Examination of federally regulated financial institutions’ compliance with the provisions of the September 2010 Regulations to Amend the Cost of Borrowing Regulations and Credit Business Practices Regulations
In 2010, the Financial Consumer Agency of Canada (FCAC) undertook two major initiatives with financial institutions to assess their overall compliance with the new requirements set out in the Regulations Amending Cost of Borrowing Regulations and the newly introduced Credit Business Practices Regulations, which came into force on January 1, 2010 and September 1, 2010 respectively.
This assessment process stems from FCAC’s new approach to compliance supervision under our revised Compliance Framework, and highlights our transition to a more proactive and risk-based approach to our supervisory function.
On March 18, 2011, FCAC published, on its website, information relating to the January 1, 2010 examination process, including its findings and a summary of the Commissioner’s Decision.
Following the September 1, 2010 coming-into-force date, FCAC’s Compliance and Enforcement Branch (CEB) sent a questionnaire to 24 federally regulated financial institutions (FRFIs) that were affected by the additional new regulatory requirements. The questionnaire required all FRFIs that offer credit cards to report the extent of their compliance with the new regulatory requirements.
In their responses to the questionnaire, two FRFIs self-identified a level of non-compliance with the new regulations.
Both reported a compliance issue with the incorrect allocation of payment to credit cards as required by Section 4 of the Credit Business Practices Regulations. FCAC required that these institutions provide plans for achieving full compliance. Files were opened for each FRFI to track and monitor progress and to initiate any compliance action required.
The plans provided by both institutions fully addressed the outstanding compliance issues. In both cases, the institution also implemented interim manual processes to ensure that consumers received the required information. Both institutions were fully compliant within a few months.
CEB noted a high number of positive responses to the question of whether a FRFI fully complied with the requirement that FRFIs include, on credit card statements, the time it would take to repay the outstanding balance, if the consumer only paid the minimum payment.
Given the importance of this new requirement and, as indicated to us by several FRFIs, the complexity of the changes needed to implement it, FCAC decided to initiate a follow-up process to review credit card statements from all 24 affected FRFIs to verify their compliance.
After review, CEB identified potential compliance concerns with one institution that reported full compliance with the new regulatory requirement. CEB initiated its compliance investigation process with the institution, and steps have been taken to ensure that the outstanding compliance issue will be addressed through ongoing compliance actions underway with this institution.
This examination process has enabled the Agency to proactively address systemic procedural and material compliance deficiencies and thus help minimize potential negative effects on consumers.