Federal financial consumer protection framework – A more comprehensive approach to disclosure and transparency
Note: This is the fourth in a series of monthly articles intended to parse the new federal financial consumer protection framework (the “Framework”). To view other articles in the series scroll down to the bottom of this article.
Division 3 of Part XII.2 of the Bank Act amendments pertaining to the new federal financial consumer protection framework (“the Framework”) brings together all of the disclosure requirements that are currently housed in regulations. The Division starts off by outlining new general disclosure requirements, then provides more product-specific disclosure requirements and finally ends with public disclosure and notice requirements.
General Disclosure Requirements
Division 3 requires that all disclosure be in writing, unless otherwise provided, and made in a manner and using language that is clear, simple and not misleading. This ensures a consistent approach to disclosure across the Framework, or at least across Division 3.
In order for a disclosed item to be deemed to have been disclosed in writing, the requirements for agreements that are entered into by telephone will have to be:
- communicated prior to entering into the agreement,
- disclosed orally, and
- provided to the consumer in writing without delay after the agreement is entered into.
In addition, the Framework requires that any disclosure made to customers at large and to the public, be displayed prominently at each of an institution’s point of service, Canadian branch and website where products and services are offered. Written copies of the disclosure must also be available, if requested.
Under the general disclosure rules, customers and the public are entitled to receive disclosure of conduct that a FRFI is prohibited from adopting, a FRFI’s complaints handling procedures and the voluntary codes of conduct and public commitments to which a FRFI adheres. Moreover, disclosure that is required in advertisements must be prominently displayed within such advertisements.
Information boxes, also known as “Schumer boxes” or “summary boxes”, were initially introduced in the US in 1988 by New York Congressman, Chuck Schumer. The boxes were made mandatory to provide consumers with key information (fees, annual percentage rates, font sizes, interest rate calculation methods, etc.) about their credit cards accounts that would allow them to make informed financial decisions.
In January 2010, the Government of Canada followed suit by amending the Cost of Borrowing (Banks) Regulations  and requiring Federally Regulated Financial Institutions (“FRFIs”) to include information boxes in all of their credit applications and agreements. The requirements called for the boxes, the form and content of which were prescribed by Schedules, to provide salient information, consolidated in one location, to help consumers better understand their options when applying for credit cards or entering into other credit agreements.
The use of information boxes has been expanded in the Framework to include application forms and documentation provided to consumers before agreements for products and services under Division 3 are entered into. As a result, the requirement could now potentially apply to applications and information required to be disclosed before entering into agreements for products or services such
as, deposit accounts, financial instruments, notes, optional products or services and registered products, if so prescribed.
The Framework also provides a process to disclose prescribed information by telephone, that would otherwise be disclosed in an information box. And where an agreement is entered into electronically or by mail, the FRFI must provide the consumer with the phone number (local or toll-free) of a natural person who is employed by the FRFI (or its agent), who is knowledgeable about the agreement’s terms and conditions.
Other products and services, renewals and roll-overs
Prior to entering into agreements with natural persons for products provided on an ongoing basis and for which the disclosure requirements are not caught by DIVISION 3, FRFIs will nevertheless have to disclose:
- The product or service features
- A list of all charges and penalties related to the product or service
- The natural person’s rights and obligations as they relate to the product or service
- The FRFI’s complaints handling process, and
- The contact information for the Financial Consumer Agency of Canada and for the external complaints body of which the FRFI is a member
Agreement for term products and promotional products entered into with natural persons, other than for business purposes, that are subject to renewal or roll over will require two disclosure notices before they can be renewed if their term was for more than 30 days (21 days and 5 day prior to renewal or rollover) and one disclosure notice if their term was for less than 30 days (5 days prior to renewal or roll-over). The information disclosed will have to include the interest rate and fees applicable on renewal, the natural person’s rights and obligations, and the time within which the natural person may cancel the agreement.
Deposit Accounts, Financial Instruments and Notes
For deposit accounts, the requirements essentially remain the same. There is, however, an additional obligation for deposit accounts other than personal deposit accounts. The concept of “partial lists of charges” is introduced and financial institutions will be able to use these lists for the purposes of disclosure, provided the manner in which customers and the public can obtain the full list of charges is also disclosed.
Maximum hold periods and hold policies will also have to be disclosed for all deposit accounts to customers and the public, rather than only to those who open new accounts, as is the case currently. Finally, all of the required disclosure must be provided to a person prior to the account agreement being entered into.
Prescribed information pertaining to financial instruments and notes must be available on an institution’s website, at each of its branches where it offers these products and in writing for persons who request it.
In our next installment on the Framework, we will continue to examine the specific disclosure requirements related to credit, prepaid payment products, optional products and services, registered products, mortgage insurance and public notices. We will also touch on the impact these new requirements will likely have on systems and operations.
 Final Rule: Truth in Lending; Credit and Charge Card Disclosures (12 CFR Part 226. Docket No. R-0654, Board of Governors of the Federal Reserve System, April 6, 1989, p. 1.
 Ibid., Schedules 1 to 4.
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