Decision #68235-422Q206

File: 68235-422Q206

Compliance issue

Cost of Borrowing — Failure to disclose the interest rate and the amount of non-interest charges on a credit card application form or when soliciting credit card applications
Bank Act, subsection 452(1.1)
Cost of Borrowing (Banks) Regulations, paragraph 11(1)(a)

During a period ending in April 2004, a bank mailed out application forms inviting consumers to apply for a credit card that provided various rates of interest for which an applicant could qualify. The documentation accompanying the application form indicated that the consumer could receive an interest rate “as low as” a certain percentage. However, the bank’s application form did not disclose the actual rate the consumer would receive, nor did it disclose the amount of non-interest charges that would apply to the credit card. This information also was not disclosed in the application forms made available to consumers in the bank’s branches or on its Web site. The consumer would only receive disclosure of this information upon receipt of the credit card and credit agreement. The difference between the lowest and highest rate offered was minimal and most of the approved applicants obtained the lower rate. The marketing campaign was limited to existing clients.

Section 11 of the Cost of Borrowing (Banks) Regulations specifies disclosure requirements for credit card applications and solicitation. A bank that issues credit cards, and distributes an application form for credit cards, must specify the annual interest rate and the amount of non-interest charges on the credit card application at the time of application. When soliciting credit card applications by electronic means, the annual interest rate and the amount of non-interest charges must be specified at the time of solicitation.

The Agency’s compliance concern about the proper disclosure of interest rates on credit card application forms was raised in December 2003 by way of the FCAC’s industry newsletter. This newsletter addressed the practice of some credit card issuers not disclosing the interest rate on their cards but rather offering the possibility of qualifying for one of a number of rates. It was the Agency’s view that this did not comply with the law.

Decision taken

The Commissioner found that a violation of the Cost of Borrowing (Banks) Regulations had occurred.

Compliance considerations

When the Commissioner determines that a violation has occurred, the Commissioner has the authority to impose a penalty of up to $50,000 for an individual, or $100,000 for a financial institution. When assessing the amount of a penalty, the Commissioner is required to take into consideration the following three factors, as set out in the law:

  1. the degree of intention or negligence on the part of the person who committed the violation;
  2. the harm done by the violation; and
  3. the financial institution's compliance history within the five year period immediately before the violation.

With respect to the factor of harm done, the Commissioner has a broad perspective. If an institution fails to disclose the information required by law, the institution gives itself an unfair advantage in the marketplace. This is against the principle of maintaining a level playing field for all financial institutions.

In the present case, all the facts and circumstances of the case were taken into account when applying the above-mentioned factors for the purpose of determining the amount of the penalty.

Measures taken by financial institution

In February 2004 the bank began to phase out the non-compliant application forms and replaced them with a form disclosing a single interest rate. This phasing out was completed in April 2004. The bank acted quickly to change the product so as to offer only the lower rate. Within two months of being advised of an upcoming review of the issue, the product had been changed.


The Cost of Borrowing Regulations set out the information that lenders must disclose to consumers before and after entering into a credit agreement. This includes specific requirements to disclose interest rates and non-interest costs associated with a credit card.

The disclosure requirements in the Regulations were created to make it easier for consumers to compare the cost of borrowing between different financial institutions and to ensure that they have the information they need to assist them in making more sound financial decisions.

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