Commissioner's Decision #123

Commissioner's reasons for decision

(Financial Consumer Agency of Canada Act subsection 23(2))

This decision con​cerns non-compliance with the Cost of Borrowing Regulations (the Regulations).

In October 2013, the Director of the Compliance and Enforcement Branch (the Director) of the Financial Consumer Agency of Canada (FCAC) issued a Notice of Violation to the bank pursuant to subsection 22(2) of the Financial Consumer Agency of Canada Act (the Act). The Notice of Violation stated that the Director had reasonable grounds to believe that the bank had committed five violations:

  1. one violation of subsection 6(4) of the Regulations, as the information in subsequent disclosure provided to customers of the bank’s  partner credit card product regarding the circumstances under which their credit card interest rate would increase was misleading
  2. one violation of paragraph 12(1)(a) of the Regulations, as the bank failed to provide in the disclosure to customers information about the interest rate and when it would take effect, as required under paragraph 11(1)(a) of said Regulations
  3. one violation of subsection 6(4) of the Regulations, as the bank provided misleading information to its credit card customers regarding when an increased interest rate would take effect in the context of a failure to make minimum monthly payments
  4. one violation of paragraph 11(1)(c) of the Regulations, as the bank failed in different circumstances to provide credit card applicants with complete and accurate disclosure of applicable non-interest charges, when they would take effect, or to accurately apply such non-interest charges correctly to the card holder’s account; and
  5. one violation of subsection 12(1) of the Regulations, as the bank failed to provide customers of its credit card products with accurate disclosure about the minimum payment or the method for determining it, as required under paragraph 10(1)(d) of said Regulations.

The Director proposed a penalty of $300,000 for the first violation of subsection 6(4) of the Regulations. A penalty of $100,000 was proposed for each of the violations of paragraph 12(1)(a), the second violation of subsection 6(4) and the violation of paragraph 11(1)(c) of the Regulations. Finally, the Director proposed a penalty of $50,000 for the violation of subsection 12(1) of the Regulations. The total penalty proposed was $650,000.

The bank provided written confirmation of the facts in the draft Compliance Report in August, 2013. Subsequently the bank submitted written representations in response to the Notice of Violation. Several months later, the bank provided written notification to the Commissioner confirming that it had discovered further financial harm in relation to two of the violations set out in the Notice of Violation.

I have carefully reviewed the file, including the bank’s written representations in which it does not dispute that it committed the violations. I find, on a balance of probabilities, that the bank has committed the five violations set out in the Notice of Violation. I have taken into account the bank’s written representations and considered the degree of intention or negligence, the harm done by the violations and the bank’s compliance history, and I impose a total administrative monetary penalty of $650,000.

Applic​able Regulations

Cost of Borrowing Regulations

6.(4) Any disclosure that is required to be made by a bank under these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.

10.(1) A bank that enters into a credit agreement for a line of credit must provide the borrower with an initial disclosure statement that includes the following information:

  • ​(d) the minimum payment during each payment period or the method for determining it;

11.(1) A bank that issues credit cards and that distributes an application form for credit cards must specify the following information in the form or in a document accompanying it, including the date on which each of the matters mentioned takes effect:

  • (a) in the case of a credit card with a
  • ​​​(i) fixed rate of interest, the annual interest rate
  • ...
  • ​(c) the amount of any non-interest charges.

12.(1) A bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that includes the following information in addition to that required by paragraphs 10(1)(a) and (c) to (k):

  • ​(a) the manner in which interest is calculated and the information required by paragraph 11(1)(a).

Fa​​cts

Issue #1: Subsequent disclosure prov​id​​ed to credit card holders about the annual interest rate and when it took effect was not made in language—and presented in a manner—that is clear, simple and not misleading

[]

FCAC began an investigation into the disclosure provided to the partner credit card customers based on a number of complaints reported by the bank in December 2011 relating to the circumstances in which the annual interest rate would increase.

[].

The bank confirmed that this description provided to consumers in the initial disclosure matched the bank’s systems.

However, once a cardholder’s minimum payment was late the first time, the bank provided subsequent disclosure on the monthly statement describing a different set of circumstances that would trigger an interest rate increase. [].

The initial disclosure explained to consumers that being one day late twice in any [text omitted] month period would trigger a higher interest rate; whereas, the subsequent, or most current, disclosure explained that the interest rate increase would be triggered if the minimum monthly payment was [text omitted] days late. Consequently, the initial and subsequent disclosure statements contained contradictory information about the actions that would trigger a higher interest rate.

Following FCAC’s identification of a possible violation, the bank filed a compliance issue for this matter with FCAC and addressed compliance with Subsection 6(4) of the Regulations in the following manner: “the bank believes it has not met the requirement under review and it has not complied with its consumer provision.”

The bank explained that consumers were negatively impacted by the system trigger that caused the partner credit card accounts to be re-priced when, according to the most recent disclosure provided to them by way of the monthly credit card statement, the customers’ payment activity did not trigger a higher interest rate.

The Compliance Report states that the bank amended the incorrect subsequent disclosure to ensure that it aligned with its systems and the initial disclosure and it confirmed that its planned remediation would be completed.

Issue #2: Initial disclosure provided to credit card holders omi​​​tted the annual interest rate or when it took effect

In March 2013, the bank advised FCAC of a compliance concern with initial disclosure regarding the disclosure of an annual interest rate and when it took effect.

As required by FCAC’s Compliance Framework, the bank filed a compliance issue that addressed the non-compliance of its disclosure with the requirements of paragraph 12(1)(a) of the Regulations in that the initial disclosures omitted the risk based re-pricing disclosure and, as a result, the bank acknowledged that the requirement under review had not been met and the bank had not complied with this consumer provision.

The bank explained that, even though the interest rate disclosure was mistakenly omitted for this group of customers, the system continued to operate as though disclosure had been provided.

FCAC confirmed that interest rates were increased but consumers were not provided with disclosure about those rates or when they would take effect.

According to the Compliance Report, the bank resolved the issue [text omitted].

Issue #3: Initial disclosure of annual interest rate information was not made in lang​uage—and presented in a manner—that is clear, simple and not misleading

The Compliance Report states that during a three year period several versions of the initial disclosure provided by the bank to new cardholders contained the following description about the effective date of the annual interest rate:

“Annual Interest Rate

​…Your interest rate will increase to xx% on the first day of the following billing period if we do not receive your minimum monthly payment within [text omitted] days after the due date for any [text omitted] billing cycles in any [text omitted] month period.”

The bank confirmed that the bank’s systems applied the correct interest rate for those customers whose late payment of the minimum monthly payment triggered a higher interest rate. However, in April 2012, FCAC’s investigation revealed that the effective date of that interest rate increase was not in accordance with the initial disclosure; the interest rate was increased one cycle earlier than what was disclosed. Below is an example for illustrative purposes:

  • The customer was [text omitted] days late with the minimum monthly payment for the [text omitted] time in [text omitted] months on January 20.
  • Transactions from January 20 formed part of the statement billing period of January 1–31.
  • The disclosure explained the interest rate increase would take effect the first day of the following billing period (i.e., February 1).
  • However, the interest rate increase took effect as of January 1 (once cycle earlier than what was disclosed).

In January 2013, the bank described the compliance breach to FCAC as follows: “The system did not reprice customers as per the initial disclosure… which stated the repricing will take place “starting from the first day of the following billing period”... [certain customers] would have been risk based repriced one cycle earlier than was set out in the initial disclosure.”

A few months later, the bank submitted, at FCAC’s request, an in-depth analysis of its credit card portfolio in relation to when the bank increased interest rates due to late payment activity.

Subsequently, the bank explained to FCAC that it felt the issue could be viewed as unclear disclosure instead of incorrect disclosure. The bank explained: “…the issue relates to the clarity of the disclosure…all of the customers who were repriced [text omitted] did hit the trigger to be repriced although the timing of the rate increase was unclear…”

The Compliance Report states that the bank updated its initial disclosure, and it has since correctly described to all new customers when the rate increase would take effect. In addition, the bank later provided notice to all existing cardholders about interest rates that will prevail and when they will take effect.

Issue #4: Disclosure that was provided to credit card holders in the application form or a document accompa​nying it contained an incorrect or inadequate descr​iption of non-interest charges and when they take effect

FCAC also investigated several issues about non-interest charges in relation to the bank’s credit card portfolio based on self-reported complaints. In January 2012, the bank submitted a compliance issue in relation to this violation.

FCAC’s investigation revealed that, in one situation, the disclosure provided to consumers set out the description of the annual fee and an effective date for the charge. However, the annual fee was actually charged earlier than the effective date disclosed.

In another situation, the disclosure provided to consumers did not include an effective date for an over-limit fee, as required by the Regulations. During the investigation, FCAC asked the bank for the disclosure provided to consumers in relation to when a fee would take effect. The bank responded that: “…Although the application stage disclosure states the over limit fee…, it did not state when the fee would take effect.”

In another situation, one group of consumers was provided with disclosure explaining that the annual fee would be waived if their minimum payment was made on time and if they stayed within their credit limit for their first [text omitted] months as a cardholder. However, the bank explained to FCAC that the annual fee was charged to the cardholders even though they had met the criteria for it to be waived. The bank filed a compliance issue with FCAC stating the following: “…customers… are being charged annual fees in the second year when they should not have.”

FCAC has confirmed that the bank has rectified the issue with the affected group of consumers and, where applicable, has refunded to them the annual fee that had been charged.

Issue #5: Initial disclosure provided to credit card holders contained an incorrect description of the manner for determining the minimum payment required for a pay​​ment period

Finally, in September 2012, the bank informed FCAC that several different groups of consumers were provided with disclosure that did not accurately describe the manner in which the bank’s system calculated the required minimum payment. The bank filed another compliance issue related to the same provision several months later, in accordance with the FCAC’s Compliance Framework, stating the following: “the bank discovered that customers are having their minimum payment calculated incorrectly.”

The bank further explained to FCAC the disclosed method for determining the minimum payment and how it differed from the method that is actually used by the bank’s systems to calculate the minimum payment. The bank referenced subsection 12 (1) of the Regulations, which in turn refers to paragraph 10(1)(d), and concluded the following: “the bank believes it has not met the requirement under review and it has not complied with its consumer obligations.”

FCAC confirmed that the bank did not provide consumers with a correct description of the minimum payment or the method used to determine that minimum payment.

Position of t​he Ba​nk

In its representations to the Commissioner on the Notice of Violation, the bank does not dispute that it committed the five violations. However, the bank asked that the Commissioner reconsider the proposed penalty.

The bank stated that it was always its intent to fully comply with its legislative obligations. It explained that its compliance program is focused on pre-empting compliance issues before they occur and on tracking and responding promptly to customer complaints. The bank stated that its goal is to ensure that any customer impact is remediated quickly and efficiently.

The bank explained that it has made a number of changes to its processes [].  The bank contends that these changes have improved its ability to ensure and monitor compliance with all regulatory requirements, and includes the use controls to conduct testing and identify gaps. This has led to the self-identification of numerous issues.

The bank states that it recognizes the need to improve its ability to uncover systemic issues from complaints and [text omitted], it overhauled its process for investigating, documenting and reporting self-reportable material/systemic issues and complaints. This resulted in a stronger alignment with the FCAC Compliance Framework and enhanced issue resolution. The bank states that it is committed to improving its engagement with FCAC by way of timely reporting and expedient responses [text omitted].

In addition, the bank submits that, although there was a large consumer impact because of the first violation, the number of consumers who experienced financial harm because of the second and fifth violations was low (approximately 1,800 and 1,700, respectively).

The bank states that it has already remediated—or is executing on a formal plan to remediate—all affected customers. Finally, the bank agreed with the statement in the Notice of Violation that less weight should be given to the bank’s compliance history given the recent time frame of its previous violations.

Disc​us​sion

I - Violat​​ions

Violation #1: Subsequent disclosure provided to credit card holders about the annual interest rate and when it took effect was not made in language—and presented in a man​​ner—that is clear, simple and not misleading

According to subsection 12(1) of the Regulations, a bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that contains, among other things, the information required by paragraph 11(1)(a). In the case of a credit card with a fixed rate of interest, pursuant to subparagraph 11(1)(a)(i), the bank must include the annual interest rate. Subsection 6(4) of the Regulations further stipulates that any disclosure made by a bank under the Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.

The initial disclosure provided to holders of the bank’s  partner credit card stated that, if the consumer missed a payment or was late with a payment or had a payment returned twice in any [text omitted] month period, a higher interest rate would be triggered.

The bank, however, provided these customers with subsequent disclosure that stated that the interest rate increase would be triggered if the minimum monthly payment was [text omitted] days late. In fact, in line with the initial disclosure, the bank’s system triggered an interest rate increase when customers were less than [text omitted] days late with their minimum payment. For example, the bank’s system would have increased the interest rate for customers who were as little as one day late the second time in any [text omitted]month period. Consequently, customers who, based on the subsequent disclosure, thought that they had [text omitted] days to pay the minimum monthly payment before the interest rate was increased, were subjected to a higher interest rate for making a late payment at any point during the following [text omitted] periods.

Here, the subsequent disclosure provided by the bank did not match either its initial disclosure to consumers or its systems. The subsequent disclosure led consumers to believe that different terms would be applied with respect to when the bank would increase the consumer’s interest rate. As such, the bank did not meet the requirements of subsection 6(4) of the Regulations to provide disclosure that is clear, simple and not misleading. The bank agreed that the disclosure was not in compliance with this provision.

Accordingly, I conclude that, on a balance of probabilities, the bank has committed the violation.

Violation #2: Initial disclosure provided to credit card holders omitted the annual interest rate or when it took effect

Pursuant to paragraph 12(1)(a) of the Regulations, a bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that contains the annual interest rate, including the date on which it takes effect, in accordance with subparagraph 11(1)(a)(i).

The bank has admitted that, for certain of its credit card customers, it did not provide any information in its initial disclosure about how and when interest rates would increase.  Nevertheless, when certain circumstances occurred, the bank’s system increased the interest rates for these customers. As these consumers were not provided with disclosure about these rates or when they would take effect, this was a violation of paragraph 12(1)(a) of the Regulations. The bank agreed that this omission constituted a violation.

Accordingly, I find, on a balance of probabilities, that the bank has committed the violation.

Violation #3: Initial disclosure of annual interest rate information was not made in language—and presented in a manner—that is clear, simple and not misleading

Pursuant to paragraph 12(1)(a) of the Regulations, a bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that contains the annual interest rate and when it takes effect, in accordance with subparagraph 11(1)(a). This disclosure must be made in language, and presented in a manner, that is clear, simple and not misleading pursuant to subsection 6(4) of the Regulations.

According to the Compliance Report, for a certain group of the bank’s credit card holders, initial disclosure was provided that set out the circumstances in which the interest rate would increase. This disclosure stated that the interest rate would increase on the first day of the following billing period if the bank did not receive the consumer’s minimum monthly payment within [text omitted] days after the due date for any [text omitted] billing cycles in any [text omitted] month period. While the bank’s systems applied the correct interest rate for the customers whose payment behaviour triggered a higher rate, the effective date of that interest rate increase was not in accordance with the initial disclosure. The interest rate was increased one cycle earlier than what was disclosed.

As a result, the initial disclosure was entirely unclear and misleading with respect to when the new annual interest rate would take effect, contrary to subsection 6(4) of the Regulations. The bank agreed that the disclosure was unclear.

Accordingly, I find, on a balance of probabilities, that the bank has committed the violation.

Violation #4: Disclosure that was provided to credit card holders in the application form or a document accompanying it contained an incorrect or inadequate description of non-interest char​​ges and when they take effect

Paragraph 11(1)(c) of the Regulations provides that a bank that issues credit cards and distributes an application form for a credit card must specify on the form or in a document accompanying it the amount of any non-interest charges, including the date on which they take effect.

According to the Compliance Report, in one scenario, the bank disclosed the annual fee and an effective date for the charge but the annual fee was actually charged earlier than the effective date disclosed. In another case, the disclosure provided to consumers did not include an effective date for an over-limit fee. Furthermore, the bank provided a group of consumers with disclosure explaining that the annual fee would be waived if their minimum payment was made on time and if they stayed within their credit limit for their first [text omitted] months as a cardholder. However, the annual fee was charged to certain cardholders even though they had met the criteria for it to be waived. The bank admitted that these situations did not comply with 11(1)(c) of the Regulations.

Accordingly, I find, on a balance of probabilities, that the bank has committed the violation.

Violation #5: Initial disclosure provided to credit card holders contained an incorrect description of the manner for determining the minimum payment required for a payment pe​​riod

Pursuant to subsection 12(1) of the Regulations, a bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that includes, by reference to paragraph 10(1)(d), the minimum payment during each payment period or the method for determining it.

According to the Compliance Report, and as agreed to by the bank, several different groups of consumers were provided with disclosure that did not accurately describe the manner in which the bank’s system calculated the required minimum payment.

The bank does not dispute that it committed the violation. Accordingly, I find, on a balance of probabilities, that the bank committed the violation.

Due dilige​​nce

Subsection 28(1) of the Act provides that due diligence is a defence in a proceeding in relation to a violation. In order to establish a successful defence of due diligence, the bank must show, on a balance of probabilities, that it took all reasonable care to avoid committing the offence with which it is charged (Mega International Commercial Bank (Canada) v. Canada (Attorney General), 2012 FC 407 (CanLII)).

Given my determination with respect to the bank’s negligence below, I conclude that the bank has not exercised the due diligence necessary to establish this defence in relation to the violations.

II- Pena​​lty

Having concluded that the bank has committed the violations, I may impose a penalty taking into account the factors set out in section 20 of the Act.

I have considered the bank’s written submissions on the proposed penalty, including the remedial actions it has taken with respect to its customers and the steps it has taken since being notified of FCAC’s concerns to monitor and ensure compliance with the bank’s regulatory obligations and to prioritize and effectively deal with compliance concerns. Nonetheless, in view of the following considerations, I uphold the total penalty of $650,000 proposed in the Notice of Violation.

Harm done to custo​​mers

Violation #1: Subsequent disclosure provided to credit ca​rd hold​ers about the annual interest rate and when it took effect was not made in language—and presented in a manner—that is clear, simple and not misleading

According to the Compliance Report, the bank has confirmed that [text omitted] , approximately 104,000 partner cardholders had received disclosure containing an inaccurate description of actions that would trigger a higher interest rate and when that higher rate would take effect.

The disclosure misled consumers to believe they had 30 days after the due date to make their minimum payment before they would trigger a higher interest rate. The reality was that if the payment was late by one day at any point in the next 11 periods, the system would charge a higher interest rate.

The bank confirmed in its comments on the draft compliance report that the financial impact of this violation on affected consumers amounted to approximately $11.1 million. This amount was refunded to customers in full. However, the bank subsequently determined that a subset of the population that was already refunded required additional refunds, bringing the financial impact on affected consumers to approximately $15 million. The bank has confirmed that these additional refunds were provided to customers [text omitted].

The misleading information provided by the bank undermined the clarity of the initial disclosure and directly impaired consumers’ ability to manage their credit card accounts so as to avoid higher interest rates. While I acknowledge and commend the bank for refunding the affected customers, I can neither ignore the significant number of consumers that were affected nor the substantial amount of financial harm that the bank’s misleading information caused in the first place.

These customers were entitled to disclosure that was clear, simple and not misleading with respect to how and when the applicable interest rate would take effect so that they could effectively manage their payments and finances accordingly. Consequently, I find that there was substantial harm with respect to this violation.

Violation #2: Initial disclosure provided to credit card holders omitted the annual inter​​est rate or when it took effect

According to the Compliance Report, for approximately 9 months the bank provided approximately 12,200 cardholders with initial disclosure that omitted disclosure about an interest rate and when it would take effect. Approximately 1,800 of those cardholders subsequently experienced increases to their interest rates, without the benefit of disclosure about the potential rate increase or what they could do to avoid it. The bank’s investigation into this matter revealed total financial harm of approximately $20,000. The bank refunded the affected customers [text omitted].

Regardless of whether or not, or the extent to which, consumers suffer financial harm, credit card customers are entitled to know when their interest rate will be raised. Otherwise, they are not able to take adequate steps to manage their finances. While I recognize and commend the bank for refunding the affected customers, I cannot conclude that the bank’s actions have not resulted in significant harm.

Violation #3: Initial disclosure of annual interest rate information was not made in language—and presented in a manner—that is clear, simple and not misleading

According to the Compliance Report, the bank advised FCAC that there were approximately 30,500 customers approved during a two-year period who were subsequently subjected to a higher interest rate and whose rate was increased one cycle earlier than was disclosed. The bank indicated that the financial harm to these customers amounts to approximately $500,000. The bank has confirmed that it has refunded the affected customers.

It is concerning that such a large number of the bank’s customers received misleading information from the bank regarding when a higher interest rate would take effect. These customers were led to believe that the interest rate increase would happen one cycle later than it actually did. None of these customers were in a position to be able to successfully manage their accounts in order to avoid paying the higher interest rates.

While I appreciate that these customers have been refunded by the bank, they never should have had to go through this confusion in the first place. Consequently, I find that there was a significant degree of harm in relation to the violation.

Violation #4: Disclosure that was provided to credit card holders in the application form or a document accompanying it contained an incorrect or inadequate description of non-i​nter​est charges and when they take effect

According to the Compliance Report, in various instances the bank provided new applicants with disclosure that did not contain the effective date of a non-interest charge. While the bank did not provide FCAC with the number of customers affected by this omission, it stated that during a two year period, new cardholders received disclosure without an indication of the date when a non-interest charge would take effect.

In addition, for a one-year period [text omitted], all new partner  credit card applicants received disclosure about non-interest charges that did not contain an effective date for the charge. The bank’s omission did not cause direct financial harm to consumers. Nonetheless, these consumers were considerably harmed by not having all of the information necessary for them to effectively manage their accounts so as to avoid additional fees, such as fees charged for exceeding an authorized limit.

In addition, approximately 45,000 customers were charged a non-interest charge earlier than had been disclosed. FCAC was not provided with information on the amount of the financial harm to these consumers. However, given the sizeable number of customers affected, I cannot conclude that the harm done was insignificant.

Furthermore, in its comments on the draft Compliance Report, the bank confirmed that approximately 1,100 consumers were charged an annual fee even though they had met the criteria set out in the initial disclosure to not be charged annual fees. The bank determined that it owed refunds totalling $65,000 to these cardholders, and it refunded the affected consumers [text omitted] . However, subsequently, the bank confirmed that it had self-identified approximately 300 additional cardholders to whom additional refunds of approximately $20,000 were due, bringing the total financial harm to $85,000. This is a substantial amount for this number of customers.

The bank stated that the additional customers had been refunded. I acknowledge and commend the bank for taking action to remedy the situation. Nevertheless, on the whole, I find that there was significant harm to consumers resulting from this violation.

Violation #5: Initial disclosure provided to credit card holders contained an incorrect description of the manner for determining the minimum payment required for a p​​ayment period

According to the Compliance Report, in a three-year period, approximately 600,000 cardholders received initial disclosure that did not accurately describe the manner in which the bank calculated their minimum payment. Approximately 1,700 of these customers experienced financial harm as a result of the system not calculating the minimum payment in the manner that it disclosed to customers. This group of customers made minimum payments that met the requirements of the initial disclosure; however, they were classified as delinquent because the system expected a higher minimum payment.

The rest of the affected customers were not financially harmed by the bank’s actions; however, as they were provided with inaccurate information about the required monthly minimum payment, they were inevitably impaired from being able to effectively manage payments on their accounts.

The bank advised FCAC that remediation of this issue has been substantially completed. I appreciate that the bank has reimbursed its customers and has fixed its systems to ensure that cardholders receive the correct information. However, the disclosure with respect to the manner in which the minimum payment is calculated should have matched the bank’s systems in the first place. Regardless of the level of financial harm, credit card customers were entitled to this information. Consequently, it is my view that the bank’s actions have caused considerable harm to consumers.

Degree of intention or neglig​ence

The bank has not demonstrated that it took the necessary steps to ensure that its disclosure contained all of the elements required by the Regulations with respect to annual interest rates, non-interest charges and minimum payments.

These requirements have been in place for more than a decade. The obligations of federally regulated financial institutions (FRFIs) in this regard have been the subject of FCAC communications to industry on several prior occasions.

In September 2010, for instance, FCAC communicated its findings on its review of industry practices in relation to the disclosure of the date on which the amount of any non-interest charge takes effect. FCAC stated the following:

“Overall, we conclude from this review that there are important improvements that should be made to the manner in which the industry discloses to consumers the amount of non-interest charges and the date on which those charges take effect.

Expected acti​ons by FRF​Is

In light of these conclusions, it is our expectation that FRFIs subject to the Cost of Borrowing Regulations will review their credit card practices in terms of disclosing the amount of non-interest charges and the date on which those charges take effect.

​Each FRFI is responsible for ensuring full compliance with the disclosure requirements. Where changes are required to improve disclosure practices, it is FCAC's expectation that all institutions will make all amendments required to their disclosure documentation or processes to ensure full compliance with the regulations.”

The bank, however, failed to leverage this communication as an opportunity to review its disclosure, incorporate best practices and ensure that the regulatory requirements would be met in the future.

In addition, the bank has not demonstrated that it took sufficient measures to ensure that, with respect to an annual interest rate and when it took effect, all related disclosure matched the initial disclosure provided to customers, as well as the operation of the bank’s systems.

In fact, the bank’s lack of controls and procedures to test its disclosure against the operation of its systems appear to have been a key contributor to many of the issues identified. It is the responsibility of all financial institutions to conduct performance testing of disclosure provided to consumers to ensure that it meets regulatory requirements and accurately reflects how the bank’s systems operate.

Moreover, the bank demonstrated negligence by not taking the appropriate actions to look into complaints from consumers to identify larger compliance concerns or whether or not improvements to disclosure were necessary. For example, the bank provided FCAC with numerous consumer complaints related to increases to interest rates and non-interest charges as required by FCAC’s Compliance Framework. But rather than taking the opportunity to analyze these matters, the bank deemed that the files did not represent compliance issues and closed them. It was only when FCAC reviewed the files and determined that many of the complaints did, in fact, represent compliance issues, that the bank began to address them. The bank should have treated these complaints as a warning indicator and seriously evaluated them early on to identify the issues and minimize the impact on consumers.

I also find it insupportable that, throughout the investigation, when FCAC raised compliance concerns, the bank took an extended period of time to respond to and confirm the existence of the issues. This, in turn, raises questions and concerns about the bank’s processes and its ability to respond to FCAC’s requirements.

FCAC’s investigation was impeded by the bank’s inadequate responses (e.g., not answering questions, failing to provide sufficient evidence to support claims of compliance). I acknowledge, however, that, according to the Compliance Report, FCAC has recently seen an improvement in the bank’s communications and that the bank has made improvements to its process for investigating, documenting and reporting compliance breaches. Nonetheless, I am concerned that the bank’s delays and inadequate analysis of the issues during the investigation led to further delays in identifying and rectifying the compliance issues raised, to the detriment of the bank’s customers.

I acknowledge the bank’s submission that it was always its intent to fully comply with its legislative obligations. I also recognize that, in response to FCAC’s compliance concerns, the bank has taken steps to review its complaints process and compliance program to ensure that all regulatory requirements are met. Nonetheless, these actions fall far short of demonstrating that the bank took sufficient and reasonable steps to avoid committing the violations at issue. In my view, the bank’s conduct exhibits an elevated degree of negligence.

Compliance hist​​ory

The bank has had [text omitted] violations within the past [text omitted] years. However, given the recent nature of these violations, I agree that less weight should be given to the bank’s compliance history in this case.

Concl​usion

To conclude, on a balance of probabilities, I find that the bank has committed the violations set out in the Notice of Violation. I impose a total administrative monetary penalty of $650,000.

Ottawa, March 17, 2014

Lucie M.A. Tedesco
Commissioner
Financial Consumer Agency of Canada ​​