October 13, 2005
Backgrounder -- Results of review of banks'
mortgage disclosure documents
OTTAWA, October 13, 2005 -- The Financial Consumer
Agency of Canada (FCAC) today publicly released the results of its review of the
residential mortgage disclosure documents of seven major banks.
Stemming from a consumer complaint, FCAC initiated a review in 2003-04 to
examine the clarity of language used by banks in the disclosure of the
prepayment penalty clause, referred to as the Interest Rate Differential (IRD),
within mortgage documents.
FCAC examined more than 100 mortgage documents, in both English and French,
and concluded that in some cases, the penalty calculations disclosed did not
fully describe the actual method of calculation used by the bank.
Over the past year, FCAC required the institutions involved to improve the
disclosure for their prepayment penalty clause. The banks accepted all of
FCAC's suggestions, and agreed to revise their documents accordingly.
Given that banks had 62% of total residential mortgages outstanding in 2004
(source: Bank of Canada Weekly Financial Statistics, Oct 7, 2005) , the measures
undertaken following FCAC's intervention have a significant impact on the
clarity of disclosure in the marketplace. Improvements include:
amending documents to provide greater clarity to consumers;
adding a worksheet to disclosure documents to help consumers estimate
what their prepayment penalty costs would be;
implementing new procedures to ensure consistency between French and
English documents; and
directing consumers to helpful resources where they can learn more about
the interest calculation and how to estimate their personal prepayment charges.
FCAC Commissioner, Bill Knight, believes that informing the public of the
results of the review is important. " The more relevant financial
information consumers have, the better equipped they are to participate in
today's complex marketplace ." Knight goes on to explain, "By
putting this information in the public domain, FCAC is helping consumers learn
what to look for in their residential mortgage disclosure documents and is
raising awareness of banks' obligations towards consumers in this respect
."
To further inform consumers, FCAC also publishes The ABCs of
Mortgages, an extensive guide to mortgages that offers information on
understanding the terms and conditions of a mortgage, consumers' rights
and responsibilities when obtaining or renewing a mortgage and tips on how to
pay off a mortgage more quickly. The guide is available in print and on the
Agency's Web site, free of charge.
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 and
responsibilities when dealing with financial institutions.
- 30 -
Media contacts:
Christina McDonald
Communications Officer
(613) 941-4168
mcdonald.christina@fcac.gc.ca
Martine Bélanger
Media Relations Officer
(613) 941-8982
belanger.martine@fcac.gc.ca
