New regulations complete overhaul of Bank Act consumer provisions

On August 18, more than two years after amendments to the Bank Act consumer provisions introduced in Bill C-86 as the Financial Consumer Protection Framework (the Framework) received Royal Assent, the government published the Financial Consumer Protection Framework Regulations (the Regulations). Together, the Bank Act amendments and the Regulations consolidate and replace existing Bank Act consumer provisions and 13 sets of regulations that apply to banks and authorized foreign banks with a view to enhancing consumer protection.

What you need to know

• The Bank Act amendments and regulations establish a new financial consumer protection framework and will come into force on June 30, 2022.
• The Regulations will apply to banks, but not trust and loan companies. The existing regulations will continue to apply to trust and loan companies.
• There are few substantive policy changes. The more important changes are identified in this bulletin.
• More consumer protections are extended to large businesses, despite provisions to limit this.
• Banks will be required to deal with customer complaints within 56 days of receipt of the complaint.

Previous Torys bulletins reported on the key features of the Framework¹, including the introduction of responsible business conduct obligations and cooling-off periods for certain consumer agreements, as well as onerous complaint management and whistleblowing requirements.

Although many of the obligations that were previously found in existing regulations can now be found in the Bank Act provisions, several details were revealed in the Regulations. This bulletin sets forth, at a high level, some of the more impactful aspects of the Regulations. 

1) Application to businesses

Historically, the Bank Act’s “consumer protection” requirements have only applied to natural persons and not corporate entities such as businesses or non-profits. This will no longer be the case as many of the Framework’s provisions will now apply to businesses customers. These include the “prohibited conduct” provision², the express conduct provision³, and the requirement to list charges or penalties⁴, amongst others, will now apply to businesses.

There have been attempts to limit the Framework’s application to businesses. A legislative amendment was tabled in spring 2021 to ensure that only natural persons and eligible enterprises (small- to medium-sized enterprises) would benefit from the “cooling off” cancellation right in section 627.1 of the Framework, thereby exempting large businesses from the right. 

Concerns had also been raised that the generic term “borrower” could result in the application of the new, more onerous credit card liability provisions to commercial credit cards. Although the regulations do specifically address this concern, the Regulatory Impact Analysis Statement (RIAS) to the Regulations does clarify that the intent was not to change the scope of the term “borrower” to include corporate borrowers, and as such, the new liability provision will continue to apply only to non-commercial credit cards. Although concerns had been raised regarding the application of other provisions to businesses, the regulations nor the RIAS provide any other exemptions or clarifications.

2) Optional products or services

One of the more important, and confusing, changes in the Framework is the new definition of “optional product or service”.  To qualify as an “optional product or service” under the new definition, the product or service must be “provided” by the institution whereas under the existing framework, the optional product or service can be “offered or provided”. Based on comments made by the Department of Finance, we understand this change has been interpreted to mean that a third-party optional insurance product (such as creditor insurance) no longer qualifies as an “optional product or service” as such products are not “provided” by the institution or an affiliated insurer.

The expectation, and hope, has been that the publication of the Regulations would answer many of the questions that this new definition raised. Unfortunately, section 35 of the Regulations—which identifies the information that must be disclosed for optional services—has further muddied the waters, providing that the prescribed information must be disclosed “in relation to optional services, including insurance services, that are offered on an ongoing basis”. This raises the question as to when insurance services are or are not to be considered “optional services”. Further analysis will be required to understand the extent to which this reference impacts the interpretation that the definition of optional services does not include third-party insurance services not provided by the bank. 

3) Telephone agreements

Banks welcomed the introduction of section 627.55(2) of the amended Bank Act, which allows a bank to enter into a product or service agreement over the telephone on the condition that the prescribed information be disclosed orally by telephone and then subsequently be sent in writing. However, the usefulness of this provision has been somewhat dampened by the amount of information that the Regulations require to be disclosed over the telephone. 

Although section 627.55(2)(a)(i) of the Act would have allowed for only a “prescribed portion of the information” to be disclosed, the Regulations have not taken advantage of this drafting and require the disclosure of a significant amount of information, and in the case of certain products such as deposit-type instruments, the disclosure of more information than is required under the existing framework.

Banks will need to closely analyze the required disclosures should they wish to enter into agreements over the telephone.  

4) Principal Protected Notes and Deposit Type Instruments

Section 627.78 of the Bank Act, as amended, combines the previous disclosure requirements for the issuance of principal protected notes (PPNs) and deposit type instruments DTIs currently found under Principal Protected Notes Regulations and the Deposit Type Instruments Regulations (DTI Regulations). 

This approach led to several issues, including the fact that it did not appear that all existing disclosure requirements had been transferred to section 627.78. It had been expected that these omissions would be addressed in the Regulations. Although section 27 of the Regulations does add the disclosure requirement for PPNs that were missing in section 627.78 (when compared to existing requirements), it did not resolve issues with respect to the required disclosures when issuing DTIs. For example, two of the disclosure requirements under the existing DTI Regulations (paragraphs 3(1)(f) and (h)) are no longer required for the issuance of DTIs but are required when DTIs are sold by telephone (section 25 of the Regulations) or when a bank issues a new DTI following the DTI’s maturity (section 29).

The requirements pertaining to PPNs and DTIs and are convoluted and will require special attention from the banks.

5) Other key regulations

• Information boxes: Information boxes are still required and their content is prescribed, but information box presentation requirements currently found in the Cost of Borrowing Regulations (subsection 6(2.4) and the schedules thereto) have been eliminated. The elimination of specified font size and the prescribed form of information boxes should alleviate some of the challenges associated with disclosing in a digital format.   
• Credit card solicitations: The Cost of Borrowing Regulations require the same information to be disclosed by the bank in making credit card solicitations, whether they are done in person, by phone, by mail or by any electronic means. Under the new Framework⁵, credit card solicitations by telephone are subject to additional disclosure requirements to those made in person by mail, or by electronic means.
• Complaints process: Section 14 of the Regulations states that the prescribed period for dealing with a complaint is 56 days after the day on which it is received.

Also noteworthy are the Framework’s provisions that remain inoperative as the Regulations did not prescribe the necessary details. Some of these may serve as “placeholders” for future requirements

• Section 627.16, which imposes requirements (to be prescribed by regulations) if the institution acts in the capacity of a representative, agent or other intermediary for another entity in respect of a product or service provided by that entity.
• Section 627.17(3), which requires an institution to open a retail deposit account for any natural person who requests it in a prescribed manner and who meets prescribed conditions.
• Section 627.62, which requires the disclosure of prescribed information to prescribed amendments.  
• Section 627.89(2), which imposes requirements (to be prescribed by regulations) when an institution is entering into a credit agreement with a person for business purposes.
• Section 627.88, which requires the institution to disclose information (to be prescribed by regulations) with respect to credit agreement by making it available at branches and websites.

The RIAS indicates that “the majority of the regulatory requirements result in no substantive policy change to the financial consumer protection regulations that banks and authorized foreign banks must currently follow.” However, banks should be wary of taking too much comfort from this statement as a small change in a requirement that would not qualify as “substantive policy change” may still have a significant impact on a bank’s operations, and in particular, its information systems.

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¹ See our other related commentary:

• Roadmap for the new financial consumer protection framework, available here.
• Mandatory naming, greater penalties and clarified objectives: the new FCAC provisions, available here.
• Bill C-86 Set to Strengthen Financial Consumer Protection, available here.

² Section 627.04 of the Bank Act.

³ Section 627.08 of the Bank Act.

⁴ Section 627.12 of the Bank Act.

⁵ As a result of the application of section 627.57 of the Act, and sections 59, 61 and 65(1) of the Regulations.