Effective date: September 19, 2011
To ensure that consumers have access to credit on terms that are fair and transparent, in January 2010, the Government amended the Cost of Borrowing Regulations to improve disclosure and transparency for consumers.
The Regulations require Federally Regulated Financial Institutions (FRFIs) to include information boxes as part of their credit card applications and for credit agreements of credit cards and other lending products.
Information boxes provide salient information, consolidated in one location, to help consumers better understand their options when applying for credit cards or entering into credit agreements.
In accordance with subsections 6(2.1) and 6(2.2) of the Cost of Borrowing Regulations, FRFIs that grant credit must provide borrowers with the applicable information box referred to in Schedules 1 to 4 as prescribed by Regulations.
Following the coming into force of these new requirements, FCAC’s Compliance and Enforcement Branch (CEB) assessed how FRFIs implemented the new requirements with the disclosures they provide to consumers. This assessment included a review of paper copies of information boxes as well as information boxes for online credit card applications forms where applicable.
Our review of online forms found an inconsistent application of the regulatory requirements by FRFIs.
The findings were as follows:
The new regulatory requirements were put in place to protect consumers by increasing transparency and offer salient information for consumers to understand the financial implications prior to entering into a credit agreement for a credit card.
The wording of subsections 6(2.1) and (2.2) is clear regarding how information boxes are to be disclosed; there is neither flexibility nor exemption to the requirement. Failure to provide information boxes in electronic documents as set out in 6(2.1) and (6.2) is contrary to the Cost of Borrowing Regulations. The Electronic Documents Regulations that came into force on June 1, 2011, do not affect this requirement and the flexibility to provide information boxes electronically does not alter the original disclosure requirements.
Electronic credit card applications that either do not include an information box as per the regulations, or that do not provide the information box in the manner prescribed in the regulations (i.e. in its entirety at the beginning of the application), would not draw a consumer’s attention to the key information prescribed in the regulations, and as such, are not acceptable practices.
Given the inconsistencies already noted in the implementation of subsections 6(2.1) and 6(6.2) of the Cost of Borrowing Regulations, the FCAC Commissioner would like to confirm the regulatory requirements to provide information boxes in lending disclosure documents and credit card applications apply equally for in written documents as for documents in electronic formats.
In addition, the requirements for how these boxes are to appear in these documents also apply fully to electronic disclosure (i.e. presented at the beginning of the document).
Each FRFI is responsible for ensuring full compliance with the Cost of Borrowing Regulations requirements. Where changes are required to improve documentation, processes and approaches, FCAC expects that all institutions will incorporate the required amendments within 90 days of the date of this guidance. CEB will follow up with institutions to ensure that regulatory requirements have been met.