The Financial Consumer Agency of Canada (FCAC) has announced that it expects to initiate a review of consumer-facing disclosure documentation over the course of 2014-15 to assess compliance with clear language requirements applicable to federally regulated financial institutions (FRFIs).
CLEAR LANGUAGE REQUIREMENT
The Cost of Borrowing Regulations made under each of the statutes governing FRFIs include the requirement that any disclosure required to be made under the regulations "must be made in language, and presented in a manner, that is clear, simple and not misleading" (the Clear Language Requirement). Note that the Clear Language Requirement covers both the language used and the manner of presentation.
The Clear Language Requirement is set out in other regulations made under the FRFI statutes as well, including the Complaints Regulations, Electronic Documents Regulations and the Negative Option Billing Regulations, as well as the Prepaid Payment Products Regulations that will come into force on May 1, 2014. The Clear Language Requirement is not new – it was first added in its current form to the Cost of Borrowing Regulations in 2009. Also in 2009, in connection with the Clear Language Requirement, the FCAC published Commissioner's Guidance CG-3 Clear Language and Presentation Principles and Guidelines for the Industry (FCAC Guidance).
FCAC'S FOCUS ON CLEAR LANGUAGE
Over the course of 2012-13, the FCAC conducted an industry review analyzing whether the FCAC Guidance had been incorporated into FRFI internal policies and procedures for the development of consumer disclosure documents. Fifty-nine FRFIs that offer consumer-lending products participated in the review. The FCAC published the results of the review in June 2013, and the general finding was that the majority of the FRFIs assessed did not demonstrate that they had adequately incorporated the principles of the FCAC Guidance. In light of the review, the FCAC expects all FRFIs to perform a self-assessment and develop a plan to address any deficiencies identified. As noted above, a review of consumer-facing disclosure documents currently in use by all FRFIs is expected to be initiated by the FCAC over the course of 2014-15 to assess the incorporation of the FCAC Guidance as well as compliance with the Clear Language Requirement.
The FCAC's focus on clear language has been increasing in recent years. A number of the Commissioner's Decisions posted on the FCAC's website deal with the use of clear (or plain) language. In several cases, upon investigating a consumer complaint not specifically regarding clear language, the FCAC has taken the opportunity to also assess compliance with the Clear Language Requirement. In one decision published in June 2012 relating to mortgage prepayment penalty disclosure, the Commissioner held that the disclosure was not made in language that was clear, simple and not misleading and, in addition to imposing a monetary penalty of C$50,000, imposed a formal compliance agreement on the FRFI to ensure that it amended its mortgage prepayment disclosure to comply with the Clear Language Requirement. No doubt the time and money spent by the FRFI in amending its suite of mortgage documents and dealing with the FCAC far outweighed the monetary penalty.
FCAC EXPECTATIONS: CLEAR LANGUAGE POLICIES AND PROCESSES
In publishing the results of the 2012-13 industry review, the FCAC made it clear that it expects FRFIs to have a clear language policy or to fully integrate the FCAC Guidance into any relevant internal policies and procedures for the development of consumer disclosure documents. Such policies should include detailed processes for creating and revising consumer disclosure and other consumer-directed documents, and for training FRFI employees accordingly to implement the policies. Such processes should contemplate an appropriate review and approval process for consumer documents, including outside consultation if necessary. If a FRFI has not yet implemented clear language policies, procedures and initiatives, the FCAC expects the FRFI to develop a timeline for doing so.
HOW CAN FRFIS PREPARE FOR THIS FCAC REVIEW?
FRFIs can prepare for this FCAC review by reviewing the FCAC Guidance, integrating the guidance into internal policies and processes, and implementing those processes to ensure that the clear language principles are reflected in existing and new consumer-facing disclosure documents. The implementation of any widespread amendments to existing documents is likely to cause systems and resource issues for many FRFIs. However, the FCAC has not yet released any details of the timing or precise scope of the clear language review. FRFIs would be wise to implement an internal review and amendment process for their consumer-facing disclosure documents now, so that any necessary amendments can be carried out in accordance with the FRFI's own systems and scheduling requirements, and not in response to an FCAC assessment or compliance agreement.
The FCAC Guidance is not prescriptive. It sets out five principles of clear language as well as operational guidance on to how to implement and test the effectiveness of the principles. The five principles are:
- know your audience;
- make your material understandable by planning your text;
- write clearly;
- use the visual presentation to enhance your text; and
- test your material.
Important points to note from the FCAC Guidance include:
- do not oversimplify or simply delete complex concepts;
- offer clear language training to employees; and
- aim to strike a balance between marketing and compliance objectives.
The Blakes Financial Services Regulatory group has significant experience advising clients on the preparation or revision of consumer-facing documentation using clear language principles and working with clients when dealing with the FCAC to remedy problems identified in consumer-facing documentation. We offer training on clear language drafting to all clients through our Blakes Business Class series and to individual clients through tailored seminars or training programs.
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.