Judith Robertson is Commissioner of the Financial Consumer Agency of Canada
Protections for bank customers have just received a major upgrade. On June 30, new and enhanced consumer protections came into force, as part of a new Financial Consumer Framework in the Bank Act that holds banks to a higher standard.
The framework represents an important shift – one that moves us away from a buyer-beware environment to one based on a shared responsibility between consumers and their banks. It achieves this important goal by requiring banks to take greater responsibility for customer outcomes and putting consumer protection at the heart of how they do business.
The framework has been a long time coming and addresses issues raised by consumer groups and my agency – the Financial Consumer Agency of Canada (FCAC).
This includes concerns raised in a 2018 review of domestic retail sales practices of Canada’s six largest banks, in which FCAC found that banks were increasingly focused on selling products and services without a consistently high emphasis on protecting the interests of consumers.
The framework introduces more than 60 new or enhanced protections. While some are technical in nature, many others represent significant upgrades to existing federal laws and regulations that require banks to provide Canadians with access to basic services and to treat their customers fairly.
One of the most significant changes requires banks to provide products and services that are appropriate to customers based on an understanding of their financial needs. Banks must also ensure that any incentives or employee compensation plans do not interfere with this new obligation.
In practice, this means that banks must ask themselves: “Do our products and services meet the needs of the customers they are sold to, and do they reflect their circumstances?” Banks must also consider whether their sales practices and reward systems are consistent with achieving these consumer outcomes.
The framework also addresses concerns about slow and ineffective complaint handling at Canada’s banks. In a 2020 review, FCAC found that banks resolve most complaints quickly and to the satisfaction of consumers. However, they take too long to resolve more complex issues, causing frustration, dissatisfaction and a loss of confidence among consumers.
In response, the framework imposes a set time frame for resolving complaints that is shorter than the current standard and more in line with international best practices. It also requires banks to strengthen their complaint-handling procedures to create a consistent experience that consumers can easily understand and use.
Furthermore, the framework requires banks to pro-actively provide more information to help customers make informed and timely decisions and avoid fees. This includes electronic alerts to help customers avoid going into overdraft or spending over their credit limit, which some banks started sending a few weeks ago already.
As the regulator responsible for overseeing the framework, FCAC has developed guidelines to help banks meet their new obligations to consumers. We have also been monitoring the preparations and readiness of banks leading up to June 30. These changes have required a substantial investment in systems and training on the part of banks.
All of this is good news for Canadians in their dealings with banks, in particular the most vulnerable, who must navigate today’s fast-moving digital environment – an environment where personal finance is increasingly a “do-it-yourself” activity with an ever-growing range of products and services.
Overall, the framework places an increased onus on banks in recognition that achieving good consumer outcomes is a collective responsibility and requires a collective effort. All stakeholders – banks, individuals, government, advocates – have a role to play.
This focus on outcomes is aligned with FCAC’s National Financial Literacy Strategy, released last summer. The strategy puts the focus on the entire ecosystem, including banks and others in the financial industry, rather than exclusively on individuals, to develop a more inclusive, accessible, and effective financial system where everyone can build financial resilience.
In this way, the framework and the national strategy will work together to require banks to consider the needs and abilities of their customers first, which will help to protect all Canadians. This alignment is at the core of FCAC’s strategic vision to use all our regulatory, research, education and financial literacy tools to be a leader in financial consumer protection.
While the framework has raised the bar for financial consumer protection significantly, consumers are not the only ones who will benefit. The framework will also help to promote confidence in Canada’s financial institutions and system of regulatory oversight, which in turn will benefit the financial system as a whole.
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