Further to our Update on Federal Consumer Protection Measures in which we reported on the federal government's March 4, 2012 announcement of its intention to ban unsolicited credit card cheques, on March 10, 2012 Regulations Amending the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations SOR/2009-257 (the Amending Regulations) were published in the Canada Gazette for a 30-day comment period. While the Amending Regulations are consistent with existing provisions in the Credit Business Practices Regulations, federally regulated financial institutions (FRFIs) will need to consider the impact of the Amending Regulations on their operations.
In addition to the Amending Regulations, FRFIs should be aware that further consumer protection measures may be announced in the Economic Action Plan 2012, which will be tabled in the House of Commons by the Finance Minister on March 29, 2012.
Proposed Amending Regulations
The stated purpose of the Amending Regulations is to limit a business practice that is not perceived as beneficial to consumers. The related Regulatory Impact Analysis Statement further explains that the high interest rates and lack of interest-free grace period associated with credit card cheques are contributing to the increased debt level in Canada.
The proposed Amending Regulations parallel section 6 of the Credit Business Practices Regulations (the ban on increasing credit card limits without express consent of the customer). Under the proposed section 6.1, FRFIs cannot provide credit card cheques to a customer unless that customer provides express consent beforehand. A customer may grant express consent orally but the FRFI must then provide confirmation of such consent to the customer, in written or electronic form, no later than the date of the first statement of account provided after the date of the oral express consent. Like the ban on increasing credit card limits without express consent, "the use of any service relating to the credit card account" does not constitute express consent.
The Financial Consumer Agency of Canada (FCAC) will oversee implementation of the requirements of the Amending Regulations by FRFIs.
Considerations for FRFIs
The standard of express consent
Although the Amending Regulations offer minimal details regarding the standard of express consent required, given the similarity between the proposed section 6.1 of the Credit Business Practices Regulations and the existing section 6, it is possible the FCAC will take a similar approach to the new section as it did in the FCAC Guidance CG-5 Consent for Increases in Credit Limits (the FCAC Guidance). If so, one-time or "evergreen" consents for any future credit card cheques will not meet the standard of express consent. Rather, FRFIs may need to obtain express consent of the customer each time a credit card cheque is issued.
However, the existing section 6, as interpreted by the FCAC, refers to a single increase to the credit card limit, whereas the proposed section 6.1 refers to "credit card cheques". The FCAC Guidance says that if section 6 were meant to permit one consent to cover any and all future increases, the wording would have clearly indicated this and provides, as an example, that subsection 6(2) might read "If the borrower's consent to increases is given...". The proposed section 6.1(2) is phrased "If the borrower's consent to receive credit card cheques is given..." which reflects the language used in the FCAC Guidance. This clearly allows an FRFI to provide more than one credit card cheque at a time, however, it is not clear if an FRFI can provide credit card cheques from time to time without obtaining a new consent each time.
Electronic Express Consent and Confirmation of Express Consent
The related Regulatory Impact Analysis Statement states that FRFIs will "be able to choose how to implement" the Amending Regulations. Specifically, FRFIs may "choose the channel by which they receive the consumer's consent: through mail, by phone or during a visit to the branch." The FRFIs that choose electronic means to obtain express consent or to provide written confirmation of oral express consent will have to comply with the electronic documents part of the relevant statute and the applicable Electronic Documents Regulations. Regarding electronic express consent, the customer must be able to sign the electronic express consent using a technology or process that enables the FRFI to prove the signature is unique to the customer, the technology or process is used to incorporate the customer's signature into an electronic document and the technology or process can be used to identify the customer using it.
Regarding electronic written confirmation of oral consent, a consumer must first consent to receiving documents from the FRFI in electronic format and designate an information system in which the consumer can receive them. An electronic written confirmation must be accessible by the consumer and capable of being retained. An electronic written confirmation will only be considered provided to the consumer once it has left the control of the FRFI's information system or is posted on the FRFI's secure website.
Outstanding Credit Card Cheques
The Amending Regulations and Regulatory Impact Analysis Statement do not impact the processing of credit card cheques provided to customers before the Amending Regulations come into force. However, FRFIs will have to ensure that they can differentiate between credit card cheques distributed prior to the effective date of the Amending Regulations and those distributed with express consent, in case there is any issue as to whether a particular credit card cheque used by a customer was subject to the express consent requirement.
Timing of Effective Date
The Amending Regulations and Regulatory Impact Analysis Statement do not suggest that there will be a transitional implementation period. After the 30-day comment period is over, it is possible the federal government will announce the Amending Regulations are in force with very little notice to affected FRFIs. FRFIs should consider the amount of lead time they will reasonably require in order to terminate planned cheque mailings and develop and implement the appropriate notices to customers and the necessary infrastructure to comply with the express consent requirement.
Oversight by the FCAC
The Amending Regulations do not provide consumers with any direct recourse in the event an FRFI breaches the Amending Regulations. As with other consumer protection provisions, the FCAC will have regulatory oversight.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.