Decision #84493-39Q103

From: Financial Consumer Agency of Canada

File: 84493-39Q103

Compliance issue

Cost of Borrowing — Disclosure of the terms and conditions for the repayment of a loan/Use of plain language that is clear and concise
Bank Act, s. 452(1)(a)(i)
Cost of Borrowing (Banks) Regulations, ss. 6(4), 7(1) & 8(1)(l)

A bank's mortgage documents were reviewed for their use of plain language in describing the components of the formula used to calculate a rebate, charge or penalty for the repayment of a loan.

Subparagraph 452(1)(a)(i) of the Bank Act stipulates that a bank shall disclose in writing to the borrower a description of the terms and conditions that apply to the prepayment of the principal of a loan. Subsection 6(4) of the Cost of Borrowing (Banks) Regulations requires that the disclosure be in plain language that is clear and concise and presented in a logical manner that is likely to bring to the borrower's attention the information required by the Regulations. Subsection 7(1) of the Regulations requires that in the case of a loan secured by mortgage, the disclosure must be made two clear business days before entering into the credit agreement. Paragraph 8(1)(l) stipulates that the disclosure shall include a description of any components that comprise a formula to calculate a rebate, charge or penalty, in the event that the borrower exercises the right to repay the amount borrowed before the maturity of the loan.

Compliance measure(s) taken

A compliance agreementFootnote 1  was entered into between FCAC and the bank.

Compliance considerations

What constitutes plain language is not precisely defined under the Regulations and will vary over time. In this particular case, while there was no violation of the Regulations, the bank agreed to update the language it uses in its disclosure statements to be consistent with FCAC's current approach to plain language documents.

Measures taken by financial institution

The bank revised the affected clause of the mortgage agreement to use language that is consistent with FCAC's current approach to plain language documents and it reviewed its other mortgage documentation to ensure consistency across all of its documents.

Outcomes

The compliance agreement between FCAC and the bank helped the bank to gain a better understanding of FCAC's approach to plain language in mortgage disclosure documents. The use of plain language assists consumers in understanding the nature of the obligations that they are about to enter into. Informed consumers are in a better position to choose the financial institution and financial service or product 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.

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