Can Disclosure in Canada’s Federal Financial

Consumer Protection Framework Protect the Digital

Consumer?

Brigitte Goulard, Peter Aziz and Matthew Gragtmans*

1. INTRODUCTION
Disclosure is a cornerstone of consumer protection: ‘‘The common element
of the federal government’s consumer-protection measures for financial services
in the United States is the requirement that institutions disclose designated
information to consumers in specified formats at required times. Disclosures are
so central to the purpose of some financial consumer protections that we might
properly call them ‘information protections.’”1
The goal of this article is to examine the function and challenges of
legislatively imposed disclosure in financial consumer protection regimes. To
achieve this goal, the article is organized in three sections. The first section will
examine the context that has shaped today’s approach to consumer disclosure,
studying the reasoning behind disclosure as a means to protect the consumer, as
well as the international community’s influence on Canada’s approach to
financial consumer protection.
The second section will review Canada’s approach to disclosure in the
financial services sector, both from a federal and provincial perspective.
The article concludes by examining the difficulties inherent with a
prescriptive disclosure-based regime to achieve financial consumer protection
in an ever-expanding digital banking environment.

2. DISCLOSURE AS A MEANS OF ACHIEVING FINANCIAL

CONSUMER PROTECTION

(a) Why Disclosure

Logic dictates that if consumers understand the terms and conditions of the
products and services they purchase, they are able to understand the
consequences of their purchases and make the choices that best meet their
interests. In other words, they can protect themselves by making informed
decisions. It is therefore not surprising that consumer protection focuses on

*
Brigitte Goulard is Senior Counsel, Torys LLP. Peter Aziz is Senior Counsel, Torys LLP
and Matthew Gragtmans is an articling student at Torys LLP.
1
Thomas A. Durkin and Gregory Elliehausen, ‘‘Disclosure as a Consumer Protection” in
Thomas A. Durkin and Michael E. Staten, eds., The Impact of Public Policy on Consumer
Credit (Boston: Springer, 2002) at 109.
334 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

ensuring that all key information is provided. Unfortunately, for various reasons,
including the growing complexity of financial products and services, consumers
do not always fully understand the products and services they are purchasing.
Additionally, behavioural economics have demonstrated that even if given the
requisite information, consumers do not always make the best choices.
However, there are other reasons for policy makers to resort to disclosure
requirements to achieve consumer protection goals.2
First, disclosure can be so easily integrated in the offering of products and
services that it deters both policy makers and institutions from developing more
innovative ways to achieve consumer protection. Since sales representatives are
already providing product information to their customers through the sales
process, it makes sense that product features and pricing be provided as part of
their ‘‘sales pitch”. Standard disclosure used by all institutions can even be used
to readily compare and differentiate different institutions’ similar terms.
Second, a consumer protection regime that uses disclosure obligations to
achieve its purposes presumes, to a certain extent, that consumers have different
product options available. For example, consumers have so many credit card
options that there are now websites dedicated to assisting consumers in
comparing credit card fees, rates of interest, loyalty programs and terms and
conditions. Disclosures would be much simpler if there was only one card with
one set of terms and conditions. In a sense, a regime based on disclosures allows
for innovation in terms of product offering, whereas a stricter regulatory regime
with little flexibility reduces consumer choice.
Third, as noted by authors Durkin and Ellihausen, there are also political
imperatives favoring disclosure-based regimes: ‘‘required disclosures may be
relatively lower in cost, both in terms of market disruption and out-of-pocket
government expenditures. Disclosures have been viewed as a convenient political
compromise between those demanding greater consumer protection and those
arguing that market interference is too wrenching and costly.”3

(b) The International Influence

Following the 2008 financial crisis, the Group of Twenty (G20), Finance
Ministers and Central Bank Governors called on the Organization for Economic
Co-operation and Development (OECD), the Financial Stability Board (FSB),
and other international organizations to develop common principles on
consumer protection in the field of financial services.
In response, the Task Force on Financial Consumer Protection of the OECD
Committee on Financial Markets (the ‘‘Task Force”) developed the G20/OECD
High-Level Principles on Financial Consumer Protection (the ‘‘Principles”) 4 to

2
Thomas A. Durkin and Gregory Elliehausen, ‘‘Disclosure as a Consumer Protection” in
Thomas A. Durkin and Michael E. Staten, eds., The Impact of Public Policy on Consumer
Credit (Boston: Springer, 2002).
3
Ibid. at 110.
 RECENT DEVELOPMENTS 335

enhance financial consumer protection in advanced and emerging economies

alike. In the months that followed, the Task Force worked in close cooperation
with all G20, FSB and OECD members, internal organizations, and standard
setting bodies to explore options for advancing financial consumer protection
across a wide range of financial services sectors. The Principles were endorsed by
the G20 leaders in November 2011 and adopted by the OECD Council as a
recommendation in July 2012.
The 10 Principles are designed to complement, rather than substitute,
existing domestic legislative frameworks. The Task Force further assisted the
international community by publishing guidance on effective approaches to
implement the Principles (the ‘‘Guidance on the Principles”). The Guidance on
the Principles make the following statements with respect to disclosure and
transparency:
1. The principle of disclosure and transparency is important as it is clearly in
consumers’ best interest that they are given complete, clear, and not
misleading information about financial products and services.

2. Information disclosure, including standardized and prescribed informa-

tion, supports the decision-making process for consumers and allows them
to make informed assessments of the financial products and services on
offer. An appropriate level of standardization also supports informed
assessment by improving the comparability of different products and
services. As such, disclosure rules are essential for marketing and
advertising materials and not just for specific product offerings.

3. Consumers can be at a particular disadvantage when purchasing financial

products or services, as these are widely marketed but purchased
infrequently. Behavioural finance provides insights that support the view
that traditional approaches to disclosure do not always match consumers’
information needs with the decisions they may need to make. Moreover,
consumers’ decision-making processes may be influenced or constrained
by a number of inherent factors, which may result in poor financial
choices. Effective disclosure and transparency should, therefore, aim to
mitigate the effect of these factors by providing appropriate and adequate
information and opportunities for consumers to process information with
ease and clarity, for instance by disclosing information in the format, time,
medium and volume that best facilitates informed decision-making by
consumers.

4. Since transparency is not always sufficient, effective consumer protection

through disclosure is best complemented with measures that ensure
responsible business conduct and improve financial education.5

4
Organization for Economic Co-operation and Development, G20 High-Level Principles
on Financial Consumer Protection, 2011.
5
G20/OECD Task Force on Financial Consumer Protection, Update report on the work to
336 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

In addition to the foregoing high-level statements, the Guidance on the

Principles recommends 44 non-binding, effective approaches designed ‘‘to assist
regulators, supervisors, policy makers, financial services providers, authorized
agents and other relevant stakeholders to enhance financial consumer protection,
while taking into account specific jurisdictional circumstances.”6
The approaches range from general statements such as: ‘‘financial services
providers and authorized agents do not make statements that are untrue,
misleading or omit information that is necessary to understand the nature, risks,
terms and conditions of the products or services”7 to granular guidance such as
granting ‘‘sufficiently long” cooling off periods following the purchase of a
product or products, and stipulating what type of information should be
included in standardized forms. The approaches are divided in seven categories:
key information about the product or service, conflict of interest, provision of
advice, promotional material, specific consumer measures, consumer awareness,
and consumer research.
The purpose and goals of several of the proposed effective approaches are
self-evident. Here are a few examples:
1. The information can be layered to make it easier for consumers to
differentiate between what is essential and what is less important by
presenting select key terms first and in a manner that draws them to the
attention of the consumers.

2. Consumers are provided, by financial services providers, adequate

information on the key features of a financial product or service,
highlighting the fees, charges, penalties, and risks.

3. When possible, information is provided in the consumer’s native

language.
Although drafted with the intention to protect consumers, the proposed
approaches do not adequately recognize the growth of digital distribution
platforms in financial services. The use of terms such as ‘‘documentation,
material, information leaflets, glossaries” present a dated picture of how
financial institutions disseminate information. In addition, several of the
recommended ‘‘effective approaches” emphasize the use of standardized forms
as useful tools to achieve the transfer of essential information. For example,
standardized forms and prescribed information are recommended as an effective
approach: ‘‘Information disclosure, including standardized and prescribed
information, supports the decision-making process for consumers and allows
them to make informed assessments of the financial products and services on

support the implementation of the G20 high-level principles on financial consumer

protection, September 2013 [G20/OECD].
6
Ibid. at 3.
7
Ibid. at 3.
 RECENT DEVELOPMENTS 337

offer. An appropriate level of standardization also supports informed assessment

by improving the comparability of different products and services.” 8
Even more difficult to achieve in a digital format is the recommendation that
information for complex products also be shared via standardized forms:
‘‘Enhanced disclosure requirements are established for more complex products
that highlight specific costs and risks involved for the consumer. These
requirements include the provision of a clear, concise and easily
understandable standardized form that contains information enabling the
consumer to comprehend the key features and risks of the product and is
prepared in a format that facilitates comparison with other products.”9
Recognizing the growth of digital platforms in financial services, and the fact
that the Principles were drafted at a time where technology was not as
omnipresent as it is today, the G20/OECD Task Force on Financial Consumer
Protection more recently developed additional guidance on how to apply the
Principles in a digital environment (the ‘‘Digital Guidance”). 10 The Digital
Guidance recognizes that the digitalization of finance will benefit consumers by
promoting more competition, providing more products and services options, and
improving access to financial services. Appreciating the limitations of disclosure
as a consumer protection tool, the G20 Digital Guidance identifies several policy
considerations to assist policy makers as they develop regulatory frameworks
applicable to digital delivery channels. These include:
1. Ensuring that disclosure and transparency requirements are applicable
and adequate to the provision of information through all channels
relevant to digital financial services and covering all relevant stages of
the product lifecycle.

2. Supporting consumer communications that are clear and simple to

understand regardless of the channel of communication.

3. Evaluating existing disclosure requirements if required in the context of

digital financial services, and if necessary, developing new requirements
taking account of disclosure via digital means (e.g. minimum scroll
down time for reading pre-contractual information).

4. Embedding an understanding of consumer decision-making and the

impact of behavioural biases in the development of policies relating to
disclosure requirements and/or alternative approaches to ensure a
customer-centric approach.

8
Ibid. at 5.
9
Ibid. at 9.
10
Organization for Economic Co-operation and Development, G20/OECD Policy
Guidance on Financial Consumer Protection Approaches in the Digital Age, 2018.
338 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

5. Testing and exploring new ways of making disclosure more effective for
consumers in terms of more targeted, proportionate and customer-
centric approaches.
Interestingly, the Digital Guidance recognizes that disclosure in a digital
channel requires a different approach, but still does not appear to step away from
the traditional disclosure approach adopted in the Principles. Rather, the Digital
Guidance implies that the digital format needs to be somehow adapted to fit the
disclosure requirements. For example, it is suggested that there should be a
minimum scroll down time for reading pre-contractual information. This
suggestion demonstrates that the Digital Guidance’s objective is not to
transform consumer protection approaches but rather to focus on how to
adapt digitalization to maintain the traditional disclosure method of long
discourse on terms and conditions. Additionally, a key objective of digitization is
to reduce consumer frustration with existing banking processes. Slowing
scrolling down time to ensure consumers read pre-contractual obligations will
most likely exacerbate consumer frustration, not reduce it.
Furthermore, the G20 Digital Guidance does not question the use of
standardized documents which was identified in the Principles as an effective
approach to disclosure. Standardized documents, which often use templates or
information boxes as a means to disclose information are not easily translated in
a digital format, nor do they always transmit the necessary level of information.
The UK’s Financial Conduct Authority (FCA), as part of their Smart
Communications Initiative, recognized the shortcomings of ‘‘standardized
forms” as a disclosure tool and have removed from their handbook11 several
templates as they were concerned that ‘‘they created a ‘tick box’ approach to
disclosure and may be restricting firms from finding better ways to give
consumers this information.”12
Unlike the UK, Canada is not distancing itself from the OECD’s proposed
‘‘effective approaches”.

3. A CANADIAN WEB OF CONSUMER PROTECTION

(a) The New Federal Financial Consumer Protection Framework

On December 13, 2018, Bill C-86, Budget Implementation Act, No. 2 2018,
received Royal Assent from Parliament. The Bill introduces, amongst other
things, a new federal financial consumer protection legislative framework (the
‘‘Framework”). Applicable to domestic and authorized foreign banks, the
Framework consolidates under the Bank Act existing consumer protection

11
The Financial Conduct Authority Handbook contains the complete record of the
Financial Conduct Authority legal instruments.
12
United Kingdom, Financial Conduct Authority, Policy Statement: Smarter Consumer
Communications: Removing ineffective disclosure requirements in our Handbook, PS16/23
at 12 [PS16/23].
 RECENT DEVELOPMENTS 339

provisions and associated regulations as well as enhances consumer protection

measures by imposing new obligations on regulated financial institutions. The
Bill also reinforces the powers of Canada’s market conduct regulator, the
Financial Consumer Agency of Canada.
Since Canada is active internationally, and a member of the OECD Task
Force on Financial Consumer Protection, it is not surprising that, as will be
explained below, several elements of the OECD’s effective approach for the
implementation of the Disclosure and Transparency High Principle are reflected
in the Framework.
(i) With respect to providing advice
The OECD recommends that financial institutions adopt a very high
standard in terms of understanding their customers’ needs and circumstances:
‘‘when providing advice, financial services providers and authorized agents must
give priority to helping the consumer purchase a product which is fit and
sustainable according to his/her financial needs”.13 The Guidance on the
Principles suggests that a financial institution should assess ‘‘the financial
objectives, knowledge and experience of the consumer and the affordability of
the product to the consumer against the specific risks and other features of the
product by requesting the customer to provide information on his/her financial
needs, situation and risk profile.”14 Furthermore, the Guidance on the Principles
recommends an explicit requirement that financial institutions provide the
consumer a document summarizing the advice and setting out how the
recommended product meets the needs of the consumer and why it is
appropriate for his/her personal circumstances and financial situation.
The requirements found in Canada’s Framework are not as onerous as
recommended in the Guidance on the Principles. Although the Framework
recognizes the benefit resulting from the financial institution assessing the needs
and circumstances of their customers in the sale of product and services, it
stopped short of directly imposing a suitability or assessment requirement. The
federal government has taken the more tempered approach of requiring
institutions to establish and implement policies and procedures ensuring that
the products or services that it offers, or sells are appropriate for the person
having regard their circumstances, including their financial needs. 15
The significance of this distinction is that financial institutions’ obligations
are limited to ensuring the development, establishment, and implementation of
policies and procedures. Furthermore, a financial institution cannot be found in
breach of having sold an ‘‘unsuitable product or service”, but only of having
failed to establish and implement the appropriate policies and procedures.

13
G20/OECD, supra note 5 at 8.
14
Ibid. at 8.
15
Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament
on February 27, 2018 and other measures, 1st Sess., 42nd Parliament, Canada, 2018
(assented to December 13, 2018), c. 27, division 10 Section 328, s. 627.08 [Bill C-86].
340 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

However, the Framework does require banks to train its employees and
officers with respect to the policies and procedures that it has established to
comply with the consumer provisions,16 and furthermore, that the remuneration
and benefits paid to bank employees and officers must not interfere with the
policies and procedures established to ensure that the products and services sold
are appropriate for the consumer’s needs and circumstances. 17
(ii) With respect to disclosure requirements
Although generally aligned with the OECD Guidance, Canada’s Framework
is in some respects more restrained than the OECD’s recommended effective
approaches.
For example, the Framework contains a new general prohibition against
communicating or otherwise providing false or misleading information to a
customer, the public or the Commissioner. This requirement focuses only on the
information that is to be provided whereas the OECD recommended approach
also address information that is omitted: ‘‘Financial services providers and
authorized agents do not make statements that are untrue, misleading or omit
information that is necessary to understand the nature, risks, terms and
conditions of the products or services.”18 Although omitting information can
mislead customers, that may not always be the case which is why including an
obligation to ‘‘not omit” information further raises the bar in terms of disclosure
requirements.
In addition to the above noted general prohibition against communicating
false or misleading information, the Framework also imposes a general
requirement to disclose information in a manner, and using a language, that is
clear, simple and not misleading, and that the disclosure shall be in writing unless
otherwise provided for in the legislation.19
The Framework also includes a general ‘‘catch-all” disclosure provision that
unless the legislation provides product specific disclosure requirements, the
financial institution is required to disclose, with respect to each product and
service, its features, the list of charges and penalties, and the particulars of a
person’s rights and obligations in respect of the product or service.20
The above requirements are well aligned with the OECD’s effective
approaches, which recommends consumers be provided with adequate
information on the key features of a financial product or service, highlighting
the fees, charges, penalties, and risks.
With respect to advertisements, the Framework introduces a general
obligation that ‘‘any advertisement in Canada that is made by an institution

16
Ibid., s. 627.02.
17
Ibid., s. 627.07.
18
G20/OECD, supra note 5 at 6.
19
Bill C-86, supra note 15, s. 627.55.
20
Ibid., s. 627.59.
 RECENT DEVELOPMENTS 341

shall be accurate, clear and not misleading.”21 The recommendation in the

Guidance on the Principles is more encompassing in that it requires advertising
to be fair, clear, comprehensive, concise, accurate, simple, understandable,
balanced, proportionate, and visible/audible. The advertising must also highlight
key information, which is prominent and not obscured. The print should be of a
sufficient size and clearly legible and special attention should be paid to the
legibility of information developed for electronic devices.
An interesting implementation by Canadian policy makers is with respect to
the OECD’s recommendation that consumer disclosures should be clear,
accurate and comprehensive, and shall take place at all stages of the consumer
relationship. Information is to be provided before, and at the point of sale, and at
regular intervals until the end of the product term or the termination of the
service and at appropriate change or decision points.22 Furthermore, the OECD
also recommends that once the agreement is entered into, the consumer should
receive ‘‘regular information to allow him/her to monitor the incurred costs,
performance and risks related to that product.”23
Although the Framework does not impose disclosure to be provided at
regular intervals for all products, it does impose timely disclosure requirements
for certain types of products. For example, one of the new and more onerous
requirements is the bank’s obligation to advise customers when the end of a
promotional period draws near. For promotional offers where the benefits last
more than 30 days, the banks will be required to disclose 21 and five days before
the end of the promotional period a prescribed list of information. 24 For offers
where the benefits are for less than 30 days, the information need only be
disclosed five days before the end of the offer.
As noted above, the OECD Guidance does promote the use of standardized
documentation and the Framework also supports this approach as it maintains
the already well-established usage of ‘‘information boxes” as a means to
disseminate information. The new obligation could even potentially be extended
to products and services that had not previously been disclosed via information
boxes.25 Recognizing that sales also occur through the telephone channel, the
Framework requires institutions to orally draw the customer’s attention to the
information that is required to be disclosed in an information box.
(iii) With respect to third-party sales of bank products or services
One of the Framework’s more challenging provision is the bank’s obligation
to ensure that any agents, intermediaries, or third parties selling or furthering the
sale of a bank product or service comply with the consumer provisions. 26

21
Bill C-86, supra note 15, s. 677.14.
22
G20/OECD, supra note 5, at 6.
23
Ibid. at 6.
24
Bill C-86, supra note 15, s. 627.61.
25
Ibid., s. 627.57(1).
342 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

Although this obligation currently exists under the Bank Act,27 the Framework’s
new responsible business conduct requirements add a level of complexity. The
requirement to ensure compliance by a bank’s agents is also found in the
Guidance on the Principles: ‘‘Consumers receive appropriate and consistent
information on the product or service, irrespective of whether they are dealing
with a financial services provider or an authorized agent.”28
(iv) With respect to a consumer’s rights and obligations
In several instances,29 the Framework refers to the bank’s obligations to
disclose the particulars of the person’s rights and obligations in respect of a
product or service. Although, the Framework does not address which particulars
are to be considered a ‘‘person’s obligation”, the OECD does offer some
guidance. According to the Guidance on the Principles, a person has the
obligation to provide financial institutions ‘‘with as much as relevant
information as necessary about their circumstances and not to withhold
relevant information so that the latter can fully assess their financial situation
and risk appetite and expectations, appropriately characterize them and
understand what the consumer really needs and wishes.”30 The OECD further
adds that a ‘‘Consumers’ responsibility to provide information is balanced by a
regulatory requirement for financial service providers to seek all relevant
information from the consumer.”31
The above analysis reveals that although federal policymakers were
influenced by the Principles, it did adopt a more tempered ‘‘made in Canada”
approach. But ‘‘made in Canada” also means that one must take into
consideration the provinces’ role in financial consumer protection.

(b) The Provinces and Financial Consumer Protection

(i) The Bank of Montreal v. Marcotte Floodgates

Banking is a matter of federal jurisdiction under s. 91(15) of the Constitution
Act, 1867.32 This means that unlike some other federally incorporated entities,
Parliament has legislative power not only to incorporate banks, but to regulate
banking activities including consumer protection and, of course, disclosure. 33 In

26
Bill C-86, supra note 15, s. 627.15.
27
Bank Act, S.C. 1991, c. 6, s. 459.5.
28
G20/OECD, supra note 5 at 6.
29
Bill C-86, supra note 15, s. 627.59, s. 627.6(2), s. 627.61(2), s. 627.89(1).
30
G20/OECD, supra note 5 at 10.
31
Ibid. at 10.
32
Constitution Act, 1867 (UK), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App. II, No. 5,
s. 91(15).
33
Peter Hogg, Constitutional Law of Canada, 5th ed. (Toronto: Thomson Reuters, 2018) at
24-1 [Peter Hogg].
 RECENT DEVELOPMENTS 343

2014, however, the Supreme Court of Canada’s decision in Marcotte c. Banque de

Montre´al (‘‘Marcotte”) confirmed that disclosure requirements in provincial
consumer protection laws apply to banks in certain circumstances.
The Marcotte litigation began as a class action against nine banks, including
the Bank of Montreal. The plaintiffs challenged the banks’ conversion charges
under Quebec’s Consumer Protection Act.34 The Banks argued provincial
consumer protection legislation was both inapplicable and inoperative to their
practices based on the doctrines of interjurisdictional immunity and
paramountcy, respectively. Firstly, the banks argued Quebec’s Consumer
Protection Act intruded on the federal ‘‘core” of banking. Although Justices
Rothstein and Wagner declined to define the scope of the ‘‘core” of federal
banking powers they nonetheless held that imposing a broad disclosure
obligation on charges relating to currency conversion did not impair that
power.35 On the issue of paramountcy, provincial laws are inoperative if: (1) it is
impossible to simultaneously comply with both the provincial law in question
and a federal law, or (2) the provincial law frustrates the purpose of the federal
law.36 The Banks in Marcotte argued the ‘‘purpose” of the federal Bank Act was
to provide for ‘‘clear, comprehensive, exclusive, national standards applicable to
banking products and banking services offered by banks.”37 The Court held ss.
12 and 272 of the Consumer Protection Act not to frustrate this federal purpose
because they do not set standards applicable to banking products or services, but
rather ‘‘articulate a contractual norm in Quebec.”38
Marcotte confirmed that banks must comply with disclosure requirements
under both the federal Bank Act, and applicable provincial consumer protection
acts. This gives the provinces leeway to impose rigorous disclosure requirements
on federal banks, so long as such requirements neither conflict with the federal
legislation nor frustrate the purpose of such.
(ii) Provincial consumer protection regimes
Banks are currently facing the perfect storm when it comes to financial
consumer protection. First, as noted above, the Supreme Court of Canada
confirmed in Marcotte that provincial consumer protection legislation operates
in the banking context. Second, the Framework imposes a new, more
burdensome federal regulatory regime governing the banks’ relationships with
clients. And finally, certain provinces such as Quebec are moving towards more
onerous provincial consumer protection requirements. Over the coming years,

34
Marcotte c. Banque de Montréal, 2014 CSC 55, 2014 SCC 55, 2014 CarswellQue 9001,
2014 CarswellQue 9002, (sub nom. Bank of Montreal v. Marcotte) [2014] 2 S.C.R. 725, 25
B.L.R. (5th) 173, 374 D.L.R. (4th) 581, 462 N.R. 202 (S.C.C.) at para. 2.
35
Ibid. at para. 66.
36
Peter Hogg, supra note 33 at 16-4 & 16-10.1.
37
Marcotte c. Banque de Montre´al, supra note 34 at para 78.
38
Ibid. at para. 79.
344 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

the banks will face greater challenges as they strive to meet the disclosure
requirements of all operative regimes.
For example, Bill 134, amending the Quebec Consumer Protection Act (CPA)
came into force on August 1, 2019.39 Examining Quebec Bill 134 in light of the
Framework, we can foresee the challenges shared jurisdiction poses on disclosure
requirements. One of the fundamental difficulties is that provincial consumer
protection legislation is general in its application in that it applies to all
consumers purchasing good or services within the province, regardless of
whether it is a financial product or service. The wider application of the
provincial regime results in inconsistencies between the regimes.
For example, the CPA requires compulsory clauses to be included in all
contracts of credit, whether or not made with a bank.40 In one instance, the
compulsory text refers to ‘‘merchant” as being the provider of the credit (i.e. in
this instance, the bank). However, in the context of a credit card issued by a
bank, the term ‘‘merchant” in the cardholder agreement usually refers to the
third-party seller of goods and services who takes payment through the system,
not the bank. The text imposed by the provincial legislation does not align with
the manner in which credit cards are issued by banks and used by consumers.
Although drafted with the consumer in mind, dictating specific language fails to
take into consideration various permutations on how products can be sold.
Banks may wish to consider the risks of modifying the compulsory clauses for
clarity, without changing their meaning.
The Quebec CPA also, in many instances, adds a layer of additional
requirements. For example, under the new federal Framework, the bank will be
required to electronically send to its customers, without delay, an alert when the
customer’s personal deposit account balance falls below a certain amount or
when the person’s amount of credit falls below a certain amount. 41 The CPA on
the other hand requires an alert to be sent once the person has exceeded its limit.
Compliance with both regimes would mean that customers may receive more
than one alert, potentially within days.42
Another example is with respect to cooling off periods. Under the CPA,
agreements where credit has been granted can be cancelled within two days of
entering into the agreement.43 This, of course, applies to a myriad of situations
where credit is granted such as purchasing appliances. Under the federal
legislation a cooling off period (cancellation) is possible for certain types of
agreements. For agreements44 entered into by mail or by telephone, the

39
Bill 134, An Act mainly to modernize rules relating to consumer credit and to regulate debt
settlement service contracts, high-cost credit contracts and loyalty programs, 1st Sess., 41st
Leg., Quebec, 2017 (assented to November 15, 2017), S.Q. 2017, c. 24.
40
Ibid., s. 125, Schedule 4.
41
Bill C-86, supra note 15, s. 627.13.
42
Bill 134, supra note 39, s. 128.1.
43
Ibid., s. 73.
 RECENT DEVELOPMENTS 345

consumer can cancel within 14 days after entering into the agreement and for
agreements entered any other way, the agreement can be cancelled until the end
of the third business day after the day on which the agreement was entered into. 45
It then becomes a puzzle to determine which cancellation provision applies to
which product. For some products, the provincial and federal requirements may
apply, but for others, potentially, only the provincial requirements or the federal
requirements could apply.
The superimposition of two regimes adds to the banks’ compliance burden,
but it is questionable whether it leads to greater consumer protection.
This question is particularly relevant as the consumer’s growing shift towards
digital interaction further casts doubt on the effectiveness of disclosure as a
consumer protection tool. Technology may be considered useful as an innovative
medium to communicate with customers. However, merely transposing in a
digital format, disclosure that was previously provided in a paper format may
not satisfy consumer protection objectives. The FCA’s work on Smarter
Consumer Communication46 discussed below revealed that when the terms
and conditions governing products and services were digitally transmitted, few
customers accessed the online link to review such terms and conditions. It is
disheartening to think that the inordinate amount of time and resources that
banks are spending to comply with provincial and federal regulatory regimes
may not in the end protect consumers.
More innovative ‘‘out of the box” disclosure methods must be considered for
disclosure to be effective in the digital age.

4. DIGITAL BANKING CHALLENGING DISCLOSURE

Recognizing the fundamental role of communications in financial consumer
protection, and the challenges and limitations of traditional disclosures as a
consumer protection tool, the UK’s FCA launched in 2015 their Smarter
Consumer Communications initiative. The FCA Discussion Paper published to
kick start the debate focused on how ‘‘the FCA, industry, consumer groups and
other stakeholders can work together to deliver information to consumers in
smarter and more effective ways, including adopting innovative techniques as we
move away from the paper-based mindset.”47
The FCA initiative not only examined what is communicated but also, and
more importantly in this day of digital delivery, how it is communicated. The

44
Other than for credit cards, certain deposits and any products or services that may be
specified in regulations.
45
Bill C-86, supra note 15, s. 627.1(1). This section provides for cancellation periods for
products and services. The time delays provided above may be amended through
regulations.
46
Financial Conduct Authority, Smarter Consumer Communications Discussion Paper,
June 2015.
47
Ibid. at 4.
346 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

FCA admits that ‘‘a predominantly paper-based disclosure may not meet today’s
consumer information needs” and ensuring a more consumer-friendly disclosure
regime will require ‘‘a fundamental change in mindset about how to
communicate effectively with consumers.”48
The FCA’s Discussion Paper on Consumer Communications examined
several issues, including how to improve the communication of an agreement’s
terms and conditions and the disclosure of fees and charges; how to more
effectively raise consumer awareness of the Financial Ombudsman Service. The
FCA’s Feedback Statement following the Discussion Paper identified four
factors limiting innovation and quality of consumer communications within
financial services:
1. Concern about the risks of changing communications, due to the
uncertainty of the regulators’ expectations,

2. The prescriptive natures of legislation,

3. Multiple sources of regulation, and

4. The complexity of financial products.49

Hoping to encourage innovation, the FCA’s Feedback Statement provides
examples of more innovative approaches used by financial institutions, including
using videos to explain complex information, simplifying information for
difficult concepts, using social media to communicate with a younger
demographic, using infographics and interactive tools, and creating ‘‘bite-
sized” guides. All laudable efforts to convey what is often viewed as complex and
detailed information. However, any novel approach will certainly meet a quick
death if it leads to an enforcement action by the regulator. Innovation can only
go so far if policy makers and regulators are not prepared to re-examine their
own reliance on dated disclosure approaches. After all, of the four factors noted
above, three are in the hands of policy makers and regulators.
Policy makers and regulators need to rethink the myriad of disclosure
requirements, particularly those where specific text or information boxes are
prescribed. It is encouraging to learn that the FCA seems to be moving in that
direction.
In its policy statement, Smarter Consumer Communications: Removing
ineffective disclosure, the FCA committed to eliminating certain disclosure
requirements such as the regulated entities’ obligation to produce certain reports
such as the ‘‘Consumer-Friendly Principles and Practices of Financial
Management Report” which was reported to be read by few customers, and
those that did found it difficult to understand.50 The FCA will also eliminate
48
Financial Conduct Authority, Smarter Consumer Communications: Feedback State-
ment, 2016 at 6.
49
Ibid. at 8.
50
PS16/23, supra note 12 at 4.
 RECENT DEVELOPMENTS 347

certain disclosure templates to ‘‘move away from a prescriptive format and tick
box style of disclosure towards a style of disclosure that would allow financial
institutions to communicate with consumers in more informative and innovative
ways.”51
Unfortunately, the UK’s progressive thinking has not crossed the Atlantic
into Canada. Although the four obstacles to innovation noted above are also
present in Canada, two are particularly problematic. First, Canada’s Framework
is very prescriptive and even leaves the door open for the establishment of
additional ‘‘disclosure templates” that may dictate what and how information
need to be disclosed.52 And second, in light of the Marcotte decision, Canadian
banks must now consider both provincial and federal disclosure requirements in
their communications efforts with consumers. Having to now comply with 10
provincial, three territorial, and one federal regime, banks will be even further
challenged to develop consumer communication approaches that are clear and
engage consumers into making good decisions.
Disclosure requirements created by policy makers and implemented by
regulators that operate in a ‘‘paper-based” world become impractical at best, and
unworkable at worst, in a digital environment. This is becoming increasingly
relevant as the appeal of digital banking has over the past few years expanded to
include nearly all banking customer groups, not just the millennials. 53
Disclosure as the principal tool to achieve consumer protection must be re-
thought, or at the very least, how such disclosures are currently taking place must
be reconsidered. Regulators and policy makers need to adopt a more proactive,
innovative approach to how best to protect consumers; and must in re-thinking
their approach appreciate the consumer’s growing expectations for a customized
experience.
Fortunately, the digital space, and an appropriate use of customer data,
would provide for such customized experiences. Providing ‘‘customized”
disclosures via digital platforms could lead to customer engagement which
would hopefully lead to better financial decisions. However, to achieve this
objective, policy makers and regulators will need to leave behind prescriptive
rules that are not easily transferable to the digital experience.
Not only are prescriptive rules not easily transferable to the digital
experience, but the shift in product and service delivery from font line staff to
online experiences also impacts consumer protection. Whereas in the traditional
delivery model, consumer protection is achieved by ensuring front line staff are

51
Ibid. at 14.
52
Bill-C86, supra note 15, s. 627.57(1).
53
Jonathan Godsall et al, ‘‘Inflection Point: Seven transformative shifts in US retail
banking”, McKinsey & Company Global Banking Practice, October 2019, online:
<https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/
Our%20Insights/Inflection%20point%20Seven%20transformative%20shifts%20i-
n%20US%20retail%20banking/Inflection-point-Seven-transformative-shifts-in-US-
retail-banking-vF>.
348 BANKING & FINANCE LAW REVIEW [35 B.F.L.R.]

properly incentivized and provided the required information, in the digital world,
front line staff are progressively being replaced by a digital channel. This shift
demands a rethinking of how consumer protection can be achieved. In her blog
post, ‘‘Consumer Protection in a Digital Age”, author Elisabeth Rhyne suggests
that in the context of digital banking, consumer protection should shift from
staff and operations to product design and delivery. She states:
With digital services, the consumer experience is embedded in the design of the
product and user interfaces — largely in advance. This is a profound shift. To
ensure consumer protection, digital financial service providers will need to
institute practices in the design process to confirm that consumer risks are
mitigated. These practices are only now emerging in the sector.54
Dealing with this shift will challenge policy makers, regulators and financial
institutions.
In his book, Bank 4.0: Banking Everywhere, Never at a Bank, Brett King,
devotes one chapter to the regulatory challenges associated with digital
banking.55 Mr. King makes the case for designing from scratch digitally-native
regulation which would gradually replace the existing system. He proposes a
number of elements for reform, including:
1. Moving away from rules-based regulations towards more principles-
based supervision coupled with data-intensive monitoring against
quantified metrics.

2. Creating new rules and systems that are digitally-native, not merely
enhancements of old analog processes.

3. Developing machine-executable regulations which would allow ma-

chines to execute a regulatory requirement by effectively extracting the
required information directly from the regulated institution.

4. Establishing test beds, sandboxes and Reg-Labs which would allow

institutions to test promising innovation that doesn’t fit in the existing
regulatory regimes.

5. Transforming regulators’ missions, cultures, skills and protocols to

enhance their knowledge of data sciences, and to adopt a more
innovative, open-minded approach to new ideas. Regulators will also
need to accelerate the current cycle for updating legislation and
regulations.

54
Elisabeth Rhyne, ‘‘Consumer Protection in a Digital Age”, Centre for Financial
Inclusion, July 2019, online:<https://www.centerforfinancialinclusion.org/consumer-
protection-in-a-digital-age>.
55
Brett King, Bank 4.0: Banking Everywhere, Never at a Bank (London: Marshall
Cavendish International, 2019).
 RECENT DEVELOPMENTS 349

The list of ‘‘to-do’s” for regulators and policy makers is long and challenging
but should be seriously considered if the objective is to ensure continued
consumer protection in the digital age.
As Brett King predicts, the future of banking will be ‘‘embedded in voice-
based smart assistants like Alexa and Siri, available at your command to pay,
book, transact, enquire, save or invest. It is going to be embedded in mixed-
reality smart glasses that can tell you, just by looking at something — like a new
television or a new car — whether you can afford it.”56
How does today’s prescriptive, standardized, long, and complex disclosure
approach fit in a pair of mixed-reality smart glasses? It doesn’t.

56
Ibid. at 40.
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