Bill C-86, Budget Implementation Act, 2018, No. 2 (Bill C-86) received Royal Assent on December 13.
Once in force, Bill C-86 will consolidate existing consumer provisions and regulations, and strengthen consumer protection provisions that apply to banks and authorized foreign banks under the Bank Act (BA). 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.
Additionally, on November 15, 2017, An Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs (Bill 134) received assent. This Act amends the Québec Consumer Protection Act (RLRQ c P-40.1), mainly in respect of credit. Provisions of Bill 134 will come into force in stages1 with most provisions related to credit contracts coming into force on August 1, 2019.
In this article, we provide a high-level overview of the more pertinent changes emanating from Bill C-86 and Bill 134.
The consumer framework is intended to address many of the issues raised as part of the Financial Consumer Agency of Canada’s (FCAC) “Domestic Bank Retail Sales Practices Review” and “Report on Best Practices in Financial Consumer Protection.” While a full understanding of the proposed regime must await the government’s release of draft regulations, the following sections set forth a very high-level overview of the new framework's most impactful proposals.
Under the proposed regime, board oversight of compliance with consumer provisions would be broadened by requiring banks to designate a committee responsible for ensuring the bank’s compliance with the new provisions. The Committee would:
The new framework provides for a wide range of new requirements intended to encourage responsible business conduct and fair treatment of consumers.
One of the most significant changes will be the banks’ obligation to establish and implement policies and procedures ensuring the products or services offered or sold are appropriate, having regard to the person's circumstances, including their financial needs. Although the bank’s responsibility is limited to the establishment of policies and procedures, the new requirement is significant when read in combination with the provisions requiring banks to ensure that:
Several other provisions also promote responsible business conduct, including:
The proposed complaint-reporting framework will significantly expand the banks' responsibilities. Three of the more important aspects of this new regime are:
Bill C-86 also proposes several amendments to the Financial Consumer Agency of Canada Act (FCAC Act), including:
Bill C-86's reinforced financial consumer protection framework and FCAC's modernized supervision framework launched in October, will transform the banks' approach to financial consumer protection.
For a more detailed review of the proposed legislative amendments, see “Bill C-86 Set to Strengthen Financial Consumer Protection.”
Financial institutions have been reviewing their agreements and procedures in order to comply with the new credit provisions from Bill 134. Below we discuss some of the more impactful changes that clients should consider when reviewing their agreements and procedures.
A merchant entering into a credit contract must now assess the consumer’s capacity to repay credit. The same applies for a credit limit increase in open credit contracts including for credit cards and lines of credit. Financial institutions, among others, are required to perform this assessment.
Contracts where the credit rate exceeds the Bank of Canada rate by 22% are deemed to be high-cost credit contracts. As the Bank of Canada rate changes from time to time, financial institutions should consider the credit rate charged in their various products.
Before entering into a high-cost credit contract or before granting a credit limit increase (for certain credit contracts, including credit cards and lines of credit), financial institutions must assess the consumer’s capacity to repay the credit, and determine the consumer’s debt ratio, which is essentially the ratio of the consumer’s monthly housing, lease and debt payments (calculated under the regulations) to the consumer’s monthly income. The financial institution must provide a written copy of this information to the consumer.
High-cost credit contracts also trigger additional disclosure requirements prior to entering into the contract, and the consumer has particular cancellation rights.
Also, a consumer with a debt ratio over 45% who enters into a high-cost credit contract is deemed to have contracted an excessive, harsh or unconscionable obligation. Specific recourses are available to consumers in this situation.
Financial institutions must provide consumers with better information regarding credit cards, such as an estimation of the time required to reimburse the balance of an account when only a minimum payment is made, as well as information regarding the credit rate, the grace period and the nature of the charges.
The minimum monthly payment of any new credit card contract cannot be less than 5% of the outstanding balance and the minimum monthly payment for contracts already in progress will gradually increase from 2% to 5%.
It also now easier for a consumer to terminate pre-authorized payments.
The premium for insurance of persons (in certain cases), the premium for home or automobile insurance, the fee for an additional copy of an account statement or for customizing a credit card (among others) are not credit charge components and therefore cannot be billed as credit charges.
Financial institutions are not required to send a statement of account if there have been no cash advances or payments during the period and if the balance is at zero. However, in the case of credit contracts with a variable credit rate, a statement of account must now be sent to the consumer once a year.
A joint credit cardholder can be released from his joint obligation to repay the credit by notifying the financial institution and co-debtor of his intention not to use the credit extended, leaving the co-debtor responsible for the credit extended to him.
The legislation now distinguishes clearly between increasing credit limits and making transactions that exceed the credit limits. Consumers must request and consent to credit limit increases: any unilateral credit limit increase cannot be invoked against the consumer and the consumer is not required to pay the amounts charged to the account that exceed the credit limit granted before that unilateral increase. Banks may permit consumers to make transactions that exceed their credit limits with appropriate notice provided they do not charge a fee for it.
The interaction between the new federal consumer framework and the Québec consumer protection requirements may pose some practical challenges for compliance and will certainly transform the financial institutions’ approach to financial consumer protection. We also expect to see an increase in consumer protection class actions in Québec once these provisions come into force.
1 August 1, 2018: provisions related to advertising, business practices, loyalty programs, credit contracts with itinerant merchants and restrictions on credit brokers; January 1, 2019: provisions related to compensation fund coverage for customers of travel agents; February 1, 2019: provisions related to debt settlement services.