Decision #55719-512Q304

File: 55719-512Q304

Compliance issue

Cost of borrowing — Failure to provide the correct annual percentage rate (APR); failure to represent the cost of borrowing as an annual percentage rate as prominently and in the same manner as the interest rate; failure to disclose the term of a mortgage in an advertisement
Bank Act, s. 453
Cost of Borrowing (Banks) Regulations, ss. 3, 19(1), 22

A bank conducted an advertising campaign of a mortgage product through direct mail, Web site and media. Some of the advertising material failed to set out the cost of borrowing as an annual percentage rate as prominently and in the same manner as the interest rate. An incorrect annual percentage rate was also disclosed. Some of the advertisements did not indicate the term of the loan.

According to section 453 of the Bank Act, no person shall authorize the publication, issue or appearance of any advertisement in Canada relating to loans, credit cards, payment cards or charge cards offered to natural persons by a bank, unless the advertisement contains such information as may be required by the regulations.

Section 3 of the Cost of Borrowing (Banks) Regulations provides the method by which the cost of borrowing for a loan under a credit agreement is to be calculated, as an annual rate based on the principal.

Subsection 19(1) of the Regulations states that a bank that advertises a loan involving a fixed amount of credit in an advertisement that makes a representation of the interest rate must disclose the annual percentage rate and the term of the loan. The annual percentage rate must also be provided at least as prominently as the representation of the interest rate and in the same manner.

Decision taken

A Notice of Violation was issued, noting one violation against the bank for non-compliance with section 19 of the regulations.

Compliance considerations

Advertisements were mailed to customers, in addition to being advertised in other media and on the Web. The bank had no previous record of violations related to the consumer provision under consideration.

The bank modified its advertising campaign to make it comply with the Regulations and took further corrective measures to ensure that future campaigns would also comply with them.

Measures taken by financial institution

Once FCAC notified the bank of the compliance issues involved, the bank took the following action:

• It immediately modified its advertising campaign in all media to comply with the Regulations.
• It provided training to employees on the legislation and on the authorization process required for advertisements.