Decision #32369-58Q403

File: 32369-58Q403

Compliance issue

Credit cards, Cost of Borrowing – Failure to disclose all necessary information in a credit card advertisement or application

Bank Act, s. 450(1)
Cost of Borrowing (Banks) Regulations s. 6(3), 11(1) 

A bank mailed out credit card offers disclosing its interest rate as being “as low as…” but did not disclose the actual interest rate the individual consumer would be charged. 

Section 6 of the Cost of Borrowing (Banks) Regulations stipulates that a bank that grants credit must provide the borrower with a disclosure statement in writing that includes the information required by the Regulations. Section 6(3) specifies that information in a disclosure statement may be based on an assumption or estimate if the assumption or estimate is reasonable and the information disclosed by it a) cannot be known by the bank when it makes the statement; and b) is identified to the borrower as an assumption or estimate. 

In this case, the wording “as low as” indicates that the actual rate is within a range and that it will only be established after determining the quality of the applicant’s credit rating. Therefore, the disclosure of a rate as “as low as” a stated percentage is not based on an estimate or an assumption. 

Additionally, the bank did not disclose the interest rate on purchases made with its credit card during its introductory period. 

Section 11(1) of the Regulations indicates that a bank that issues credit cards, and that distributes an application form for credit cards, must specify the annual interest rate for credit cards with a fixed rate of interest.  

Compliance measure(s) taken

A Letter of Reprimand^{Footnote 1}  noting two violations against the bank. 

Compliance considerations

At the time of the application, consumers did not know either the regular interest rate or the rate they would be charged for purchases made during the introductory period. Consumers would have to apply for the account and then be accepted before the interest rate that is being applied to the card was disclosed and before determining if the product or cost was suitable to their needs. This limits consumers’ ability to compare the costs of borrowing from various financial institutions to find the best product for their needs. The bank had no prior violations of these regulations noted against it. 

Corrective measures taken by financial institution

• Revised all material to stipulate all possible interest rates, including the maximum and minimum interest rate.
• Added a statement that the rates were based on a consumer’s credit worthiness. 

Outcomes

It is important that consumers be provided with key information pertaining to the cost of the credit card so that they can make an informed decision. Informed consumers are in a better position to choose the financial institution and financial product or service that best suits their needs and banking habits. Facilitating comparison-shopping encourages healthy competition between financial institutions and promotes growth and innovation in the marketplace.