FCAC issues proposed guideline on existing mortgage loans for consumers vulnerable to mortgage delinquency
On March 21, 2023, the Financial Consumer Agency of Canada (“FCAC”) issued a draft guideline to signal its expectations of federally regulated financial institutions (“FRFIs”) on proactively monitoring and identifying early signs of hardship that may be experienced by consumers who hold mortgage products with them. The FCAC invites comments on the proposed guideline until May 5, 2023.
The draft guideline titled Proposed Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances also outlines the expectation that FRFIs establish criteria for offering relief measures to their customers and that such measures be made available to them. The impetus for the proposed guideline stems from the severe financial stress that some consumers may have experienced “due to exceptional circumstances, such as the current combined effect of high household indebtedness, the rapid increases in interest rates, the increased cost of living, and the COVID-19 pandemic.” “These exceptional circumstances”, the FCAC argues “may reduce some consumers’ ability to service their debts.”
The FCAC lays out three key principles to which FRFIs would have adhere in offering their respective relief measures, namely:
Fairness – Consumers would be expected to be treated with a similar level of care and attention, having regard to their circumstances, including their financial needs.
FCAC refers FRFIs to Section III: Know your consumer of its Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks for assistance and specifies that Fairness would include:
- not charging prepayment penalties when consumers with fixed payment variable interest rate mortgages make lump sum payments to avoid negative amortizations;
- waiving internal fees when activating mortgage relief measures that would otherwise be charged;
- providing competitive rates for consumers facing renewal who may experience difficulty adjusting their mortgage agreements or qualifying with other providers;
- ensuring that no interest is charged on interest in cases where relief measures result in negative amortization; and
- ensuring that the credit scores of consumers who avail themselves of the relief measures are not negatively impacted.
Appropriateness - FRFIs would be expected to ensure that mortgage relief measures and renewals are appropriate for consumers, having regard to their circumstances, including their financial needs.
Compliance with this principle would include an assessment of “appropriateness” aligned with FCAC’s Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks. The assessment would also require that any extension in amortization period granted to a consumer be captured in a plan, be temporary in duration and provide the consumer with the ability to restore the original amortization period within a reasonable time. The plan would also have to set out an assessment of any potential long-term negative financial implications, which would have to be communicated to the consumer. In addition, where extended amortization period are appropriate permanent solutions, FRFIs would have to ensure that extension periods are reasonable.
Under the proposed guideline, FRFIs would have to secure a consumer’s consent to receiving a relief measure, and provide them with the following information in a clear, simple and non-misleading manner:
- the outstanding amount owing on the original mortgage prior to any mortgage relief measures taking effect;
- the impact of the mortgage relief measure on the total cost of servicing the mortgage (in dollars);
- the impact of the mortgage relief measure on the original amortization period;
- the new payment amount, due date and frequency;
- the new interest rate and type (e.g., fixed, variable);
- the date on which the measure takes effect; and
- the amount of any fees charged by a third party for changing the mortgage agreement.
Accessibility - FRFIs would have to proactively provide consumers with access to mortgage relief measures, having regard to their circumstances, including their financial needs.
FCAC would expect FRFIs to make the relief measures “easily” accessible to consumers and to proactively contact their customers (and keep a record of those contacted) to provide them with information (in person, by telephone or online) about the relief measures, to allow them to make timely decisions. FCAC would also look for FRFIs to provide consumers (free of charge) with educational tools and resources (including reputable networks) to assist them in making financial decisions and guide them in sorting through their financial hardship.
Monitoring, tracking and reporting
In addition to the expectations described above, FRFIs would be required to monitor their customers and identify those who might show early signs of “mortgage hardship”. They would also have to record, track and report (to FCAC) on mortgage relief measures deployed to their customers. Moreover, to support the requirements above, FRFIs would be required to develop the appropriate policies and procedures which would be subject to review by the FCAC upon request.
Stakeholders are invited to provide comments on the proposed guideline by:
- email to [email protected]
- way of the online submission form
- fax at 1-866-814-2224/613-941-1436
- mail to:
Financial Consumer Agency of Canada
Attention: Deputy Commissioner, Supervision and Enforcement Branch
427 Laurier Ave West, 6th Floor
Ottawa ON K1R 5C7
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“consumer” refers to consumers who are vulnerable to mortgage delinquency as a result of exceptional circumstances (footnote 1 of Proposed Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances.)
 Negative amortization occurs when consumers with a variable rate mortgage and fixed payments are no longer paying enough to cover the interest on their payments. Interest accrues, increasing the total amount owing. (footnote 4 of Proposed Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances)
 “mortgage hardship” refers to a higher risk of vulnerability to mortgage delinquency as a result of exceptional circumstances.