Bill C-86 Proposes to Overhaul Bank Act Consumer Provisions

Bill C-86, Budget Implementation Act, 2018, No. 2 (Bill), was introduced in the House of Commons on October 29. If passed, the Bill will amend the Bank Act (Canada) (BA) to consolidate and strengthen consumer protection provisions that apply to banks and authorized foreign banks. The Bill will also amend the BA, the Insurance Companies Act (Canada) and the Trust and Loan Companies Act (collectively, the FI Statutes) to include, among other things, a materiality threshold for certain Superintendent approvals.

What You Need To Know

• Consumer protection has been significantly enhanced following the Financial Consumer Agency of Canada’s (FCAC) “Domestic Bank Retail Sales Practices Review” and “Report on Best Practices in Financial Consumer Protection.”
• The Bill consolidates the BA’s consumer provisions and imports certain existing consumer regulations into a new Part XII.2 of the BA, and implements enhancements to the BA in the areas of corporate governance, business practices, public reporting, disclosure of information and access to basic banking services.
• Additional proposed amendments to the FI Statutes would expand investment powers for federally regulated financial institutions and add clarity to existing provisions relating to evidentiary privilege and electronic consent requirements.
• Proposed amendments to the financial consumer protection framework are expected to come into force on a day or days to be fixed by order of the Governor in Council (other than some amendments to the Financial Consumer Agency of Canada Act not specifically discussed in this bulletin). The other proposed amendments to the FI Statutes are expected to come into force on Royal Assent.

Financial Consumer Protection Framework

Corporate Governance

Proposed amendments to the BA would broaden board oversight of a bank’s compliance with consumer provisions by designating a committee of at least three directors—a majority of whom must be independent—to:

• require bank management to establish procedures for complying with the consumer provisions. This is broader than current requirements for procedures to address disclosing information to customers and dealing with complaints;
• review those procedures to determine whether they are appropriate to ensure the bank is complying with the consumer provisions; and
• require management to report at least annually to the committee on the implementation of the procedures and on any other activities that the bank carries out in relation to the protection of its customers.

Further, banks will be required to report to the Commissioner of the FCAC (Commissioner) on the mandate and responsibilities of the committee and the procedures referred to in the first bullet above. Directors of a bank shall report to the Commissioner—within 90 days after each year-end—what the committee did during the year in performing the duties listed above.

Consumer Framework

In addition to consolidating existing consumer provisions in the BA and many of its regulations, the new provisions proposed in the Bill enhance consumer protection. A full understanding of changes to the existing regime must await the government’s release of draft regulations. However, enhancements in the Bill include:

• a fair and equitable dealings regime. This regime (a) requires banks¹ to ensure its officers and employees in Canada (and any person who offers or sells the banks products or services in Canada) are trained with respect to the bank’s policies and procedures established for complying with the consumer provisions (which could be a significant undertaking for banks); (b) provides that no bank shall communicate or otherwise provide false or misleading information to a customer, the public or the Commissioner; (c) adds to the tied selling restriction a general prohibition against imposing undue pressure on a person for any reason, taking advantage of a person, and engaging in other conduct that will be set out in regulations (and requires disclosure of those prohibitions); and (d) requires banks to establish and implement policies and procedures to ensure the products or services it offers to natural persons other than for business purposes are appropriate for the person, having regard to their circumstances, including their financial needs (and to ensure that remuneration of officers and employees in Canada and any payment or benefit the bank offers to them does not interfere with such person’s ability to comply with such policies and procedures);
• an extension of the “Consent for New Products and Services” section of the Negative Option Billing Regulations that will apply to business customers, in addition to just natural persons;
• the introduction of a cooling off period, during which a consumer can cancel an agreement for certain products or services provided by a bank on an ongoing basis. Under the proposed provision, a bank shall waive any cancellation charge and would only be able to recover any amounts related to the person’s use of the product or service prior to cancellation, any expense the bank reasonably incurred in providing the product or service and any other amount as may be prescribed in regulations;
• a new requirement for banks to send an alert to natural persons by electronic means if the balance of the person’s personal deposit account, or the amount of credit available on the person’s personal line of credit (or credit card account) in Canada, falls below any amount the person communicates to the bank. If the person does not so communicate, an alert will be sent if it falls below a prescribed amount, or if no amount is prescribed, below $100);²
• a provision providing that, in respect of optional products or services provided to natural persons under promotional, preferential, introductory or special offers, a bank may not impose any charges as of the day on which the person will no longer benefit from the offer without obtaining the person’s express consent to impose that charge within five business days before that day;³ and
• an amendment regime in respect of the terms and conditions of agreements for certain banking products and services, details of which will be set out in the regulations.

Accountability

The proposed amendments to the BA will enhance the public accountability requirements of banks with equity over $1 billion. The amendments will require those banks to describe (i) the names of the voluntary codes of conduct it has adopted, that are designed to protect the interests of its customers and that are publicly available, and of any public commitments it has made, along with the means by which the codes and commitments are made available to its customers and the public, (ii) the measures taken to provide products and services to low-income persons, senior persons, persons with disabilities and persons who face accessibility, linguistic or literacy challenges, and (iii) consultations undertaken by the bank with its customers and the public relating to existing products and services, the development of new products and services, the identification of trends and emerging issues that may impact customers or the public, and matters in respect of which the bank has received complaints. This information will be in addition to the requirement to provide details with respect to the contribution of the bank to the Canadian economy and society, which is currently set out in the Public Accountability Statement Regulations. It is not clear what changes will be made to those existing regulations.

Complaints

The Bill proposes a robust new complaints regime, which will significantly expand the responsibilities of banks and authorized foreign banks. For example, banks and authorized foreign banks will be required to: establish procedures satisfactory to the Commissioner for dealing with complaints within a prescribed period; designate one officer or employee in Canada to be responsible for implementing those procedures; and designate one or more officers or employees in Canada to receive and deal with those complaints. Bank and authorized foreign banks will also need to annually make available on their websites, and provide in writing to any person who requests it, information relating to the number and nature of complaints dealt with by designated officers or employees, the average length of time taken to deal with complaints and the number of complaints resolved by that officer or employee to the satisfaction of the persons who made them, in addition to any other information which may be prescribed by regulation.

In addition, within 60 days after the end of each quarter, a bank or authorized foreign bank shall submit to the Commissioner, with respect to each complaint received by a designated officer or employee during that quarter, a copy of the record of complaint (which record shall be maintained for at least seven years). Each copy of the record submitted must contain the following information: if the complaint was made in writing, the original version of the complaint; if the complaint was made orally, the recording or transcript of the recording or details of the complaint if it was not recorded; the name of the person who made the complaint; the name of the person who requested or received the product or service to which the complaint relates; the contact info provided by the person who made the complaint; the date on which the institution received the complaint; a description of the nature of the complaint and the product or service to which it relates; the date on which the complaint was resolved if, in the opinion of the institution, it was resolved to the satisfaction of the person who made the complaint, a description of any actions that were taken by the institution to attempt to resolve the complaint; a description of any compensation provided to the complainant; confirmation that the institution provided the complainant information about its procedure for dealing with complaints, the name of the external complaints body of which the institution is a member (and the manner in which the external complaints body may be contacted), and the FCAC’s mailing address, website address and telephone number; and any other information which may be prescribed by regulation.

“Complaint” is defined broadly to mean dissatisfaction, whether justified or not, expressed to an institution with respect to (a) a product or service in Canada that is offered, sold or provided by the institution, or (b) the manner in which a product or service in Canada is offered, sold or provided by the institution.

In addition to the enhanced regime applicable to banks and authorized foreign banks, external complaints bodies will also be subject to a more robust approval process from the Minister (on the recommendation of the Commissioner), in addition to ongoing obligations for maintaining an approval to act as such for banks and authorized foreign banks.

Credit Agreement Disclosure Obligations Applicable to Business Customers

The Bill proposes to provide that before entering into a credit agreement with a person other than a natural person, a bank or authorized foreign bank shall disclose certain information to be prescribed by regulations. This potential expansion of disclosure requirements to business customers will need to be monitored closely.

Resource Person

The Bill proposes to require that, subject to regulations, prior to entering into an agreement with a “person”—which could include both natural persons and business customers—by electronic means or by mail in respect of a product or service in Canada, a bank or authorized foreign bank would be required to provide the person with a telephone number of a natural person who is an employee or agent of the institution and is knowledgeable about the terms and conditions of the agreement.

Redress

The Bill proposes to include a provision which would require banks and authorized foreign banks to credit or refund any charge or penalty imposed where such charge or penalty was not provided for in an agreement or credit or refund the excess amount of a charge or penalty which is greater than the amount of charge or penalty provided for in an agreement. Additionally, banks and authorized foreign banks are required to credit or refund any charge or penalty if the bank or foreign bank provides a person with a product or service without first having obtained the person’s express consent. The amount of any credit or refund referred to above would bear interest from the day on which it was imposed at a rate equal to the Bank of Canada’s overnight rate on that day, until the day on which the amount is credited or refunded.

Regulations

The Bill sets forth an extensive regulation making authority in respect of the proposed new consumer provisions, including an extremely broad discretion for the Governor in Council to promulgate regulations prescribing what an institution may, shall or shall not do with respect to anything a bank can do.

Whistleblowing

The Bill proposes to amend the BA to include a whistleblowing regime in respect of any “wrongdoing.” Wrongdoing is defined to include a contravention of any provision of the BA or its regulations, voluntary code of conduct or public commitment made by a bank or authorized foreign bank and policy or procedure established by a bank or authorized foreign bank. Any employee of a bank or authorized foreign bank with reasonable grounds for believing the institution or any person has committed or intends to commit a wrongdoing may report the particulars of the matter to the institution or to the Commissioner, the Superintendent, a government agency or body that regulates or supervises financial institutions, or a law enforcement agency (and the identity of such employee and any information that could reasonably be expected to reveal their identity must be kept confidential, subject to certain exceptions relating to the sharing of such information between government agencies or bodies or law enforcement agencies for purposes related to an investigation). Pursuant to the proposed amendments, each bank and authorized foreign bank will be required to establish and implement procedures for dealing with matters reported to it by employees under the whistleblowing regime, and no employee shall be dismissed, suspended, demoted, harassed or otherwise disadvantaged by reason that such employee acting on the basis of reasonable belief, makes such a report or refuses to do anything that is a wrongdoing.

Amendments to Financial Consumer Agency of Canada Act

In addition to the proposed amendments to the consumer provisions of the BA, the Bill proposes to amend several provisions of the Financial Consumer Agency of Canada Act (FCAC Act). Included is an amendment that provides the Commissioner shall make public the nature of a violation, the name of the person who committed it and the amount of the penalty imposed, subject to any regulations which may be published. It is important to note this deviates from the existing provision which provides the Commissioner may make public the nature of a violation, etc. It will be interesting to see how the regulations (if any are enacted) could restore the Commissioner’s discretion to withhold names.

In addition, the FCAC Act would be amended to define the purpose of the FCAC Act as an act to ensure financial institutions, external complaints bodies and payment card network operators are supervised by an agency of the Government so as to contribute to the protection of consumers of financial products and services and the public, including by strengthening the financial literacy of Canadians. The objects of FCAC would also be amended to, among other things, explicitly list striving 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. It is interesting to note the expansion of the FCAC’s purpose and objects would be similar to the expansive mandate of the Office of the Superintendent of Financial Institutions to “protect the rights and interests of depositors, policyholders and creditors of financial institutions” pursuant to the Office of the Superintendent of Financial Institutions Act (OSFI Act).

Finally, the FCAC Act currently provides the maximum penalty for a violation of the BA is $50,000 for natural persons and $500,000 in the case of financial institutions or payment card networks. The Bill proposes to increase these penalties to $1 million and $10 million respectively.

Other Amendments to FI Statutes

Investment Regime Materiality Threshold—Financial Intermediary Activities

The FI Statutes currently require approval of the Superintendent for a federally regulated financial institution (FRFI)⁴ to acquire control of, or acquire or increase a substantial investment in, an entity whose business is otherwise permitted under the FI Statutes but that engages, as part of its business, in any financial intermediary activity that exposes that entity to material market or credit risk. New provisions in the FI Statutes would exempt from Superintendent approval acquisitions of control of these entities which fall below a materiality threshold set out in the proposed amendments,⁵ generally based on the asset value of the target entity on a consolidated basis as compared to the FRFI’s consolidated asset value as shown on its last annual statement. Similar exemptions and thresholds will also exist for acquisitions of, or increases in, substantial investments in these types of entities by FRFIs, based on share/ownership value as opposed to asset value of the target entity.

Electronic Consent

The FI Statutes contain a provision which provides that certain notices, documents or other information required to be provided by FRFIs is not satisfied by providing an electronic document unless the addressee consents and designates an information system for the receipt of the electronic document. Proposed amendments would clarify that such consents could be provided in electronic form.

Protection of Privilege

Proposed amendments to the FI Statutes and the OSFI Act would clarify that the disclosure by a FRFI, or a person who controls the FRFI or is affiliated with the FRFI, to the Superintendent of any privileged information does not constitute a waiver of privilege. Additionally, the Superintendent is prohibited from using a FRFI’s privileged information against the FRFI in a proceeding relating to a violation of the FI Statutes, and the Superintendent is prohibited from disclosing a FRFI’s privileged information to any person whose powers, duties or functions include (a) the investigation or prosecution of an offence under any act of Parliament or of the legislature of a province (including, for example, the FCAC); or (b) the investigation of, or conduct of proceedings in respect of, a violation under an Act referred to in paragraph (a). These amendments do not compel a FRFI to share its privileged information with the Superintendent as part of its prudential supervision, but they permit a FRFI to do so without resulting in a waiver of privilege for other purposes. These amendments create a protected environment for information sharing that will assist the Superintendent without imposing new obligations or risks on FRFIs.

Business Growth Fund

Proposed amendments to the FI Statutes would permit FRFI’s to acquire ownership interests—but not control—in Canadian Business Growth Fund (GP) Inc. (business growth fund) and all entities it controls, subject to a limit on the value of such ownership interests not to exceed $200 million. In addition, a FRFI would be prohibited from holding or acquiring a substantial investment in the business growth fund or entities it controls if such entities hold shares or ownership interests in entities that a “specialized financing entity” (as defined in the BA) would be restricted from holding.

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¹ For purposes of the “Consumer Framework” references to banks include authorized foreign banks.

² This provision would not apply if the person opts out in writing to receive the alert, or does not provide the contact information required to receive the alert.

³ With respect to offers which are based on a specified number of uses, the bank shall not impose any charge after the last use of the product or service without obtaining, immediately after the last use, the person’s express consent to impose that charge.

⁴ For purposes of this bulletin, FRFI includes authorized foreign banks and insurance companies.

⁵ The materiality threshold would be lower for FRFIs with equity greater than a specified amount as set forth in the proposed sections.