Bank Act Financial Consumer Protection Framework passes third reading in House of Commons

Bill C-29, Budget Implementation Act, 2016, No. 2, (Bill C-29) passed third reading in the House of Commons on December 6, 2016.

Once passed by the Senate and brought into force, Bill C-29 will amend the Bank Act (Canada) (the Bank Act) to enact the long awaited Financial Consumer Protection Framework that was promised by both Liberal and Conservative governments since 2013, most recently in the 2016 Liberal Government budget, as described in our update earlier this year.

The following are the key changes to the Bank Act proposed in Bill C-29:

Financial Consumer Protection Framework

A new Part XII.2 – Dealing with Customers and the Public (the Framework) – would be added to the Bank Act. The Framework consolidates the existing consumer protection provisions found within the Bank Act and includes many provisions that are similar to the existing requirements in one new part.

New provisions in the Framework include the following:

A new cooling-off period for most products and services that will be provided on an ongoing basis;
An express consent requirement if a minimum credit balance is a condition of a loan;
Minimum disclosure requirements for all products and services, including the features of the product or service, a list of all charges and penalties, the customer’s rights and obligations, and complaints information; and
Form and manner requirements for disclosures required under the Framework, including information boxes for all disclosures required before an agreement is entered into.

Interpretation Principles

The Framework states that it is based upon the following principles:

Basic banking services should be accessible;
Disclosure should enable an institution’s customers and the public to make informed financial decisions;
An institution’s customers and the public should be treated fairly;
Complaints processes should be impartial, transparent and responsive; and
An institution should act responsibly, considering its customers and the public as well as the efficiency of its business operations.

These principles will be important for banks to consider as they review and update their customer and public facing disclosures to address the Framework.

It is unusual for a statute in Canada to include principles of interpretation. We expect that these principles will be considered in statutory interpretations by regulators, in particular, the Financial Consumer Agency of Canada, and by courts if there is ambiguity or a dispute with respect to the meaning of any specific requirement in the Framework or in associated regulations.

Comprehensive and Exclusive Regime – Response to Marcotte

The Framework states that its purpose is to set out a comprehensive and exclusive regime in relation to an institution’s dealings with its customers and the public, in order to:

Provide customers and the public with uniform protection on a national level;
Allow the institution to carry on the business of banking, consistently and efficiently on a national level; and
Ensure the uniform supervision of institutions and enforcement of provisions related to the protection of customers and the public.

Further, in another unusual step, the Framework provides that it is intended to be paramount to any provision of a law or regulation of a province that relates to the protection of consumers or to business practices with respect to consumers. We understand that these statements are intended to address the 2014 decision of the Supreme Court of Canada in Bank of Montreal v. Marcotte (2014 SCC 55) (Marcotte).

Marcotte was a class action commenced in Quebec. It was decided in the first instance by the Quebec Superior Court in 2009 and eventually appealed to the Supreme Court of Canada. The plaintiffs in Marcotte sought repayment of conversion charges imposed by several banks in connection with credit card purchases made in foreign currencies, primarily on the basis that the conversion charges violated Quebec’s Consumer Protection Act (Quebec CPA). The defendant banks argued that the Quebec CPA did not apply to them on the basis of the constitutional doctrines of interjurisdictional immunity and federal paramountcy. The defendants did not succeed on these arguments at the Supreme Court. The Supreme Court held that although the Quebec CPA’s disclosure and remedy provisions affect how banks carry out a certain aspect of their activities, the effect does not amount to an impairment of the federal banking power (an impairment is needed for interjurisdictional immunity to apply). The Supreme Court held that the doctrine of paramountcy was not engaged, even if it were assumed that one of the Bank Act’s purposes was to provide for exclusive national standards, because the Quebec CPA’s disclosure and remedy provisions do not provide for standards applicable to banking products. Rather, the Supreme Court held that the disputed provisions of the CPA support rather than frustrate the federal scheme.

The Framework’s provisions (if passed and brought into force) will codify in the Bank Act itself the Government’s stated purposes for enacting it. These purposes are arguably broader than those considered by the Supreme Court in Marcotte when it concluded that no conflict of purpose was made out. As such, including these statements in the Framework appears to be aimed at setting up a conflict of purpose with any provincial consumer protection law that purports to apply to banks in order to support the position that the Bank Act’s provisions are paramount to any such provincial law. However, it remains to be seen whether these provisions will be effective to support a constitutional challenge of a provincial law.

Next Steps

Bill C-29 must be passed by the Senate before it becomes law; however, the bill has already been “pre-studied” by the Senate Committee on National Finance, which recommended certain amendments that were included in the current version of the bill. Accordingly, the Senate may review and pass Bill C-29 fairly quickly.

There are many provisions of the Framework that require regulations to make them operative. We expect regulations to be published in draft in the Canada Gazette with a consultation period before the regulations are finalized and Bill C-29 is brought into force. Given the breadth of the proposed amendments, we expect that the Government will provide a transition period before the amendments and associated regulations are brought into force, however, this is not certain and the length of any transition period is not known.

Bill C-29 will likely affect each of the products and services that banks provide to natural persons. Therefore, banks may decide to begin reviewing their products and services in the near future. Updates to customer and public disclosures can be continued and finalized once regulations have been published and finalized.