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New Federal Borrowing Regulations in Effect

As part of a new initiative to protect consumers of financial products, the federal government has introduced two sets of regulations under the Bank Act designed to enhance consumers’ access to lending products on fair and clear terms.  
 
Specifically, amendments to the federal Cost of Borrowing Regulations implement a new series of regulations which address disclosure and transparency for consumers of lending products.  A second set of regulations, called the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations, provides guidelines and limits on the business practices of financial institutions in connection with credit cards and other credit arrangements.  
 
This new legislation applies to any federally-regulated entity that extends credit to Canadian consumers; it does not currently apply to credit cards issued for business purposes.  For the most part, both regulations come into force on January 1, 2010, although their implementation is subject to a staggered legislated time-frame.
 
As a result of these new regulatory provisions, federal lending institutions will need to review ‒ and will likely need to revise ‒ their policies, practices and documentation to ensure compliance with them.
 
The changes are significant.  For example, under the Cost of Borrowing (Banks) Regulation, lenders are required to include a detailed summary box in their disclosure statements, outlining specific information that must be provided to consumers.  They must also overhaul their standard documentation for credit agreements (which includes all loans, lines of credit, and credit cards). New Electronic Documents Regulations allow for communication with consumers electronically, bringing that ability in line with other provisions of the Bank Act and its regulations.   In addition, financial institutions will have to amend their practices by January 1, 2010 in connection with:

New provisions allow consumers a 21-day interest-free grace period on all new purchases, and implement certain protocols for applying consumers’ payments against their outstanding balances. These come into force later in the year.