Federal Financial Consumer Protection Framework - We Are (almost) There!
By Lucie Tedesco
The long awaited Financial Consumer Protection Framework Regulations (the “Regulations”) supporting the Financial Consumer Protection Framework (the “FCPF” or “New Framework”) were released in the Canada Gazette on August 8, 2021 and will come into force on June 30, 2022 (for more on FCPF, refer to our previous blog posts).
The New Framework – A Refresher
In December 2018, the Federal Government passed the Budget Implementation Act, 2018, No. 2, which included a New Framework to protect consumers of financial products and services offered and sold by banks and strengthened the Financial Consumer Protection Agency of Canada’s (“FCAC”) mandate and powers.
The genesis of the New Framework can be traced to a number factors: the financial crisis, the Marcotte decision, regulatory changes in foreign jurisdictions, the G20/OECD High Level Principles on Financial Consumer Protection and the reports issued by the Financial Consumer Agency of Canada on domestic retail bank sales practices and consumer protection best practices.
The New Framework incorporates 13 of the current regulations to the Bank Act, potentially rendering future amendments to the provisions more challenging to make. Additionally, the changes it introduces vary in scope from small technical changes, to broadened provisions, to completely overhauled provisions and, of course, to net new provisions.
The Framework brings together under one section most of the definitions which are now scattered across the legislation and the regulations, expands some of them and adds new ones. It also sets out rules related to Responsible Business Conduct under the Fair and Equitable Dealings Division, which requires banks to provide electronic alerts to help consumers manage fees and prohibits them from applying undue pressure on or taking advantage of consumers in offering or selling their products.
The Disclosure and Transparency for Informed Decisions Division extends the obligation to disclose information in a manner and in language that is clear, simple and not misleading to all disclosure that is required under the New Framework. Information boxes will be mandatory for any information that must be disclosed on an application form or before an agreement is entered into.
The New Framework also contains new redress obligations for banks to refund or credit consumers where the charges or penalties imposed are either not provided for in an agreement, exceed those disclosed in an agreement (excess only to be refunded or credited) or are for a product or service that was provided without the consumer’s express consent. Finally, banks will also have to establish a whistleblowing process to facilitate the communication of wrongdoing.
Banks will also have increased reporting obligations and be required to designate a committee of their board of directors to oversee their bank’s compliance with its consumer protection responsibilities.
To assist with implementation, the banks and the FCAC have formed a working group. The group aims to identify areas where guidance and clarification are warranted.
The Regulations consolidate the existing regulations that have not been incorporated into the New Framework into a single comprehensive set of regulations. The Regulations are introduced by an Interpretations section and are divided into three Parts:
• Part 1 – Fair and Equitable Dealings;
• Part 2 – Disclosure and Transparency for Informed Decisions; and
• Part 3 – Consequential Amendments, Repeals and Coming into Force.
A Schedule, which deals with Debt Collection Practices, also forms part of the Regulations.
Consultations – What the Government Heard
The Government consulted on the Regulations with over 100 stakeholders in 2019 and 2020.
Of the feedback provided by the Canadian provinces, one province raised the lack of harmonization between the Framework and provincial requirements as an issue that could lead to consumer confusion. In its Regulatory Impact Analysis Statement, the Government confirmed that the Regulations will not affect the provinces’ ability to regulate in the area of consumer protection.
Banks, for their part, expressed concerns over the potential broad interpretation of some of the Framework’s provisions applying to large businesses, such as cancellation rights for products and services and credit card liability. To address the credit card liability concern, the Government passed a legislative amendment through Bill C-30 which received Royal Assent on June 29,2021. The Government is currently considering the best instrument to use to address the issue related to credit card liability.
At the banks’ request, the Government re-examined the obligation to require express consent when a product is modified or replaced and decided to do away with this requirement given the existence of a public commitment by members of the Canadian Bankers Association that the banks will disclose information and provide cancellation options when a product is modified or replaced and a fee is charged or increased.
While the requirements in the existing regulations remain largely unchanged in the consolidated Regulations, the consolidated version presents new requirements to further support the FCPF, specifically:
- Setting the number of days within which banks must resolve consumer complaints to 56 days following the date the complaint is made. Currently banks must resolve consumer complaints within 90 days of escalation to the designated “complaints” employee, per the FCAC Guideline;
- Establishing new interest rate disclosure requirements for renewing deposit type instruments that must be made 21 days and 5 days prior to renewal. The disclosure requirements will be satisfied if banks direct consumers to a website or phone number where they can obtain up-to-date rates;
- Updating liability disclosure requirements for unauthorized credit card transactions to include statements:
- that the maximum liability for unauthorized transactions is $50 in the absence of gross negligence (gross fault in Quebec) by a person in safeguarding their credit card, their account information or personal authentication information; and
- that a person will not be liable for any unauthorized transaction that takes place after such person reports the card, account information or personal authentication information lost or stolen or at risk of being used in an unauthorized manner;
- Clarifying the scope of the FCPF so that it applies as intended. An exclusion to the general requirements that apply to “all” bank products and services is added for derivatives and eligible financial contracts; and
- Increasing the prescribed maximum amount from $1500 to $1750 for free Government of Canada cheque cashing by banks for consumers. To benefit from cashing the increased amount, consumers will continue to not be required to have an account with the bank cashing their government cheques and will continue to have to meet the minimum identification requirements.
(for more information on the New Framework and its impact on existing rules, please consult our series of related blog posts)