OTTAWA, November 5, 2004 -- Bill Knight, Commissioner of the Financial Consumer Agency of Canada (FCAC), today announced that two federally regulated financial institutions have been found in violation of federal legislation that protects financial consumers. The Commissioner imposed fines totalling $80,000 for both financial institutions. Mr. Knight imposed penalties against the following institutions: FirstLine Mortgages, a division of CIBC Mortgages Inc., for violating paragraph 8(1)(q) of the Cost of Borrowing (Trust and Loan Companies) Regulations. The Commissioner imposed a fine in the amount of $50,000. Laurentian Bank of Canada for violating subsection 19(1) of the Cost of Borrowing (Banks) Regulations. The Commissioner imposed a fine in the amount of $30,000. For case summaries of the violations named above, visit the Compliance Section of FCAC's Web site (www.fcac.gc.ca). Cost of Borrowing Regulations and your mortgageWhat you should know What are the Cost of Borrowing Regulations? The Cost of Borrowing Regulations set out the information that banks, federally regulated trust, loan and insurance companies must provide to consumers before, during and after they enter into a credit agreement, and the manner in which the information must be provided. The Regulations apply to mortgages and other types of loans, such as credit cards and lines of credit. How do these laws protect consumers? Clear information and proper disclosure are essential for consumers to make informed financial decisions. Consumers must be given key information that they can use to evaluate costs and to determine which product or service best suits their needs and budget. In the initial decision-making phase - before a consumer signs a credit agreement - the Regulations require that product advertisements provide specific information in a clear and upfront manner, and that initial disclosure documents provided by financial institutions contain all the necessary information relating to the cost of borrowing of the loan. This protects consumers and helps them get the key information they need quickly and efficiently. Consumers must receive timely and accurate information during the life of their loan in order to manage the loan and to assess if the product they have continues to meet their needs and budget. The Regulations require that financial institutions provide consumers with a written copy of agreed-upon changes to their initial credit agreements, such as a change in the amount of each payment and when it is due, no later than 30 days after the change has taken place. In accordance with the Regulations, institutions must also provide consumers with specific information about the renewal of their mortgage 21 days before the end of the term of the loan. This ensures that consumers are continually aware of the terms, conditions and costs of their loan. What impact do these laws have on the marketplace? Informed consumers are essential to a fair and competitive marketplace. A competitive market place not only benefits the individual consumer, but it also encourages innovation among financial institutions. Informed consumers are in a better position to effectively manage their personal finances and develop good spending habits that are beneficial to the market overall. Regulation in the financial marketplace also contributes to consumer confidence by establishing standards that protect the interests of consumers. When consumers are aware of their rights, they are able to make sure those rights are being respected. What information must federal financial institutions provide to consumers? When granting a mortgage loan, institutions must provide consumers with certain information relating to their mortgage including: the total amount of the loan; the annual interest rate; the term of the loan; and any fees or penalties they may incur. Financial institutions must also provide consumers with ongoing information for the life of their loan, including when a loan agreement is amended or when an offer to renew a mortgage loan is made. Advertisements, such as signs and posters, direct mail, television, Web site and print advertisements, are also subject to the Regulations. When a institution advertises an interest rate, payment or non-interest charge relating to a mortgage, it must also provide: The annual percentage rate of the loan (APR). The APR represents the true cost of the loan for its term, taking into account various costs, such as the interest and non-interest charges. The method for calculating the APR is set out in the Regulations. Advertisements must display the APR as prominently as the interest rate, the payment or the non-interest charges, and in the same manner. The term of the loan. For a more detailed list of what information consumers are entitled to when they are granted a loan or renew their mortgage, please visit the For Consumers section of the Financial Consumer Agency of Canada's Web site (www.fcac.gc.ca). FCAC ensures compliance with the consumer protection laws that apply to banks and federally incorporated trust, loan and insurance companies. FCAC also provides consumers with accurate and objective information about financial products and services, and informs Canadians of their rights when dealing with financial institutions. - 30 - Media contacts: Christina McDonaldPublic Affairs Officer (613) 941-4168mcdonald.christina@fcac.gc.ca Jean-Guy St-AmourConsumer Education Officer(613) 941-4222st-amour.jean-guy@fcac.gc.ca
