The Government of Canada continues to reinforce the protection of consumers of financial services. On March 8, 2011, following up on measures identified in the 2010 Budget of Canada’s Economic Action Plan (Year 2), it released two proposed regulations reducing the maximum hold period for cheques, and prohibiting negative option billing in the financial sector.

Negative Option Billing Regulations

The proposed regulation applies to individuals who subscribe to optional financial products or services provided by a financial institution. This regulation establishes the requirement of express consent from the customer for such products or services, and disclosure obligations for the financial institution.

Express consent from the customer must be given orally or in writing. Oral consent must be confirmed in writing by the financial institution. The regulation expressly mentions that use of the product by the customer does not constitute express consent.

The proposed regulation also imposes the following disclosure obligations:

  • The financial institution must provide a description of the product or service, the term of the agreement, the charges, the conditions for cancellation, the date from which the product or service is available for use and from which charges apply, and the steps required to use the product or service;
  • Not only must the conditions for cancellation be disclosed, but for any product or service provided on an ongoing basis, the financial institution must indicate on any disclosure statement that the customer may cancel the product or service by notifying the institution to that effect; and
  • Any changes made to the terms and conditions of the product or service must also be disclosed in writing to the customer.

Access to Funds Regulations

The proposed Regulation applies to a broader range of customers, namely, individuals and smaller businesses with authorized credit of less than $1 million, fewer than 500 employees and annual revenues of less than $50 million.

Under the proposed regulation, a financial institution must allow withdrawals of funds from a cheque not exceeding $1,500 within four business days after the deposit. When a cheque exceeds $1,500, withdrawals must be allowed within seven business days. However, in the case of individuals, a financial institution must allow the withdrawal of at least $100 immediately, if the cheque was deposited in person, or in other cases, the next business day.

Financial institutions are entitled to assess the particular situation of the customer before releasing funds. In the case of smaller businesses, access to funds may be denied if there are reasonable grounds to believe that there is a material increased credit risk. Other situations, such as deposits made for illegal and fraudulent purposes, or such as accounts opened for less than 90 days, also allow a financial institution to benefit from a longer period before funds may be withdrawn. Those situations however require that the financial institution provides a notice of its refusal to the depositor requesting to withdraw funds.

A financial institution must disclose to individuals holding a retail deposit account and to the public who visits its branches, points of service and websites, the delays within which funds may be withdrawn. Any changes to the delays must be disclosed by means of displayed notice, and by providing a notice to the retail deposit account customers who receive statement of accounts.

The proposed regulation would repeal the Cheque Holding Policy Disclosure (Banks) Regulations.

Both proposed regulations will be published on the 12th of March in the Canada Gazette and will be open to comment from the public within 30 days of such publication.