Decision #21588-05Q203

File: 21588-05Q203

Compliance issue

Cost of Borrowing - Failure to disclose amendment to required information in credit card agreement
Bank Act, ss. 450(1), 451, 452(1)
Cost of Borrowing (Banks) Regulations, s. 12(3)

A bank reduced the minimum monthly payment requirements on their credit cards and failed to notify consumers.

Sections 450(1), 451 and 452(1) of the Bank Act and subsection 12(3) of the associated Cost of Borrowing (Banks) Regulations provide that a bank must disclose to borrowers with whom it enters into a credit agreement for a credit card of any amendments made to certain types of information required to be disclosed in the initial statement. 

Compliance measure(s) taken

A Notice of Violation^{Footnote 1}  was issued and an administrative monetary penalty of $5,000 was imposed. 

Compliance considerations

Banks may reduce the minimum monthly payments on their credit card products provided they give 30 days’ advance notice to consumers. In this case, the failure to provide notice of the amendment had an impact on consumers who had purchased credit card balance insurance with the bank. They received less coverage and fewer benefits as a result of the lower minimum monthly payment. Given that consumers were not made aware of the change, those who usually only made a minimum monthly payment may not have realized that they were applying less money per month towards their outstanding balance and, as a result, would have paid more interest and taken longer to pay their full balance. There were no previous violations noted against the bank. 

Corrective measures taken by financial institution

• Notified customers of the reduction of the required minimum monthly payment by including information with their statement.
• Compensated consumers with the difference in benefits for their credit card balance insurance. 

Outcomes

Consumers who are provided with proper notice of amendments to their credit agreements are in a better position to weigh their options and choose the financial institution and financial product or service 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.