Financial Consumer Agency of Canada
www.fcac-acfc.gc.ca
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New, Unregulated Products and Services
In today's highly competitive marketplace, financial institutions are increasingly offering new, innovative products and services to meet their clients' changing needs. With the introduction of these innovations comes an increased responsibility for ensuring that consumers have a clear understanding of how these products and services work, and what they cost.
A survey conducted in 2003 by Statistics Canada found that 42.6 percent of consumers did not meet the minimum level of literacy required to read and understand documents. It is therefore imperative that disclosure documents be written in plain language, which is clear and concise, and which draws the reader's attention to key information.
For products that are not covered by disclosure regulations, FCAC recommends that, as a best practice, institutions adopt some of the principles outlined in various regulations contained in the Bank Act, the Insurance Companies Act and the Trust and Loans Companies Act. These regulations are designed to ensure that Canadian consumers receive fair, accurate, timely and comparable information about financial products and services.
When introducing a new loan or credit product that may not fall under the Cost of Borrowing Regulations, financial institutions should consider the following guidelines with respect to disclosure.
The manner in which the disclosure is made
The way in which information is provided to consumers will greatly affect their understanding of the subject matter. When providing information about a financial product, make sure you describe the product as simply as possible. Use short sentences. Don't bury the information in long, difficult paragraphs, or lists of data. Use large type that is easy to read, and avoid small font sizes. Include a disclosure statement on the cost of borrowing that is separate from the product information and spells out the terms of borrowing in a clear, concise, logical manner. This will help consumers focus on the information they need to make an informed decision.
The timing of the initial disclosure
By disclosing the cost of borrowing and the product information upfront — before the consumer signs a purchase agreement — you are giving consumers time to review the characteristics of all of the features of the product or service, and to make sure they understand the proposed terms and conditions of the purchase agreement.
Disclosing the total cost of borrowing
The Cost of Borrowing Regulations spell out, in detail, how to describe the total cost of borrowing. The Regulations ensure that consumers receive full information that will allow them to compare products and to evaluate their options, and obtain the best product for their needs.
How the interest calculation is disclosed
One of the most effective ways to explain how interest is calculated is to provide consumers with written, detailed examples of how to calculate their loan payments, and to spell out the total amount of interest they will have to pay on the loan. Be sure you describe the interest rate in the same way you would for any other type of loan product, by expressing the interest rate as an annual rate.
The timing of disclosure for amendments and renewals
Make sure that you tell consumers about any changes that will be made to the credit agreement, and about the terms for renewing it, in advance. This will give consumers time to review the changes and will help them evaluate the impact of these changes.
By following these "best practices" with respect to disclosure for unregulated products, you will ensure that consumers are adequately informed, and that they receive the same kind of information as they would for similar, regulated products and services.
As a helpful resource, you may wish to refer to Principles and Practices for the Sale of Products and Services in the Financial Sector (PDF), published by the Joint Forum of Financial Market Regulators. This document sets out "best practices" for financial intermediaries who deal with consumers of financial products and services.
