Commissioner's decision #125

Decision stemming from a Notice of Violation^{Footnote 1} 

The Violation

On June 24, 2016, the Deputy Commissioner of the Financial Consumer Agency of Canada (FCAC) issued a Notice of Violation (Notice) against the bank for contravening subsection 12(1) of the Cost of Borrowing (Banks) Regulations (Regulations). 

• The bank failed to accurately disclose to certain credit card customers the information required in paragraph 10(1)(c) on the nature and amounts of non-interest charges, contrary to subsection 12(1) of the Regulations.

No administrative monetary penalty (AMP) was proposed for this violation. 

On July 20, 2016, the bank accepted the findings in the Notice, including the proposal that no AMP be imposed for the violation. In accordance with subsection 23(3) of the Financial Consumer Agency of Canada Act, the bank was therefore deemed to have committed the violation. 

The Facts

The bank updated its system for administering personal credit cards. Following the update, the bank experienced processing issues with the posting of payments to customer accounts. As a result, certain cardholders found themselves above their credit limit and incurred an over-limit fee in error. The compliance issue was reported by the bank to FCAC the following month. 

The resulting investigation by FCAC revealed that the bank’s initial disclosure accurately described how it processed over limit fees. However, the processing issues caused a delay in posting payments made by cardholders to their accounts and, as a result, some customers incurred over limit fees even though appropriate payment had been made. This resulted in the bank not meeting its obligation under subsection 12(1) of the Regulations to accurately disclose the information required by paragraph 10(1)(c) of the Regulations about the nature and amounts of any non-interest charges. 

The Law

According to subsection 12(1) of the Regulations, a bank that enters into a credit agreement for a credit card must provide the borrower with an initial disclosure statement that includes the information in paragraph 10(1)(c) of the Regulations, namely the nature and amounts of any non-interest charges.

Compliance Considerations

Customers are entitled to receive accurate disclosure about the nature and amount of any non-interest charges and to be billed accordingly. 

In the majority of cases where customers were charged an over-limit fee in error, the fee and associated reversal were both disclosed in the same monthly account statement. The impact on customers was therefore nominal, as they did not incur any cost.

In some cases, customers were charged the over-limit fee in one month and reimbursed the following month. Although the bank reversed the over limit fees, these fees should never have been charged to the account.

The bank’s initial investigation focused on reimbursing customers who were incorrectly charged over limit fees.  FCAC further investigated the matter and found that the bank had overlooked the possibility that customers could have been charged interest related to the misapplied payments. As a result, the bank credited all customers an amount of interest larger than the interest that was overcharged.  

The bank acted promptly and proactively in providing full reimbursement to impacted customers, including the reversal of all fees and interest larger than those that were overcharged to the accounts. 

On the issue of whether the name of the bank should be made public under section 31 of the Financial Consumer Agency of Canada Act, the bank filed representations to the Commissioner and took the position that its name should not be made public based on the following:

• the Notice did not propose any AMP;
• impacted customers received full reimbursement with no action required by them;
• impacted customers were reimbursed an amount of interest larger than the interest overcharged to the accounts;
• the names of the institutions were not made public in the 24 Commissioner’s Decisions published on FCAC’s website, even where ten of the violations resulted in AMPs; and
• the bank had no violations in the last five years.  

In deciding whether to make public the name of the bank, the Commissioner considers each case individually. The Commissioner considers a number of factors, including the egregiousness of the bank’s actions, its willingness to assume responsibility for the breach, the impact of the breach on consumers and consumer confidence, and deterrence. The Commissioner also looks at the degree of collaboration shown to FCAC during the investigative process and the bank’s commitment to improving its management of risks of future breaches.

In this case, the Commissioner believed that the impact on the bank’s customers was nominal. Indeed, the bank acted promptly and proactively in providing full remediation to impacted customers. The bank also committed to improving its risk management practices to avoid future breaches by undergoing an independent review of its systems with the goal of reducing the operational risk associated with future changes. For these reasons, the Commissioner decided that it was appropriate not to publish the bank’s name in this case.