New consumer protection regime for banks one step closer

Bill C-86, Budget Implementation Act, 2018, No. 2 (Bill), recently received second reading, bringing it one step closer to being passed into law. If passed, it will amend numerous statutes to establish more stringent consumer protection provisions that banks, including authorized foreign banks, will be required to comply with.

Of particular note is the sharp increase in penalties for violations of the consumer protection provisions of the Bank Act. The Bill would amend the Financial Consumer Agency of Canada Act (FCAC), increasing maximum administrative monetary penalties (AMPs) for contraventions of specified consumer protection provisions of the Bank Act from $50,000 to $1M for individuals, and from $500,000 to $10M for financial institutions or payment card networks. The consumer protection provisions of the Bank Act to which these AMPs would apply were also amended by the Bill, and include requirements that the directors of a bank shall designate a committee of board members (Committee) to:

1. require the management of the bank to establish procedures for complying with the consumer protection provisions of the Bank Act;
2. review those procedures to determine whether they are appropriate to ensure that the bank is complying with the consumer protection provisions; and
3. require the management of the bank to report at least annually to the Committee on the implementation of the procedures and on any other activities that the bank carries out in relation to the protection of its customers.

The proposed amendments contained in the Bill would also impose new reporting and disclosure obligations on banks vis-a-vis the Commissioner of the Financial Consumer Agency of Canada. The Committee itself would also have certain rules to abide by.

If the directors of the bank, or the Committee directors, breach their obligations under the consumer protection provisions of the Bank Act, they could face a costly AMP issued under the FCAC. A directors’ and officers’ (D&O) liability insurance policy provides protection for the organization, its board and management, when faced with a management liability lawsuit. Some directors’ and officers’ liability insurance policies could provide a form of defence costs coverage which would reimburse board members for legal defence costs in the event they chose to apply to the court to challenge the issuance of an AMP. If the policy contains robust wording, it may be possible in certain circumstances to obtain indemnity for the AMP amount itself, where insurable by law.