Decision #145

Commissioner’s Decision and Reasons

Summary

1. By notice of violation issued on April 5, 2023 (Notice of Violation), in accordance with s. 22(2) of the Financial Consumer Agency of Canada Act (Act), staff of the Enforcement Division of the Financial Consumer Agency of Canada (FCAC Staff) allege that the Community Trust Company (CTC) committed two violations of the Cost of Borrowing (Trust and Loan Companies) Regulations (Regulations).

2. In the Notice of Violation, and as discussed more fully in the compliance report issued on April 5, 2023, and attached to the Notice of Violation (Compliance Report), FCAC Staff allege that: 

1. from January 1, 2010 to November 30, 2020, CTC failed to provide borrowers who entered into a fixed rate mortgage agreement with an information box that included the types and amount of other fees as required by s. 6(2.1)(b) of the Regulations (Violation 1).
2. from January 20, 2007 to November 30, 2020, CTC failed to provide borrowers who entered into a fixed rate mortgage agreement with an initial disclosure statement that included a fee to discharge a security interest as required by s. 8(1)(p) of the Regulations (Violation 2) (collectively, Violations).

3. CTC, in its response to the Notice of Violation (Representations), admits that Violation 1 occurred as alleged but denies the allegations in Violation 2. In addition, CTC objects to the proposed penalty amounts of $1.6 million for Violation 1 and $1.55 million for Violation 2. CTC submits that it would be more appropriate to impose no penalty or substantially reduced penalty amounts and, instead, address the non-compliance through a Compliance Agreement.^{Footnote 1} 

4. As the evidence confirms the facts as alleged in Violation 1, I accept CTC’s admission as my finding. The issues remaining for decision are i) whether Violation 2 was committed as alleged, and ii) whether to impose the penalty amounts proposed for the Violations, lesser amounts, or no penalty.

5. I have considered the record before me, namely the Notice of Violation, the Compliance Report, and the Representations, and have decided that Violation 2 was also committed as alleged. I have decided it is appropriate in this case to impose the penalty amount of $1.6 million for Violation 1 and no penalty for Violation 2. In addition, I direct FCAC Staff to address all outstanding compliance issues, including the refunding of amounts uniquely related to Violation 2, through a Compliance Agreement with CTC. My reasons follow. 

Background 

6. The Regulations provide that costs and fees related to borrowing must be disclosed in two separate ways. First, in a specified information box at the beginning of the credit agreement or other disclosure document (Information Box) and, second, in the schedule of charges in the credit agreement or other disclosure document (Initial Disclosure Document).

7. During the period of the Violations, CTC charged two separate fees at the time of discharge. A $495 fee, variously referred to as a “Discharge Administration Fee” or “Discharge Fee”, was charged to customers to discharge CTC’s security interest in the property. The $495 fee was properly disclosed in the Information Box and in the Initial Disclosure Document during this period.

8. A second fee of $100 was also charged to produce a statement providing information related to the discharge, including the amount required to pay off the mortgage ($100 Statement Fee). Both Violations relate to the proper disclosure of this fee.

9. There is no dispute that the Information Box—the subject of Violation 1—did not disclose the $100 Statement Fee during the period in question. In fact, the Information Box did not disclose fees for statements of any kind.

10. The Initial Disclosure Document—the subject of Violation 2—did not disclose a statement fee specifically associated with a mortgage discharge however, it did disclose a Mortgage Loan Statement Fee of $100.

11. The issue of the lack of proper disclosure and potential breach of the Regulations was first reported to FCAC on February 5, 2021, by the Ombudsman for Banking Services and Investments (OBSI) who were responding to a customer complaint. OBSI, as an approved external complaints body, is required to identify potential systemic issues as part of its complaint review process and report them to FCAC.

12. Between February and April 2021, FCAC Staff engaged with CTC to determine the facts and to verify whether CTC had fulfilled its obligation to file a Reportable Compliance Issue (RCI).^{Footnote 2} On April 9, 2021, CTC filed a RCI related to several disclosure requirements, including the $100 Statement Fee that is the subject of this proceeding.

13. The Initial Disclosure Document requirement came into force on September 1, 2001, and the Information Box requirement came into force on January 1, 2010. As of December 1, 2020, CTC had amended the disclosure it provided to customers to be compliant with the requirements of the Regulations, as confirmed by FCAC Staff. Therefore, FCAC Staff allege that Violation 1 occurred between January 1, 2010 and November 30, 2020. CTC’s earliest record of a fee being charged to produce a statement at discharge is January 20, 2007, therefore, FCC Staff allege that Violation 2 occurred between January 20, 2007 and November 30, 2020.

Analysis and Conclusions

Violation 1 

14. Under s 6(2.1)(b) of the Regulations,

(2.1) For a disclosure statement that is part of a credit agreement in respect of a loan, a line of credit or a credit card or an application for a credit card, […];

(b) the applicable information box, as set out in one of Schedules 1 to 5, containing the information referred to in that Schedule, must be presented at the beginning of the agreement or application. 

Under Schedules 1 to 5 of the Regulations, under “Other Fees”, the types and amount of non-interest charges are to be listed. 

15. There is no dispute on the evidence about the breach of s. 6(2.1)(b) of the Regulations. The Information Box did not identify any fee for the production of a statement, whether at discharge or otherwise, during the time in question.

16. Therefore, I accept CTC’s admission that Violation 1 occurred as alleged. 

Violation 2 

17. Under s.8(1)(p) of the Regulations,

8(1) A company that enters into a credit agreement for a loan for a fixed interest rate for a fixed amount, to be repaid on a fixed future date or by instalment payments, must provide the borrower with an initial disclosure statement that includes the following information: […];

(p) the existence of a fee to discharge a security interest and the amount of the fee on the day that the statement was provided; […].

18. FCAC Staff allege that CTC’s Initial Disclosure Document did not disclose the $100 Statement Fee. In their view, the reference to the Mortgage Loan Statement Fee was inadequate for the specific disclosure requirements of the Regulations. FCAC Staff highlight that in addition to requiring disclosure of all costs and fees, the Regulations require specific disclosure of discharge fees, that they should be easily identifiable, and, in any case, must be in language that is clear, simple and not misleading. Section 8(1)(p) of the Regulations specifies that the disclosure needs to include both the existence of a fee to discharge a security interest and the amount of the fee.

19. In CTC’s view, the Mortgage Loan Statement Fee disclosed in the Initial Disclosure Document was a general category that covered all statement fees, including the $100 Statement Fee. CTC points to the disclosure of the $495 security discharge fee as satisfying the specific requirements of s. 8(1)(p) of the Regulations. For these reasons, CTC asserts that the Initial Disclosure Document was compliant with the Regulations, however, CTC accepts that the Mortgage Loan Statement Fee wording may have lacked clarity regarding its application at the time of discharge.

20. CTC also protests that it was not afforded an appropriate level of procedural fairness in relation to Violation 2. First, CTC asserts that it did not have advance notice of the specific provision of the Regulations that is at issue in Violation 2 because a Notice of Breach was not issued prior the Notice of Violation. Second, CTC asserts that it was precluded from an opportunity to respond to the final Compliance Report because FCAC Staff issued the Notice of Violation and final Compliance Report on the same day. In CTC’s view, these deviations from the expected FCAC internal process deprived CTC of procedural fairness and impairs the validity of this proceeding.

21. I am not persuaded that CTC has experienced a lack of procedural fairness in this proceeding. While a Notice of Breach may normally be issued prior to a Notice of Violation, and there is usually time elapsed between the issuance of the final Compliance Report and the issuance of the Notice of Violation, the fact that these circumstances did not occur in this case does not, by itself, give rise to a lack of procedural fairness in the conduct of this proceeding.

22. The record before me shows that CTC had several opportunities to know the case against it and to present its views prior to the issuance of the Notice of Violation on April 5, 2023. FCAC Staff and CTC were actively engaged in discussing the issues giving rise to Violation 2, through calls and written exchanges, in late 2022. FCAC Staff’s position relative to s. 8(1)(p) of the Regulations was made explicit, and in writing, in January 2023. CTC also had the opportunity to provide detailed comments on excerpts from the draft Compliance Report, many of which were reflected in the final version.

23. In any case, CTC’s concerns are not present in this proceeding. The Notice of Violation was issued in compliance with the Act and provides CTC with full detail of the case against it. CTC sought and received a 30-day extension in order to provide extensive written Representations relating to this proceeding, including on the Notice of Violation and final Compliance Report, all of which are included in the record before me. As a result, CTC had full knowledge of the allegations against it and was afforded sufficient opportunity to present its case, thus ensuring an appropriate level of procedural fairness.

24. Turning to the substantive issue for decision, I am also not persuaded by CTC’s assertion that the reference in the Initial Disclosure Document to a Mortgage Loan Statement Fee satisfies s. 8(1)(p) of the Regulations.

25. I find that the Initial Disclosure Document’s description of the Mortgage Loan Statement Fee makes it clear that this fee was for an extra statement prepared at the request of the borrower. The description states that the Mortgage Loan Statement Fee was “Payable for the preparation of each additional mortgage loan statement and preparation of each duplicate year end mortgage loan statement.” This contrasts to the circumstances of the $100 Statement Fee at issue in Violation 2 which is not discretionary—a statement is always prepared at the time of mortgage discharge—and it contains specific information relative to the discharge.

26. It is clear from a plain reading of the Trust and Loan Companies Act, and the Regulations, that there is a high degree of importance placed on the disclosure of all costs related to a credit agreement. There has been a general provision to disclose all costs since 2001. In addition, there are multiple specific provisions, including s. 8(1)(p) of the Regulations, as well as other relevant provisions, to ensure no costs are omitted.

27. The repeated emphasis in the legislation on full disclosure of all costs is well warranted. Accurate disclosure of fees and costs is fundamental to fairness, honest business practices and the integrity of the financial system. It serves the dual purpose of allowing customers to make informed financial decisions and provides them with the ability to hold their lenders to account in the event fees are charged inappropriately. I note that this issue came to light through the complaint of a customer who was concerned about being charged amounts that were different than had been disclosed.

28. The importance of accountability in cost disclosure is amplified in circumstances like a mortgage discharge, where the stakes are high, and a customer may feel pressure to acquiesce to a non-disclosed fee in order to complete the purchase or sale of a home.

29. No amount of parsing the language of the Regulations, or asserting that unrelated disclosures can be construed to cover this specific circumstance, changes the fact that the $100 Statement Fee was charged in relation to discharging a security interest and was not disclosed as such in the Initial Disclosure Document. The disclosure requirement applies whether the lender elects to charge one or multiple fees. It also applies regardless of the naming convention chosen by the lender.

30. Therefore, I find that the $100 Statement Fee is properly considered to be part of “the existence of [...] and the amount of the fee to discharge a security interest” referenced in s. 8(1)(p) of the Regulations and should have been disclosed as such. As a result, I conclude that the Initial Disclosure Document was not compliant with the requirements of the Regulations. Therefore, I find that Violation 2 was committed as alleged. 

Penalty Amounts 

31. CTC raised several legal objections to FCAC Staff’s methodology, and the resulting proposed penalty amounts, in addition to disputing FCAC Staff’s conclusions relative to each criterion under s. 20 of the Act. I will address CTC’s general concerns here before addressing each criterion in turn.

32. According to CTC, FCAC Staff erred in using the maximum penalty amount of $10 million dollars under s. 19(2) of the Act in its analysis. According to CTC, it is inappropriate to use the $10 million maximum in this case because the loans affected by the non-compliant disclosure occurred predominately while the maximum allowable penalty per violation was $500,000.^{Footnote 3} 

33. It is well-settled that a breach in disclosure requirements is present and continuing until corrected. The number of loans made, or frequency of the transactions, does not alter whether a violation has occurred and continues to occur until it is remedied. As the disclosure in question was not remedied until December 2022, the Violations were continuing after the new maximum penalty amounts had taken effect. Therefore, FCAC Staff correctly applied the maximum amount in force at that time in their analysis.

34. CTC also alleges that FCAC Staff’s reliance on the published FCAC Administrative Monetary Penalties Framework serves to fetter my discretion. I disagree. The publication of the Administrative Monetary Penalties Framework serves to appropriately inform regulated entities about how the legislative provisions will be applied by FCAC Staff. The result is a recommendation from FCAC Staff that is clearly articulated and against which the regulated entity has an opportunity to argue. The Commissioner’s discretion is unfettered by this process.

35. CTC also proposes that it is improper to impose more than one penalty amount per proceeding and that it is ‘double jeopardy’ to face two violations based on the same set of circumstances (Kienapple principle). These objections have been well-addressed in previous decisions.^{Footnote 4}  It is not unusual for one set of circumstances to give rise to more than one breach of regulatory obligations. The Act expressly contemplates that every contravention of a consumer provision can be proceeded against as a violation and gives FCAC the authority to do so.

36. In this case, two separate disclosure requirements were breached: in the Information Box and in the Initial Disclosure Document. Accordingly, CTC’s arguments that the Kienapple principle applies runs contrary to the legislative intent of providing FCAC with the discretion to hold regulated entities accountable for each and every non-compliance with a consumer provision.

Negligence or Intent

37. FCAC Staff assessed the degree of negligence at the highest level, Level 3, for both Violations. The factors that contributed to this assessment were the inadequate and ineffective controls that allowed the non-compliant disclosure to be in continuous use over many years without detection or correction, the lack of adequate policies and procedures, and the lack of evidence of actions by CTC that would demonstrate an appropriate understanding of its regulatory obligations.

38. When the issue was raised through a client complaint in 2020, CTC did not identify a market conduct issue to be reported to FCAC, as required. It was only through the intervention of OBSI that the issue became known to FCAC thereby triggering the sequence of events that led to the eventual RCI and this proceeding. The review done during the change in ownership in 2019 did not surface these issues or initiate remediation. Also of concern to FCAC Staff was the evidence that CTC had some knowledge of deficiencies in its disclosure documents as early as 2014 but either deliberately, or through lack of attention, did not take corrective action. According to FCAC Staff, this sequence of compliance failures provides evidence that CTC was significantly negligent in understanding and fulfilling its regulatory obligations.

39. CTC strongly objects to FCAC Staff’s conclusion related to negligence. CTC ascribes its inability to provide evidence of an active compliance oversight function to the passage of time, the substantial growth of CTC, and change in personnel over this period. CTC highlights that most of the period of the Violations occurred prior to a new leadership team taking charge following a change in ownership in 2019. CTC acknowledges some shortcomings in the compliance function and oversight prior to the ownership change but believes that FCAC Staff have not given enough consideration to the important improvements it has made to its compliance, legal and risk functions since 2020 as mitigating to the level of negligence.

40. I agree with FCAC Staff that the record shows a very significant level of negligence in how CTC fulfilled its compliance and regulatory responsibilities that, when considered with the evidence that CTC had some knowledge of these issues, renders it virtually indistinguishable from intent. The long duration of the Violations is indicative of the lack of effective controls to identify and remedy compliance shortcomings. The lack of self-reporting also gives support to a finding of weaknesses in CTC’s understanding of its regulatory obligations. While the changes made in 2020 are recognized as providing a substantial improvement, the fact remains that during the period of the Violations, the controls in place were not at the required standard to identify compliance issues or ensure compliance with the Regulations.

Harm

41. FCAC Staff assessed the level of harm for both Violations as very low, Level 1. CTC asserts that notwithstanding this assessment, the resulting proposed penalties are disproportionate and punitive relative to the low financial impact on individual customers and in total.

42. The number of customers affected by the non-complaint disclosure in Violation 1 was relatively low. Approximately 6,392 received the non-complaint disclosure and approximately half, 3,428, were charged the $100 Statement Fee, resulting in a total financial impact of the breach of $341,326. CTC mitigated this level of harm through a remediation program where CTC refunded those customers it could identify and made a charitable donation to support financial literacy with the remaining funds. CTC was able to contact and refund 997 of these customers. The median amount refunded per customer was $138.

43. Violation 2 affected the same customers and total financial impact as Violation 1, plus FCAC Staff estimated an additional 90 customers, and between $4,500 and $9,000 in fees charged between January 20, 2007 and December 31, 2009. CTC was unable to confirm the total amount charged due to pricing changes and incomplete records.

44. CTC was able to identify 32 customers affected by Violation 2 who were not affected by Violation 1. CTC did not attempt to contact or refund these customers, nor did it make a charitable contribution for the estimated amount of financial impact for those it could not identify, in accordance with CTC’s view that the Initial Disclosure Document was compliant with the Regulations.

45. I agree with FCAC Staff and CTC that the level of financial harm for both Violations was very low. The low median financial impact per customer in both Violations and the CTC’s financial remediation of Violation 1 is further mitigating to the overall level of harm. However, this conclusion would be bolstered by a more complete remediation on the part of CTC, including those customers uniquely affected by Violation 2.

Duration

46. The long duration of the Violations elevates the impact of the breaches and supports the conclusions regarding the shortcomings of CTC’s control framework and compliance oversight. Duration is reflected in the finding of a Level 3 degree of negligence and was also considered in the analysis of harm.

47. As the criteria of negligence or intent, and harm have adequately captured the element of duration in this case, there is no need for further consideration in reaching my conclusions regarding the amount of the penalties to impose.

Violation History

48. CTC’s history of violations in the 5 years preceding the Notice of Violation has been duly considered as a mitigating factor.

Ability to Pay

49. FCAC Staff concluded that given CTC’s level of revenue and income, CTC has the ability to pay the proposed penalty amounts. CTC admits to being able to pay but objects to the size of the proposed penalty amounts relative to the size of CTC.

50. I find that the record supports FCAC Staff's analysis. The question on proportionality is not whether the proposed penalty amounts are proportional to the size of CTC, but whether they are proportional and appropriate to promote compliance. The expected standard for consumer protection does not vary with the size of the regulated entity.

Conclusion

51. CTC proposes that I use my discretion to significantly reduce or impose no penalty amount and, instead, rely on a Compliance Agreement with FCAC Staff. In CTC’s view, that would more effectively address the required improvements in the disclosure documents and compliance oversight function.

52. I agree that a Compliance Agreement would provide important benefits in this case. Given the concerns about the CTC control framework revealed in this proceeding, additional guidance and direction are likely required to ensure compliance. As a result, I direct FCAC Staff to address the remediation of all outstanding compliance issues, including the refunding of amounts uniquely related to Violation 2, through a Compliance Agreement with CTC.

53. However, a Compliance Agreement is not a substitute for the determination of an appropriate penalty amount relative to the Violations. It is damaging to confidence in the financial system, and the reputation of CTC, if breaches of disclosure provisions are allowed to remain undetected and unremedied for extended periods. The penalty amount imposed, if any, must be appropriate to promote compliance by CTC and serve the purpose of specific and general deterrence.

54. In consideration of my analysis of the relevant penalty criteria, I note that the very significant level of negligence which allowed the non-compliance to occur for an extended period, without detection or correction, was present for both Violations. I also note that my conclusions regarding the low level of financial harm applies equally to both Violations. As has been stated in prior Commissioner decisions, the criterion of harm is broader than the financial impact, however, in this case, given the low number of customers affected, and the circumstances of the non-compliant disclosure, the overall level of harm is also low for both Violations.

55. Therefore, I find that it is appropriate in these circumstances to impose the proposed penalty amount of $1.6 million for Violation 1.

56. However, notwithstanding the findings on all the relevant penalty criteria, I find that it is not necessary to impose a penalty amount for Violation 2. I am satisfied that the improvements to the compliance controls that have already been made, and the faithful completion of a Compliance Agreement, will appropriately serve to promote compliance by CTC of the requirements relating to Violation 2. In my view, this proceeding and resulting findings are sufficient to further this objective.

57. In addition, when considering the important purpose of addressing specific and general deterrence, I am also satisfied that imposing the penalty amount for Violation 1 is sufficient in this case and is proportionate to the findings of non-compliance.

58. Therefore, I have determined to exercise my discretion and not impose a penalty for Violation 2.

Judith N. Robertson
Commissioner
Financial Consumer Agency of Canada

Ottawa, October 30, 2023