July 2005


Draft Regulations under:
Credit Unions and Caisses Populaires Act
Insurance Act
Mortgage Brokers Act

Proposed by the
Ministry of Finance

This Consultation Draft is intended to
facilitate constructive dialogue concerning
its contents. Note that it will only become law if the
Lieutenant Governor proclaims legislative changes and
promulgates the regulations.

Table of Contents

Explanatory Notes
     Calculating the Cost of Borrowing
     Disclosure to Borrowers
     Payments and Charges
Draft regulation under the Credit Unions and Caisses Populaires Act, 1994, for consultation purposes only
Draft regulation under the Insurance Act, for consultation purposes only
Draft regulation under the Mortgage Brokers Act, for consultation purposes only

I Introduction

The Ministry of Finance is pleased to invite public comment on our draft cost of borrowing regulations. Draft regulations for the Credit Unions and Caisses Populaires Act, 1994, the Insurance Act, and the Mortgage Brokers Act are being issued for consideration.

The proposed regulations should be reviewed in the context of the cost of borrowing provisions in sections 197.1 to 197.10 of the Credit Unions and Caisses Populaires Act, 1994, sections 437.1 to 437.11 of the Insurance Act, and sections 7.1 to 7.8 of the Mortgage Brokers Act. These Acts are available on the e-Laws web site Copies are also available from the Ontario Government Bookstore, which may be contacted toll free in Ontario at 1-800-668-9938.

You may wish to limit your review to any one of the regulations, but you are welcome to review and comment on all three financial services sector regulations. For your information, the Ministry of Government Services, (formerly the Ministry of Consumer and Business Services), announced that regulations made under the Consumer Protection Act, 2002, which include cost of borrowing regulations that will apply to all other lenders, including payday lenders, will come into force on July 30, 2005.

The content, structure, and form of the enclosed draft regulations are subject to change as a result of the consultation process. The draft regulations will become law only if the Lieutenant Governor in Council proclaims the cost of borrowing disclosure provisions in the Acts and promulgates the draft regulations.

Interested parties are asked to provide their written submissions on the draft regulations by September 9, 2005 .

You may send comments by mail, fax or e-mail to:

Cost of Borrowing Disclosure Draft Regulations
Phil Howell
Assistant Deputy Minister and Chief Economist
Ministry of Finance
Frost Building North, 5th Floor
95 Grosvenor Street
Toronto, Ontario M7A 1Z1
Fax: (416) 325-9224

A copy of this consultation paper can be reviewed online at

Please note that this is a public consultation. All comments received will be considered public and may be used by the ministry to help evaluate and revise the proposed draft legislation and regulations. This may involve disclosing some or all comments or materials, or summaries of them, to other interested parties during and after the consultation.

Any personal information in submissions, such as names and contact details (i.e. home addresses and phone numbers, personal email addresses, etc. - in addition to any other information that could be used to identify an individual - will not be disclosed without prior consent. However, records created by individuals acting in a professional capacity (i.e. on behalf of a group, association, business, commercial enterprise, etc.) may be disclosed, unless your covering letter states that such disclosure would be harmful and/or prejudicial.

Therefore, if for any reason you feel your comments should not be shared with other parties, please indicate this in your covering letter.

If you have any questions about this consultation or how any element of your submission may be used or disclosed, please contact:

Luba Mycak
Senior Manager
Industrial & Financial Policy Branch
Ministry of Finance
777 Bay Street, 10 th Floor
Toronto ON M5G 2C8
Tel: (416) 326-9227
Fax: (416) 327-0941

II Explanatory Notes


The draft regulations describe how the cost of borrowing for consumer loans is to be calculated. They also propose mandatory disclosure requirements and rules about advertisements. These provisions are discussed more fully below.


The draft regulations will apply to any kind of loan, line of credit, or credit card agreement provided to an individual by credit unions and caisses populaires, insurers and mortgage brokers. They will not apply to credit agreements for business purposes or loans made to businesses.

Calculating the Cost of Borrowing

A key feature of the new provisions is calculating an annual percentage rate (APR). Unlike an annual interest rate (AIR), which is the interest rate before other fees and charges are taken into account, the APR also includes non-interest charges a lender could levy. Examples of non-interest charges include administrative charges, insurance charges, and charges for appraisals and inspections. The APR figure will make it easier for consumers to evaluate the true cost of a loan and to compare the true cost of borrowing among various lenders.

The provisions set out detailed rules about what is included in calculating the APR and what is not included (examples of excluded charges are penalties for an overdraft, charges for prepaying a loan, or default charges).

Disclosure to Borrowers

The draft regulations set out that the required information is to be provided to the consumer in a written disclosure statement, which must be in plain language, that is, concise and logical. The actual form of the statement is not mandated. If the borrower consents in writing, the disclosure statement may be provided electronically. The regulations also dictate the timing of the disclosure statement. The initial disclosure must be made two business days before the borrower and lender enter into an agreement for a mortgage loan. The two days are not required if the borrower consents to being given verbal disclosure on the day a loan is agreed upon. For non-mortgage loans, the initial disclosure can be made when the consumer and lender sign the credit agreement.

The information included in the disclosure statement will differ depending on the nature of the credit agreement. The regulations specify the different disclosure requirements for different loans, including: fixed-interest loans for a fixed amount, variable-interest loans for a fixed amount, lines of credit, credit card applications, and renewals of mortgages.

If a lender offers to waive a payment on a fixed loan but will continue to charge interest during the payment period, then this must be prominently disclosed to the consumer.

The draft regulations also give consumers specific rights concerning the cancellation of optional services, prepayment of loans for fixed amounts (except mortgage loans), and default charges. For example, the regulations would allow a consumer to cancel an optional service, including an insurance service, upon appropriate notification to the lender. In such circumstances the lender must refund or credit the proportional amount of the service that is unused as of the cancellation date.

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Payments and Charges

The draft regulations give consumers the right to prepay fixed loans except for mortgages, at any time and without charges or penalties. If a borrower prepays an outstanding balance, the lender must refund a proportionate amount of any charges other than interest and disbursement charges.

Additionally, the draft regulations provide that default charges can be imposed only when they are intended to recover costs reasonably incurred for legal services, seizing property on default, or expenses related to dishonoured payments.


The draft regulations also contain provisions on advertising that are intended to ensure lenders provide complete disclosure in advertisements, and do not mislead consumers as to the true cost of credit. For example, if a lender advertises a loan where no interest is payable during a period, the advertisement must also disclose if interest accrues during that period.


The draft regulations provide that if borrowers are required to purchase insurance, they can purchase the insurance from an agent or insurer of their choice. However, the lender has the right to disapprove, on reasonable grounds, an insurer selected by the borrower.


These draft regulations are intended to harmonize Ontario's cost of credit disclosure provisions with those of other jurisdictions across Canada. They reflect the federal-provincial-territorial harmonization agreement that was created through a process of public consultation and intergovernmental negotiation.

Ontario is strongly committed to giving both consumers and businesses the benefits of harmonized rules. Under harmonized rules, a consumer can compare disclosure information from companies whether they are federally or provincially regulated. Harmonization also benefits businesses by streamlining and simplifying requirements across the country.

Ontario is considering how to handle two issues on which the federal government has varied its approach from that of the harmonization agreement. For provincially regulated lenders, often the single most important sector of comparison is the federally regulated banks. Therefore, your input on these issues is specifically sought.

Under the Bank Act's Cost of Borrowing Regulations, the federal government has already adopted the harmonization agreement. However, these regulations deviate from the harmonization agreement on whether open credit, such as a line of credit, should disclose the APR, and on whether a borrower must receive independent legal advice before being able to waive the two-day cooling-off period for mortgage loans.

The harmonization agreement provides that an APR should be disclosed on open credit except for credit cards (e.g., on lines of credit). The Bank Act Regulations do not require the disclosure of APR on open credit of any kind because the APR could only be calculated by making assumptions on how much consumers will borrow and how fast they will repay a loan. These assumptions may be quite different from a consumer's actual borrowing patterns. Instead, the Bank Act requires disclosure of the annual interest rate and the amount of non-interest fees in advertisements and disclosure documents.

With respect to mortgage disclosure, the harmonization agreement only allows for the stipulated two-day cooling-off period for mortgages to be waived if the borrower receives independent legal advice. The Bank Act Regulations approach is to permit waiver on the borrower's consent.

To ensure that provincial financial institutions are able to compete on a level playing field with their federally-regulated counterparts, we propose harmonizing Ontario's draft regulations under the Credit Unions and Caisses Populaires Act, 1994, Insurance Act, and Mortgage Brokers Act with the Bank Act approach on these two issues.

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