not shown as a dollar amount, nor were there instructions provided regarding any specific action the customer needed to take in order to access the “senior’s rebate”.

10. On July 19, 2017, TD revised its disclosure document. Among other changes, it removed the “senior’s rebate” language and presented the charges for seniors as a specific (lower) dollar amount on the table of monthly charges by account type. However, there were still no instructions regarding any specific action the customer needed to take in order to access the lower monthly charge for seniors.

11. Since March 5, 2012, the lower monthly charge was provided automatically to seniors opening new accounts. However, some existing eligible customers, and customers who became eligible,^{Footnote 2}  were not automatically charged the lower rate. TD required that these eligible customers make a request for the rebate (2012-2017), or for the lower monthly charge (2017-2018), to be applied to their account.

12. On August 17, 2018, TD reported to FCAC that it had identified a breach of the Disclosure Requirements^{Footnote 3}  related to the 2017 disclosure document. Initially, TD was of the view that the breach started when it revised its disclosure document in July 2017.

13. FCAC Staff challenged this assessment and found that the disclosure document in use from March 2012 to July 2017 was also not compliant. As a result, according to FCAC Staff, TD was in breach of the Disclosure Requirements from March 5, 2012 to October 16, 2018.^{Footnote 4}

14. In its Representations, and following receipt of FCAC Staff’s analysis, TD accepted that the breach started in 2012, despite its initial assessment otherwise. However, TD submits that this non-compliance with the Disclosure Requirements was the result of a difference in interpretation made in good faith rather than indicating negligence or intent. According to TD, these circumstances, and the actions it took subsequent to the identification of the breach, mitigate against a finding of intent or a high degree of negligence. On this basis, TD requests the consideration of a reduction by half of the penalty amount proposed in the Notice of Violation.

15. In addition, the Bank requests that I exercise my discretion and withhold the publication of its name in this proceeding on the basis that publication is not necessary for consumer protection or to promote compliance by TD.

Analysis and conclusions

Violation

16. I have considered the record before me, comprising the Notice of Violation, the Compliance Report, and the Representations.

17. The Disclosure Requirements are straightforward and are intended to provide clarity to consumers about the pricing of a bank’s deposit products and confidence that the pricing that is disclosed is accurately applied.

18. The proper disclosure of the charges as an amount, where possible, is particularly important and relevant in this case, as it enables the customer to validate the charges and compare pricing across competing providers more readily. Normally, therefore, the Disclosure Requirements cannot be satisfied by reference to a “rebate” or other formula for calculation. The disclosure documents must include all the required information and cannot rely on alternative communications and/or information found elsewhere. It should also not need emphasizing that a bank’s actual charges and practice must match the disclosure in order to be compliant.

19. In its Representations, TD accepts responsibility for being in violation of the Disclosure Requirements from March 2012 to October 2018.

20. As there is no dispute that TD breached the Disclosure Requirements, and I am satisfied that the record supports this conclusion, I find that TD has committed a violation of s. 446 of the Bank Act, on a balance of probabilities.

Penalty amount

21. In considering the penalty amount, the issue for decision is whether to impose the penalty amount proposed, a lesser penalty amount or no penalty. The relevant criteria to consider are set out in s. 20 of the Act, namely the degree of intent or negligence, the harm done, and the Bank’s history of prior violations.

22. FCAC Staff found that TD was negligent in not recognizing that its disclosure document was non-compliant when it introduced the “senior’s rebate” language in 2012. According to FCAC Staff, the disclosure document created an expectation that the rebate would be applied automatically for all eligible customers, which was not the case. Therefore, the 2012-2017 disclosure document did not accurately reflect the Bank’s actual charges for those customers who were eligible for the lower rate but who did not claim the rebate.

23. FCAC Staff highlighted the fact that, as early as March 2013, TD was aware that many eligible seniors had not requested the rebate and were therefore not being charged the lower rate. TD’s response to this known lack of take up was to attempt to contact customers, provide training to staff and post information on its website regarding the rebate process. TD believed that encouraging a conversation with the customer would create an opportunity to discuss their needs and result in a better outcome. According to FCAC Staff, while TD’s actions may have been appropriate to encourage take up, they did not identify or address the core issue of non-compliant disclosure and a potential regulatory breach.

24. In addition, when the disclosure document was changed in 2017, it took a year and a customer complaint^{Footnote 5}  for TD to identify that the lower monthly charge shown in the disclosure document did not match the actual amount charged to certain eligible customers.

25. FCAC Staff concluded that TD appeared to have ineffective procedures for verifying its charges against the disclosure it provided to customers, demonstrating negligence in the execution of its regulatory obligations, and resulting in a breach of the Disclosure Requirements for over 6 years.

26. TD disputes FCAC Staff’s finding of negligence, in particular for the period between 2012 and 2017. In TD’s view, the problem during that period was not the result of ineffective procedures or a lack of verification of a calculation which would indicate negligence. TD’s actual charges at that time reflected their view that the use of the term “rebate” would have been generally understood to require action on the part of the customer. Therefore, according to TD, there was no disclosure discrepancy to be identified and therefore no indication of negligence in the lack of such identification.

27. TD also points to its acceptance of responsibility, the Bank’s self-identification of the issue and the prompt reporting of the breach to FCAC, along with a rapidly implemented permanent solution, as additional factors that mitigate against the finding of negligence.

28. I acknowledge, as does FCAC Staff, that there is no evidence of TD intentionally misleading customers or intentionally denying the lower pricing to which they were entitled.

29. I also find that TD’s actions mitigate against a finding of intent and are relevant to the consideration of the degree of negligence. TD made efforts to encourage the take up of the rebate. TD did identify and self-report the breach to FCAC, as required, thus demonstrating its commitment to maintaining an effective compliance and oversight regime. In addition, TD accepted responsibility and moved swiftly to create a permanent solution for all eligible customers.

30. However, I note that the issue was identified as a result of a client complaint, rather than through TD’s normal compliance and oversight process. This, and the lack of the identification of a potential breach of the Disclosure Requirements for the period from 2012 to 2017, are an indication of a degree of negligence on the part of TD in fulfilling its regulatory obligations.

31. It is regrettable that TD did not respond differently when it had evidence that the disclosure document was not effective as early as 2013. The lack of take up of the reduced charges by eligible seniors was a signal that something was not working as expected. As previously noted, the Disclosure Requirements are straightforward and designed to provide clarity to consumers about the pricing of a bank’s deposit products and confidence that the pricing that is disclosed is accurately applied. A proper examination of this unintended outcome could have surfaced the non-compliant disclosure and triggered a more effective response on the part of the Bank.

32. Testing whether the disclosure document accurately reflects the Bank’s actual charges is a fundamental part of a properly functioning compliance program that would be expected to be performed on a routine basis and when changes are made. Even if I were to accept the Bank’s position that testing would not have revealed a discrepancy for the 2012-2017 period based on their interpretation of the term “rebate”, in my view, the apparent lack of effective validation even following the change in 2017 demonstrates a weakness in the compliance process that is also consistent with a finding of a degree of negligence.

33. FCAC Staff assessed the harm as equalling the number of customers who received non-compliant disclosure and were charged amounts that did not align with the disclosure they received. In other words, the number of customers who were eligible to receive the discounted rate but did not. In total, over the 6 years the breach was on-going, this is estimated to be approximately 500,000 customers and excess charges of approximately $31 million.

34. TD does not dispute these totals but highlights its prompt and full reimbursement of affected customers, prior to the issuance of the Notice of Violation or receiving direction from FCAC, as mitigating to the level of harm.

35. I recognize the effectiveness of TD’s remediation efforts as relevant and mitigating when considering the level of harm. TD announced its remediation plans to the public in October 2018 and sent letters to all potentially affected customers advising them that they were entitled to a reimbursement. Customers received their reimbursements via deposit to their account by October 31, 2018, or via cheque.

36. I also recognize the Bank’s full and transparent cooperation with FCAC as reflective of a commitment to compliance. However, when reviewing TD’s violation history over the past 5 years, I find it to be an aggravating factor.

37. As a result, given the length of time this issue was outstanding, the number of customers affected, the dollar amounts involved, the degree of negligence identified above, and the violation history, I find that the penalty amount of $400,000 is appropriate in these circumstances.

Publication

38. TD requests that I exercise my discretion to not make public the name of the Bank in this decision.

39. TD asserts that, given its view of a lesser degree of negligence than was alleged by FCAC Staff, its fulsome remediation and demonstrated commitment to compliance, publication is not necessary to promote consumer protection or compliance by TD.

40. I have considered the Bank’s Representations relative to this issue. I am not persuaded that TD has demonstrated a significantly lesser degree of negligence than was alleged by FCAC Staff. While I agree and acknowledge the importance in our regulatory regime of self-reporting, transparent cooperation, and effective remediation, these reflect obligations that are not affected either positively or negatively by publication.

41. It is my view that making public TD’s name in this case is an appropriate measure and a suitable specific deterrent. Publication will also serve to increase the understanding of the importance and proper application of the Disclosure Requirements within the financial community and encourage others to carefully evaluate the effectiveness of their disclosure documents in meeting regulatory requirements.

42. I am also of the view that the transparency of the publication of the Bank’s name in this decision will contribute positively to consumer confidence in Canada’s regulatory oversight of consumer protection and in the banking system. Although TD’s affected customers have already been informed and received reimbursement, they have not been made aware that this was as a result of a regulatory compliance issue. Publication is therefore consistent with FCAC’s purpose to protect and educate consumers and to promote compliance by banks.

43. Therefore, I conclude that it is appropriate to exercise my discretion in this case to make public the name of the Bank together with the nature of the violation and the penalty amount.

Judith N. Robertson
Commissioner
Financial Consumer Agency of Canada

Ottawa, August 17, 2021