Financial Consumer Protection Framework and amendments to FCAC Act (transition binder 2019)

Background

• Addresses many issues raised as part of:
  • FCAC’s Domestic Bank Retail Sales Practices Review
  • FCAC’s Report on Best Practices in Financial Consumer Protection
• Consolidates existing consumer provisions and regulations
• Strengthens obligations that apply to banks
  • E.g., stronger internal oversight of compliance with consumer protection measures
• Gives FCAC new or enhanced powers
  • Through amendments to the FCAC Act and the Bank Act

New or enhanced FCAC powers

Administrative Monetary Penalties

FCAC Act -  Section 19

Summary of changes

• Increases maximum penalty to $1M for a person (currently $50K) and $10M for an entity (currently $500K)
• Adds “duration of the violation” and “ability to pay” to the current penalty amount determination criteria (that also include “harm”, “degree of intent or negligence”, and “history…of any prior violation”)

Public Naming

FCAC Act – Section 31

Summary of changes

• -Converts the Commissioner’s discretionary authority to make public the nature of a violation, the name of the person who committed it and the amount of the penalty imposed into a duty to do so (s.31(1))
• In making public the nature of the violation, the Commissioner may include the reasons for the decision (s.31(2))

Commissioner’s Direction

Bank Act – Section 661.1

Summary of changes

Introduces a new discretionary power for the Commissioner to direct a bank or person to comply with a compliance agreement or consumer provision

Special Audits

Bank Act – Section 659

Summary of changes

Introduces a new discretionary power to compel banks to undergo third-party independent audits if, in the opinion of the FCAC Commissioner, it is required for the purposes of administering the FCAC Act and enforcing consumer provisions

• The audit report is to be provided to FCAC
• Expenses incurred are payable by the bank

Part XVI.1 – Whistleblowing

Bank Act – Sections 979.1 – 979.4

Summary of changes

New obligations on banks to implement a whistleblowing program for their employees

A whistleblower will be protected against any disciplinary or retaliatory action taken against them and banks shall keep confidential the identity of any such whistleblower

Purpose Clause, FCAC Mandate, Financial Literacy Leader

FCAC Act – Section 2 (Purpose), Section 3 (Objects), Section 4.1 (Repeal)

Summary of changes

• Adds a purpose clause to the FCAC Act
• Restructures and amalgamates the objects of the FCAC Act and clarifies that FCAC strives to protect the rights and interests of consumers of financial products and services and the public, taking into account the need of financial institutions to efficiently manage their business operations
• Adds a requirement for FCAC to publish research
• Repeals the provisions relating to the Financial Literacy Leader (effective April 10, 2019)

New and amended Consumer Provisions

Complaints (Banks)

Bank Act - 627.43 – 627.47

Summary of changes

Strengthens the banks’ complaints handling procedures by:

• Creating a new, intentionally broad definition of “complaint”
• Requiring that the complaints procedures be satisfactory to the Commissioner
• Requiring banks to designate an officer to implement P&Ps, and officer(s)/employee(s) to receive and deal with complaints
• Prohibiting misleading terms (e.g. Ombudsman)
• Requiring the creation and retention (7 years) a record of all complaints
• Requiring all 2nd level complaints are reported in a detailed record to FCAC

Complaints (External Complaints Bodies)

Bank Act - 627.49

Summary of changes

New timeframe requirements, including:

• 120 days to make final written recommendation
• 90 days to make summary of recommendation available on website
• 135 days after fiscal year end to file a written report to FCAC on their performance and functions

Committee of the Board of Directors

Bank Act - 157(2)(e) and 195.1

Summary of changes

The directors of a bank will have a new obligation to designate a committee to ensure that the bank is complying with consumer provisions.

Appropriate Products/Services and Remuneration

Bank Act - 627.06 – 627.07

Summary of changes

A new requirement for banks to put in place procedures to ensure products are appropriate for their clients and to ensure that remuneration doesn’t conflict with this requirement

Electronic Alerts

Bank Act - 627.13

Summary of changes

New requirement for banks to send electronic alerts to customers when balances meet specified thresholds

Prohibited Conduct (Undue Pressure)

Bank Act - 627.04

Summary of changes

Banks will be prohibited from taking advantage of a person, or imposing undue pressure or coercing them for any purpose

For purpose of the Bank Act, undue pressure means any pressure that could be reasonably considered to be excessive or persistent in the circumstances

Express Consent

Bank Act – Sections 627.08 – 627.09

Summary of changes

Banks will be prohibited from providing a person with a product or service or without first, for example,

• obtaining their express consent to do so
• entering into an agreement for that product or service

Training

Bank Act – Section 627.02

Summary of changes

New obligation for banks to train their staff and third-party providers on policies and procedures for complying with the consumer provisions

False or Misleading Information

Bank Act – Section 627.03

Summary of changes

Banks will be prohibited from providing false or misleading information to customers, to the public or the Commissioner

Redress

Bank Act – Section 627.997

Summary of changes

Banks will have a new obligation to provide a credit or refund for charges or penalties that have not been disclosed or consented to by customers

Optional Products and Services

Bank Act – Sections 627.41 – 627.42

Summary of changes

Banks are obligated to provide separate agreements for optional products or services

Limited Liability for Unauthorized Credit Card Use

Bank Act – Section 627.33

Summary of changes

Introduces protections for a credit cardholder on the unauthorized use of their credit card, their account information or their authentication information

If the credit cardholder fails to report the unauthorized use, their maximum liability is $50, unless the bank can demonstrate gross negligence or gross fault on the part of the credit cardholder

Arrangements with Affiliates

Bank Act – Section 627.15

Summary of changes

A bank must ensure that their affiliates, representatives, agents or other intermediaries that sell the bank’s products or services comply with the consumer provisions

• This provision allows consumers to access the banks’ complaints-handling processes
• It also allows the employees of the affiliates, etc., to access the bank’s whistleblower process

Advertisements

Bank Act – Section 627.14

Summary of changes

New provision that requires all advertisements made by an institution to be accurate, clear and not misleading

Information Box

Bank Act – Section 627.57

Summary of changes

New obligation for banks that all information, which is required to be disclosed in an application or before entering into an agreement in respect of a product or service will need to be disclosed in a single prominently displayed information box

Currently, this obligation exists for certain required disclosures. For example,

• Consumer credit products
• Fees payable for prepaid payment products.

Product Renewal, Rollover or Promotion Disclosure

Bank Act – Sections 627.60 - 627.61

Summary of changes

New requirement for banks to provide disclosure prior to the automatic renewal, rollover, or end of a promotional offer. The disclosure must include any applicable:

• Interest rates
• Charges or penalties
• Consumer rights and obligations
• Cancellation period

Voluntary Codes/Public Commitments

Bank Act – Section 627.66

Summary of changes

New requirements for banks to disclose the voluntary codes of conduct and the public commitments they have adopted, by making them available:

• In branches in Canada
• At points of service
• On their website
• To any person who requests them

Other considerations

Implementation process

• FCAC will work to
  • Develop guidance (where appropriate) for FRFEs
  • Develop internal policies and procedures
  • Update the Supervision Framework
  • Update internal systems to be prepare for implementation
• FCAC will continue to engage with Industry about the implementation process