Vol. 143, No. 20 — September 30, 2009

Registration

SOR/2009-257 September 9, 2009

BANK ACT
COOPERATIVE CREDIT ASSOCIATIONS ACT
INSURANCE COMPANIES ACT
TRUST AND LOAN COMPANIES ACT

Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations

P.C. 2009-1528 September 9, 2009

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, hereby makes the annexed Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations, pursuant to

(a) sections 458.3 (see footnote a) and 575.1 (see footnote b) of the Bank Act (see footnote c);

(b) section 385.252 (see footnote d) of the Cooperative Credit Associations Act (see footnote e);

(c) sections 488.1 (see footnote f) and 606.1 (see footnote g) of the Insurance Companies Act (see footnote h); and

(d) section 443.2 (see footnote i) of the Trust and Loan Companies Act (see footnote j).

CREDIT BUSINESS PRACTICES (BANKS, AUTHORIZED FOREIGN BANKS, TRUST AND LOAN COMPANIES, RETAIL ASSOCIATIONS, CANADIAN INSURANCE COMPANIES AND FOREIGN INSURANCE COMPANIES) REGULATIONS

INTERPRETATION

1. The following definitions apply in these Regulations.

“borrower” means a person who holds a credit card or has applied to an institution to become a holder of a credit card. (emprunteur)

“credit agreement” includes an agreement for a line of credit, a credit card or any kind of loan. (convention de crédit)

“credit card” means a credit card issued to a natural person other than for business purposes. (card de crédit)

“debtor” means a natural person who has entered into a credit agreement with an institution other than for business purposes and who owes a debt to that institution. (débiteur)

“institution” means any of the following:

(a) a bank, as defined in section 2 of the Bank Act;

(b) an authorized foreign bank, as defined in section 2 of the Bank Act;

(c) a retail association, as defined in section 2 of the Cooperative Credit Associations Act;

(d) a company, as defined in subsection 2(1) of the Insurance Companies Act;

(e) a foreign company, as defined in subsection 2(1) of the Insurance Companies Act;

(f) a company, as defined in section 2 of the Trust and Loan Companies Act. (institution)

APPLICATION

2. These Regulations apply to institutions, to the affiliates that they control and to the agents and representatives of those institutions and affiliates.

MINIMUM GRACE PERIOD FOR NEW PURCHASES

3. (1) A statement of account in respect of a billing cycle for a credit card must be sent by an institution to the borrower without delay after the last day of that billing cycle.

(2) An institution may not require a minimum payment in respect of the outstanding balance owing on a credit card account for a particular billing cycle to be made by the borrower on a day earlier than 21 days after the last day of that billing cycle.

(3) If the due date for a minimum payment in respect of the outstanding balance owing on a credit card account falls on a Saturday or a holiday, the institution must consider a payment made on the next business day as being made on time.

(4) An institution may not charge interest on purchases of goods or services made on a credit card during a particular billing cycle if the borrower pays the outstanding balance owing on the credit card account in full on or before the due date.

ALLOCATION OF PAYMENTS

4. (1) If different interest rates apply to different amounts owing for a particular billing cycle on a credit card account, the institution must allocate any payment made by the borrower that is greater than the required minimum payment for that billing cycle among those amounts using one of the following methods:

(a) by allocating that payment first to the amount with the highest interest rate and then allocating any remaining portion of the payment to the other amounts in descending order, based on their applicable interest rates; or

(b) by allocating that payment among those amounts in the same proportion as each amount bears to the outstanding balance owing on the credit card account.

(2) For the purpose of paragraph (1)(b), if the payment that the institution allocates to an amount owing on a credit card account contains a fraction of a dollar, the institution may round up that amount to the nearest dollar if the fraction of the dollar is equal to or more than 50 cents, round down that amount to the nearest dollar if the fraction is less than 50 cents and, if necessary, make corresponding adjustments to the other amounts that are being allocated.

OVER-THE-LIMIT FEES DUE TO HOLDS

5. (1) Subject to subsection (2), an institution may not charge a borrower an amount for surpassing their credit limit as a result of a hold on their credit card.

(2) Subsection (1) does not apply if the borrower would, in any case, have surpassed the credit limit during the period in which the hold was in effect.

CONSENT FOR INCREASES IN CREDIT LIMITS

6. (1) An institution may not increase the credit limit on a borrower’s credit card account without first obtaining the borrower’s express consent to do so.

(2) If the borrower’s consent to the increase is given orally, the institution must, not later than the date of the first statement of account that is provided after the date of that consent, provide confirmation of that consent to the borrower in writing, in paper or electronic form.

(3) The use of any service related to the credit card account by the borrower, including the simple use of the credit card, does not constitute express consent for the purpose of subsection (1).

DEBT COLLECTION PRACTICES

7. (1) An institution that communicates with a debtor in order to collect payment of a debt from the debtor must inform them of the following information:

(a) the details of the debt, such as the amount owed and the type of debt; and

(b) the identity of, or a unique identifier for, any person who is attempting to collect the payment on behalf of the institution and their relationship with the institution.

(2) An institution may not communicate or attempt to communicate with a debtor, any member of the debtor’s family or household, any relative, neighbour, friend or acquaintance of the debtor or the debtor’s employer by any means, or in a manner or with a frequency that constitutes harassment, including

(a) the use of threatening, profane, intimidating or coercive language;

(b) the use of undue, excessive or unreasonable pressure; or

(c) making public, or threatening to make public, a debtor’s failure to pay.

(3) Except for the sole purpose of obtaining a debtor’s address or telephone number, an institution may not contact or attempt to contact any member of the debtor’s family or household or any relative, neighbour, friend or acquaintance of the debtor unless

(a) that person has guaranteed to pay the debt and is being contacted in relation to that guarantee; or

(b) the debtor has given their express consent.

(4) If the consent referred to in paragraph (3)(b) is given orally by the debtor, the institution must, without delay, provide confirmation of that consent to the debtor in writing, in paper or electronic form.

(5) Unless otherwise authorized in writing by the debtor, an institution may contact a debtor’s employer solely for the purpose of confirming that the debtor is employed, the nature of their employment and their business title and business address.

(6) An institution may not contact a debtor at the debtor’s place of employment unless

(a) the institution does not have the home address or home telephone number of the debtor;

(b) attempts by the institution to contact the debtor at their home telephone number have failed; or

(c) the institution obtains written authorization from the debtor to do so.

(7) Except with the written consent of the debtor, an institution may not contact a debtor, any member of the debtor’s family or household, any relative, neighbour, friend or acquaintance of the debtor or the debtor’s employer or guarantor

(a) on a Sunday, except between the hours of 1:00 p.m. and 5:00 p.m. local time for the person being contacted;

(b) on any other holiday; or

(c) on any other day, except between the hours of 7:00 a.m. and 9:00 p.m. local time for the person being contacted.

(8) Except if the debtor or any other person referred to in subsection (7) has provided a cellular telephone number as a contact number, an institution may not knowingly communicate or attempt to communicate with the debtor or that person for the purpose of collecting, negotiating or demanding payment of a debt by a means that renders the charges or costs incurred for the communication payable by the debtor or that person, as the case may be.

(9) An institution that has communicated with a debtor in respect of the collection of a debt may not communicate with the debtor again in the course of that collection

(a) by a means other than in writing, if the debtor makes a written request by registered mail to the institution to communicate with the debtor only in writing in that regard and provides an address at which they may be contacted;

(b) by a means other than through the debtor’s legal advisor, if the debtor makes a written request to the institution to communicate with the debtor in that regard only through the debtor’s legal advisor and provides a telephone number and an address for the legal advisor; or

(c) without the debtor’s consent, if the debtor notifies the institution by registered mail that the debt is in dispute and that they intend to take the matter before a dispute resolution body or that they are prepared for the institution to take the matter to court.

(10) An institution may not misrepresent the purpose of a communication in respect of the collection of a debt with any person or give, directly or indirectly, by implication or otherwise, any false or misleading information in the course of that communication.

(11) Despite any agreement to the contrary between a debtor and an institution, any charges made or incurred by the institution in collecting a debt, other than charges referred to in section 18 of any of the following regulations, are not considered to be a part of the amount owing by the debtor and may not be recovered from the debtor by the institution:

(a) Cost of Borrowing (Banks) Regulations;

(b) Cost of Borrowing (Authorized Foreign Banks) Regulations;

(c) Cost of Borrowing (Trust and Loan Companies) Regulations;

(d) Cost of Borrowing (Retail Associations) Regulations;

(e) Cost of Borrowing (Canadian Insurance Companies) Regulations; and

(f) Cost of Borrowing (Foreign Insurance Companies) Regulations.

(12) An institution may not collect or attempt to collect payment in respect of a debt from any person who is not liable for the debt.

(13) An institution may not directly or indirectly threaten or state an intention to proceed with any legal action if it does not actually intend to do so.

(14) An institution may not, for the purpose of attempting to collect a debt, use any document that unlawfully purports to originate from any court within or outside Canada.

COMING INTO FORCE

8. (1) These Regulations, except sections 3 and 4, come into force on January 1, 2010.

(2) Sections 3 and 4 come into force on September 1, 2010.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue and objectives

On March 12, 2009, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures (Bill C-10), received Royal Ascent. The implementation of the consumer protection measures in Bill C-10 requires regulations to become effective.

As part of the measures to address the economic crisis, the Government noted that it would bring forward measures related to credit cards, mortgage insurance and financial literacy to assist consumers. A strong and stable financial system depends on the ability of its users to make informed decisions in respect of financial products and services.

Description and rationale

Federally regulated financial institutions are required to disclose a number of terms and conditions to consumers, on or before issuing a credit product. To ensure that consumers have access to credit on terms that are fair and transparent, the Government is moving forward with two sets of regulations. The first set of regulations amends the existing Cost of Borrowing Regulations to improve disclosure and transparency for consumers in order to better manage the risk associated with using credit. In addition, the Credit Business Practices Regulations are proposed to limit business practices of financial institutions that are not beneficial to consumers such as short grace periods or automatic credit limit increases.

The regulations are crafted to support the Government’s intentions outlined above and their implementation will ensure that Canada remains at the forefront of consumer protection in the financial services sector.

Regulations amending the Cost of Borrowing Regulations

Federally regulated financial institutions are currently required, under the Cost of Borrowing Regulations, to disclose certain information, e.g. interest rates and fees, to consumers in relation to credit products such as credit cards, fixed or variable rate loans or lines of credit before entering into the credit agreement. In addition, there are certain requirements for disclosure in advertising (e.g. prominently disclosing interest rates), ongoing disclosures (e.g. itemized monthly statement of account), and advance notice of changes in terms and conditions related to these products (e.g. 30-day advance notice).

To improve the transparency of disclosures, the Regulations will require that all disclosure under the Regulations be made in a manner that is clear, concise and not misleading.

To improve clarity of credit applications and contracts, the Regulations will introduce a requirement for key information, such as interest rates, grace periods and fees, to be provided in a summary box at the beginning of an application or contract for credit cards, and contract for fixed and variable rate loans and lines of credit.

To aid consumers in assessing the impact of their debt load, paying off debt, and managing their affairs, the Regulations will require federally regulated financial institutions to disclose to consumers on every monthly statement the time it would take to repay the outstanding balance, should consumers make only the minimum required payment. In addition, the Regulations will require advance notice on monthly statements if interest rates are going to increase during the next statement period. Thus, consumers will receive advance notice of the expiration of introductory rates, or the imposition of a penalty rate for missed payments.

The Regulations will also address certain matters highlighted in the 2006 Financial Institutions Legislation Review (www.fin.gc. ca/n06/06-023-eng.asp). As a result of the review, the Government committed in Bill C-37 (an Act to amend the law governing financial institutions and to provide for related and consequential matters) to clarify that all co-borrowers must receive the required disclosures unless a designated borrower is identified by some or all co-borrowers. Consultation on the 2006 review also identified issues that are being addressed in these Regulations, namely that borrowers under a federal or provincial student loan program, that are already provided with disclosure information under other legislation, should be excluded from these Regulations; that statements are not required as often when there is a very small outstanding balance that does not accrue interest or fees; and that advance disclosure is waived when an interest rate is decreased.

In 1996, provincial and federal ministers committed to harmonize laws governing disclosure of the cost of borrowing for consumer loans, lines of credit and credit cards. The proposed amendments incorporate changes that have been agreed by the Consumer Measures Committee, a group of federal-provincial representatives overseeing the harmonization agreement (www. ic.gc.ca/eic/site/oca-bc.nsf/vwapj/cmcccdl.pdf/$FILE/ cmcccdl.pdf). Specifically, the group agreed on the incorporation of conditions, such as obtaining independent legal advice, for consumers to waive the 2-day notice before entering into a mortgage.

Finally, the Regulations will incorporate technical changes to ensure consistency among existing Regulations. For example, the French versions of the Regulations are amended to revise the terminology.

Credit Business Practices Regulations

The Credit Business PracticesRegulations set out to limit business practices that are not beneficial to consumers such as short grace periods or automatic credit limit increases. Specifically, the Regulations will require that federally regulated credit card issuers provide consumers with a minimum 21-day, interest-free grace period on all new purchases when the balance is paid off by the due date. Presently, credit cards offer 15 to 24 days grace period, with most offering 21 days. However, many cards also provide that interest will accrue in that period.

The Regulations will require that consumer payments on the outstanding balance for a credit card will be allocated in a manner that is beneficial to consumers. Currently, financial institutions can allocate payments first to the outstanding balance with the lowest interest rate, resulting in higher overall interest payments for consumers. The Regulations set out two options for financial institutions to allocate payments beyond the minimum payment: to the outstanding balance with the highest interest rate first or in proportion that each outstanding balance has to the total outstanding balance.

The Regulations will prohibit federally regulated financial institutions from imposing a fee or penalty when the credit limit on a credit card is exceeded solely because a hold was placed on available credit. Gas stations or hotels, for example, place holds on credit cards, which can remain for several days. These holds can push consumers beyond their credit limit and attract overdraft fees or penalties even though no money has actually been disbursed.

Under the Regulations, federally regulated lenders will need to obtain a consumer’s express consent before increasing the individual’s credit limit.

Finally, the Regulations will address debt collection practices of federally regulated lenders. Certain debt collection practices will be proscribed for federally regulated financial institutions, similar to provincial requirements. For example, financial institutions will not be permitted to contact debtors outside specified times on weekdays and weekends.

The amendments to the Cost of Borrowing Regulations and the new Credit Business Practices Regulations will have various monetary and procedural impacts on federally regulated financial institutions, depending on current practices. As with any new regulatory requirement, financial institutions will have to incur some costs to implement the new requirements such as making changes to systems, creating new forms, and training staff.

The enhanced customer disclosures and protections afforded by the regulations will be beneficial to a broad spectrum of Canadian consumers. More and better information will be provided to consumers to allow for better decision making and to enhance the consumer’s ability to manage credit. Informed consumer decision making, in turn, contributes to the maintenance of a well-functioning and stable financial system and a stronger economy.

Consultation

A few issues addressed in these Regulations, e.g. possibility of sending regular disclosure statement to one or more of co-borrowers, relate to the consultation process leading to the review of the financial institutions statutes (Bill C-37) that was launched in 2005. In June 2006, the Government outlined its proposed policy framework by issuing a policy paper entitled 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework (www.fin.gc.ca/n06/06-023-eng.asp). In response to the White Paper, the Government received comments from about 30 stakeholders — industry associations, consumer groups, individual Canadians and other groups — on the implementation of the proposed framework. Overall, the comments were supportive of the proposals laid out in the White Paper.

The changes that these Regulations will make were announced in Budget 2009. After pre-publication of the Regulations, on May 23, 2009 in Part I of the Canada Gazette, comments related to some 50 different issues were received from stakeholders, representing industry associations, financial institutions and consumers.

The majority of comments received were not requesting changes to the regulations, but rather sought clarification and were addressed through revisions to the wording of the regulations. For example, industry stakeholders asked that language in the regulations be amended to clarify the policy intent. As such, sections 6, 10 and 12 of the Regulations amending the Cost of Borrowing Regulations have been modified to improve clarity. In section 6, changes have been introduced to set out the format, e.g. font size, of the information in the summary box. The key information in the summary box, such as the interest rates and the fees, and its presentation are further clarified by being prescribed in the schedules.

Wording in section 10, regarding subsequent periodic disclosure statements, has been modified to clarify that, while financial institutions are not required to provide a monthly statement under certain conditions, consumers will receive the disclosure statement at least every three months. Section 12 has been modified to provide consistent and reasonable assumptions for calculating the estimated length of time in years and months that it would take to repay the outstanding balance on a credit card, should borrowers make only the minimum required payment.

In addition, the language of sections 1 and 6 of the Credit Business Practices Regulations has been clarified. In section 1, “credit card” has been defined to clarify that the Regulations apply to individuals, but not to businesses. This ensures consistency of application between these Regulations and the Cost of Borrowing Regulations. Section 6 addresses requirements for increasing a borrower’s credit limit and has been modified to specify that confirmation of a credit limit increase may be provided to the borrower in the next monthly statement, following the borrower’s express consent.

Some technical changes were also requested to better facilitate the implementation of certain measures in the Regulations. As such, technical changes have been introduced in sections 6.1, 11, 12 and 13 of the Regulations amending the Cost of Borrowing Regulations. Section 6.1, which deals with disclosure statements for co-borrowers, has been clarified to provide for the flexibility to financial institutions to disclose information, a monthly statement for example, to a subset of co-borrowers subject to consent.

Consequential changes resulting from the requirement for institutions to provide consumers with summary box disclosure have been introduced in section 11 to avoid duplication of disclosure for credit card applications. Section 12 has been consequentially amended to provide an exemption for the minimum payment of the outstanding balance repayment disclosure for credit agreements that do not provide borrowers with the ability to carry balances. As well, section 13, which addresses disclosure requirements regarding amendments to credit agreements, has been amended to ensure that any changes to the terms and conditions of a credit agreement are effectively brought to consumers’ attention.

Furthermore, at the request of industry stakeholders, technical changes to the Credit Business Practices Regulations have been made in sections 3 and 7. Section 3, which concerns the minimum interest-free grace period for new purchases on a credit card, has been amended to clarify when a payment would be accepted as being made on time. Section 7 addresses debt collection practices that apply to financial institutions and their affiliates. It has been amended to provide consumers a means to track their dealings with debt collectors by requesting that a unique identifier be provided by an institution’s representative and by clarifying the period that debt collectors can contact consumers under certain conditions.

Some comments have not been reflected in this final version of the regulations as stakeholders were requesting changes that were inconsistent with or expanding the policy intent of the regulations. For example, one recommendation advised a shift in the Government’s policy on consumer credit products toward the prohibition of compounding interest, contrary to current global business practice. Another submission called on the Government to restrict financial institutions only to increasing a borrower’s credit limit upon his or her request, which does not reflect the Government’s policy intent of allowing institutions to seek proactively borrowers’ consent to increase their limit.

Implementation, enforcement and service standards

Industry representatives asked that the regulations come into force in accordance with a tiered implementation timetable ranging from 3 to 18 months. The industry highlighted technical challenges, e.g. impact on systems and procedures, related to the implementation of the measures.

Given the importance of consumer protection for the Government, the regulations set out that the majority of the provisions will come into force on January 1, 2010, including the summary box, consent for increases in credit limits and the debt collection practices measures. A few provisions, such as the 21-day grace period, and the allocation of payments requirement, will come into force on September 1, 2010, allowing financial institutions to complete the required systems’ design and testing process.

This tiered timeline will provide for a smooth implementation for both the financial institutions and consumers.

In addition, section 6(5) of the Cost of Borrowing Regulations, which allows institutions to provide disclosure of the cost of borrowing for a credit agreement to a borrower through electronic means, is set to be deleted from the regulations with the coming into force of the new Part 18 of the Bank Act. The upcoming Electronic Documents Regulations, which the Government is working to implement at the earliest opportunity, will set the requirements for communication by electronic means consistently across the Bank Act and all regulations.

The regulations do not require any new mechanisms to ensure compliance and enforcement of the regulations. The Financial Consumer Agency of Canada already administers the consumer provisions in the federal financial institutions’ statutes. As such, the Agency will ensure compliance with the new requirements, using its existing compliance tools including compliance agreements and administrative monetary penalties.

Contact

Jane Pearse
Director
Financial Institutions Division
Department of Finance
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-1631
Fax: 613-943-1334
Email: finlegis@fin.gc.ca

Footnote a
S.C. 2009, c. 2, s. 271

Footnote b
S.C. 2009, c. 2, s. 274

Footnote c
S.C. 1991, c. 46

Footnote d
S.C. 2009, c. 2, s. 278

Footnote e
S.C. 1991, c. 48

Footnote f
S.C. 2009, c. 2, s. 284

Footnote g
S.C. 2009, c. 2, s. 286

Footnote h
S.C. 1991, c. 47

Footnote i
S.C. 2009, c. 2, s. 291

Footnote j
S.C. 1991, c. 45

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with extensible hypertext markup language (XHTML 1.0 Strict).