Archived - Backgrounder: Recent Financial Consumer Initiatives
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Financial literacy is an important priority of the federal government. The Financial Consumer Agency of Canada (FCAC) undertakes a number of financial literacy initiatives, focusing mainly on the creation of tools, programs and publications to build awareness and develop the financial literacy of Canadians.
In 2009, the Task Force on Financial Literacy was launched to provide advice and recommendations to the Minister of Finance on a national strategy to strengthen the financial literacy of Canadians. The Task Force submitted its final report to the Minister in January 2011 outlining 30 recommendations.
In response to the Task Force’s key recommendation for dedicated leadership, the appointment of Canada’s first Financial Literacy Leader, Jane Rooney, was announced on April 15, 2014. The Leader provides leadership on a national level and collaborates and coordinates with stakeholders on initiatives that strengthen the financial literacy of Canadians. The Government also committed an additional $3 million per year for financial literacy.
On July 30, 2014, a National Steering Committee on Financial Literacy was established to provide advice to the Financial Literacy Leader on the development and implementation of a national strategy for financial literacy. FCAC also undertook nationwide consultations on seniors’ financial literacy. These consultations took the form of a series of roundtables with stakeholder organizations and a call for comments from the general public.
In Budget 2014, the Government committed to continue to raise public awareness about the costs of and alternatives to payday lending and other high interest rate lending products, as well as work with the provinces to maintain the integrity of the payday lending framework. This commitment reinforces the changes made in 2007 to the usury provisions of the Criminal Code, at the request of the provinces, to enable provinces to fully regulate payday loans.
The Financial Literacy Leader will also work with stakeholders to raise public awareness about the costs of and alternatives to these products.
To help Canadian borrowers better manage their financial position, regulations on credit agreements, including lines of credit and credit cards, came into force in 2010. These regulations limit business practices that are not beneficial to consumers and require the provision of clear and timely information to Canadians about credit products, with a particular emphasis on credit cards. Specifically, the regulations:
- Mandate an effective minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full.
- Lower interest costs by mandating allocations of payments in favour of the consumer.
- Allow consumers to keep better track of their personal finances by requiring express consent for credit limit increases.
- Limit debt-collection practices that financial institutions use in contacting a consumer to collect on a debt.
- Prohibit over-the-limit fees arising solely from holds placed by merchants.
- Provide clear information in credit contracts and application forms through a summary box that sets out key features, such as interest rates and fees.
- Help consumers manage their credit card obligations by providing information on the time it would take to fully repay the balance, if only the minimum payment is made every month.
- Mandate advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract.
In addition, the regulations require that any disclosure by a financial institution be made in language, and be presented in a manner, that is clear, simple and not misleading.
Unsolicited Credit Card Cheques
To assist consumers in managing credit card debt, the Government has moved forward with its Budget 2011 commitment to ban federally regulated financial institutions from distributing unsolicited credit card cheques. A number of credit card issuers offer credit card cheques, which allow funds to be withdrawn directly from a credit card. These cheques are considered to be cash advances, which can accrue higher interest rates and fees and do not provide an interest-free grace period. The regulations came into force on June 21, 2013.
On March 4, 2012, the Government announced the introduction of a new Code of Conduct to assist borrowers in making decisions about the prepayment of their mortgage. The Code of Conduct for Federally Regulated Financial Institutions – Mortgage Prepayment Information requires federal financial institutions to explain the differences between mortgage products, including ways to pay off a mortgage faster without incurring penalties. The Code also requires that they provide more information on how prepayment charges are calculated.
Negative Option Billing
The Negative Option Billing Regulations require federally regulated financial institutions to first obtain a consumer’s express consent before providing him or her with a new or optional product or service. The regulations also require federally regulated financial institutions to provide individuals receiving optional products and services, such as credit balance insurance or fraud alerts, with advance notice for the end of promotions and changes to the terms and conditions of the optional product or service. These regulations came into force on August 1, 2012.
Cheque Hold Periods
The Access to Funds Regulations afford Canadians greater leverage for financial management by reducing the maximum cheque hold period to 4 days from the previous 7 days for cheques of less than $1,500. The regulations also provide consumers with timelier access to the first $100. These regulations came into force on August 1, 2012.
Prepaid Payment Products
In Budget 2011, the Government proposed to enhance the consumer protection framework with respect to payment network-branded prepaid cards. The Prepaid Payment Products Regulations deliver on this commitment. To support consumer awareness and informed decision making, the regulations require federally regulated financial institutions to disclose to consumers relevant information at appropriate points in time. The regulations also limit certain business practices that could be harmful to consumers and afford consumers increased access to their prepaid funds. The regulations came into force May 1, 2014.
- Require disclosure of fees in a prominent information box on exterior packaging.
- Require disclosure of pertinent information on the product’s use, including on how to access the full terms and conditions and a toll-free number to make a balance inquiry.
- Prohibit the expiry of funds.
- Prohibit dormancy fees during the first 12 months following card activation.
Cashing Government Cheques
Banks are required by law to cash, free of charge, cheques or other instruments issued by the Government of Canada, at any bank branch in Canada that dispenses cash through a teller, as long as the cheque is for $1,500 or less, and the consumer provides proper identification. New standard language has been added to the back of government cheques informing Canadians of this right. A bank is permitted to refuse to cash a government cheque if it has reasonable grounds to believe the cheque is counterfeit, the cheque has been altered in some way or the cheque is connected with a crime or fraud.
Low-Cost and No-Cost Accounts
In the 2013 Speech from the Throne, the Government committed to expand no-cost basic banking services and to end pay-to-pay policies, and in Budget 2014 it further committed to enhance access to basic banking services.
In May 2014, the Government fulfilled this commitment, announcing that it had secured voluntary commitments from Canada’s eight largest banks to enhance low-cost bank accounts and offer no-cost accounts with the same features as low-cost accounts to vulnerable Canadians. Effective January 15, 2015, banks have committed to provide a range of basic banking services for $4 or less per month, including:
- No extra charge for deposits, debit cards, pre-authorized payment forms, monthly printed statements, and cheque image return or online cheque image viewing.
- A minimum of 12 debit transactions per month, at least 2 of which can be done in-branch.
- Cheque writing privileges.
- Reasonable charges for extra services.
No-cost accounts will be available to youth, students, seniors qualifying for the Guaranteed Income Supplement, and Registered Disability Savings Plan beneficiaries.
Banks will also disclose the features and extra service charges associated with low-cost and no-cost accounts and prominently display information about the availability of these accounts in-branch and online.Banks also committed to provide free monthly printed credit card statements.
External Complaints Bodies
Under the Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations, which came into force on September 2, 2013, banks and authorized foreign banks are required to be members of an independent external complaints body that conducts reviews of customer complaints.
The regulations set requirements to help consumers resolve complaints with their banks, including high standards for independence, timeliness and transparency. External complaints bodies must publicly report information about the complaints they receive and investigate on an annual basis and are expected to assist Canadians who are party to a complaint by helping them navigate the complaint-handling process.
Collateral Charge Mortgages
Budget 2014 called on banks to enhance disclosure to consumers of the cost and consequences of collateral charge mortgages relative to conventional mortgages, better equipping borrowers to understand the impacts of having a collateral charge mortgage.
In response, on September 3, 2014, eight major banks and the Canadian Bankers Association, on behalf of its smaller member banks, committed to providing consumers with general comparative information on residential mortgages that will help them understand the differences between the types of security taken by a bank for collateral charge mortgages and conventional mortgages.
This general comparative information includes transferring or assigning a mortgage security to a new lender, borrowing additional funds and discharging the mortgage security. Banks also committed to providing information in a manner that is clear, simple and not misleading. This comparative information was provided by banks on their websites as of September 1, 2014, and will be available in their branches by November 30, 2014.
Banks also committed to provide specific information about these same topics to individual consumers on the individual’s own mortgage at the time of or before entering into the mortgage loan agreement. More details can be found on the Department of Finance website in Backgrounder: Voluntary Commitments by Banks on Collateral Charge Mortgages.
Powers of Attorney and Joint Deposit Accounts
In Budget 2014, the Government made a commitment to require banks to enhance disclosure of the cost and benefits of using powers of attorney and joint accounts and provide more robust bank processes and staff training.
Banks voluntarily committed to provide this information about powers of attorney and joint deposit accounts on their websites by September 1, 2014, and in their branches by December 31, 2014, in a manner that is clear, simple and not misleading. Banks also committed to implement staff training on powers of attorney and joint deposit accounts by March 31, 2015. More details can be found on the Department of Finance website in Backgrounder: Voluntary Commitments by Banks on Powers of Attorney and Joint Deposit Accounts.