Federal financial consumer protection framework – are we there yet?
Note: This is the first in a series of monthly articles intended to parse the new federal financial consumer framework.
The financial crisis of 2008 ignited sweeping legislative and regulatory reforms around the world, some of which continue to be developed and implemented, both on the prudential and market conduct fronts. Case on point – Canada.
While the intention to develop a comprehensive financial consumer code can be traced as far back as the 2013 federal budget, it wasn’t until December 2018 that the federal government successfully passed, after a previous unproductive attempt (Bill c-29), a new financial consumer protection framework (C-86). Its coming into force date, however, remains unannounced.
Why a new framework?
The genesis of the new framework can be attributed to many different sources: 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 result is an overhaul and repatriation of the consumer provisions under a new Part of the Bank Act – Dealing with Customers and the Public (Part XII.2). A similar regime, however, was not proposed for other federally regulated financial institutions, thereby eliminating the legislative harmonization that currently exists between them.
A new structure
The new framework is split into five divisions and sees many of the current regulations promoted to the legislation, rendering future amendments potentially more challenging to come by.
This first division consolidates most of the definitions scattered across the legislation and the regulations and adds new ones.
The second division entitled Fair and Equitable Dealings sets out the rules related to Responsible Business Conduct and makes up the largest division of the framework. It includes provisions dealing with access to basic banking, credit, prepaid products, optional products and services and the complaints process. It is an example of the relocation of several regulations to the legislation.
The third division, which is the second most comprehensive division of the framework, is entitled, Disclosure and Transparency for Informed Decisions. It outlines general and more specific disclosure requirements. The obligation to disclose information in a manner and in language that is clear, simple and not misleading applies to all required disclosure under the new framework. In addition, information boxes are now the rule for information that must be disclosed on an application form or before an agreement is entered into. Much like division two, this division also contains, in full or in part, a number of existing regulations.
The fourth division is a brief section outlining the new express obligation for banks to refund or credit consumers where:
- charges or penalties imposed are not provided for in an agreement;
- charges or penalties imposed exceed those disclosed in an agreement (excess only to be refunded or credited); or
- charges or penalties imposed are for a product or service, the purchase of which was not expressly consented to by the consumer.
Division five sets out broad regulation-making power in a significant number of areas.
Finally, a second new Part (Part XVI.1) to the Bank Act has been added to facilitate whistleblowing. Bank employees who have reasonable grounds to believe that the bank or a person has committed or intends to commit a wrongdoing will be able to report it to a number of parties (the bank, Financial Consumer Agency of Canada, Office of the Superintendent of Financial Institutions, a government body that regulates financial institutions, or law enforcement agency). This means that banks will need to develop new processes to accommodate this development.
Some general observations
The changes introduced by the new framework vary in scope from small technical changes, to broadened provisions, to completely overhauled provisions and, of course, to net new provisions. Some definitions, such as “complaints” and “undue pressure” have been expanded.
Reporting obligations have also increased with the new regime. New policies, procedures and documentation will have to be created to comply with the legislation. New alerts will require system modifications, while the requirement for “resource persons” will necessitate procedural changes.
In addition, those who will be working with the legislation and providing advice on its interpretations will have to exercise caution and pay close attention to terms or expressions such as “person” or “natural person” and “in Canada”. This is because the legislator seems to have purposely intended to draw a distinction between what applies to “persons” and what applies to “natural persons”. The same can be said of the use of the expression “in Canada” which does not appear so pervasively in the existing legislation/regulations.
Stay tuned next month, when we will begin distilling the framework in more detail.
 Access to Basic Banking Regulations, Complaints Regulations, Credit Business Practices Regulations, Negative Option Billing Regulations and Access to Funds Regulations.
 Deposit-type Instruments Regulations, Disclosure of Charges Regulations, Disclosure of Interest Regulations, Disclosure on Account Opening by Telephone Regulations, Principal Protected Notes Regulations, Registered Products Regulations, Public Accountability Regulations, Mortgage Insurance Regulations, and Notice of Branch Closure Regulations.
 Disclosure, training, advertisements, rebates/refunds, charges/ penalties, titles of customer-facing positions, time and manner of bank’s business activities, deemed remittance of required disclosure, form of required information, time and manner of provision of required information, non-application of certain provisions, coercive conduct, access to low/no cost bank accounts, collection, retention, use or disclosure of information, ECB approval maintenance requirements, ECB approval requirements.
 Prepayment card, now prepayment product.
 Broader plain language disclosure obligation; broader prohibition on false or misleading information.
 Complaints process.