COST OF BORROWING AND DISCLOSURE TO BORROWERS

Draft regulation under the Insurance Act, for consultation purposes only

COST OF BORROWING AND DISCLOSURE TO BORROWERS

3. Calculation of the APR
4. Annual interest rate as APR
5. Included and excluded charges

6. Manner of making disclosures
7. Timing of initial disclosure
8. Disclosure - fixed interest loans for a fixed amount
9. Disclosure - variable interest loans for a fixed amount
10. Disclosure - lines of credit
11. Disclosure - credit card applications
12. Disclosure - credit cards
13. Disclosure after amendment to a credit agreement
14. Disclosure - renewal of a mortgage
15. Disclosure - offer to waive payment
16. Disclosure - cancellation of optional services

PAYMENT AND CHARGES

17. Prepayment of loans
18. Default charges

ADVERTISING

19. Advertising - loan for a fixed amount
20. Advertising - line of credit
21. Advertising - credit card
22. Advertising - interest-free periods

PURCHASING INSURANCE

23. Insurance re loan

COMMENCEMENT

24. Commencement

APPLICATION AND INTERPRETATION

Application

1. This Regulation applies to every credit agreement entered into by an insurer, other than a credit agreement entered into for the business purposes of a borrower or a credit agreement entered into with a borrower who is not a natural person.
2. This Regulation applies to the renewal or on-going administration of a credit agreement entered into before this Regulation comes into force.

Definitions

In this Regulation

"APR" means the cost of borrowing for a loan under a credit agreement expressed as an annual rate on the principal referred to in subsection 3 (1);
"borrower" includes a person to whom a loan is proposed to be made, and a holder, or an applicant to become a holder, of a credit card;

"credit agreement" includes an agreement for a line of credit, a credit card or any kind of loan or advance;

"disbursement charge" means a charge, other than one referred to in subsection 5 (1), to recover an expense incurred by an insurer to arrange, document, insure or secure a credit agreement, and includes a charge referred to in clauses 5 (2) (c) and (f) to (h);

"principal" means the amount borrowed under a credit agreement but does not include any cost of borrowing;

"public index" means an interest rate, or a variable base rate for an interest rate, that is published at least weekly in a newspaper or magazine of general circulation, or in some media of general circulation or distribution, in areas where borrowers whose credit agreements are governed by that interest rate reside.

COST OF BORROWING

Calculation of the APR

1. The cost of borrowing for a loan under a credit agreement, other than a loan obtained through the use of a credit card or a line of credit, is the annual rate on the principal as calculated using the formula,
  
  in which,
  "APR" is the annual percentage rate cost of borrowing,
  
  "C" is the cost of borrowing within the meaning of section 5 over the term of the loan,
  
  "P" is the average of the principal of the loan outstanding at the end of each period for the calculation of interest under the credit agreement, before subtracting any payment that is due at that time, and
  
  "T" is the term of the loan in years, expressed to at least two decimal points of significance.
1. For the purposes of subsection (1),
  1. the APR may be rounded off to the nearest eighth of a per cent;
  2. each instalment payment made on a loan must be applied first to the accumulated cost of borrowing and then to the outstanding principal;
  3. a period of,
    1. one month is 1/12 of a year,
    2. one week is 1/52 of a year, and
    3. one day is 1/365 of a year;
  4. if the annual interest rate underlying the calculation is variable over the period of the loan, it must be set as the annual interest rate that applies on the day that the calculation is made;
  5. if there are no instalment payments under a credit agreement, then the APR must be calculated on the basis that the outstanding principal is to be repaid in one lump sum at the end of the term of the loan; and
  6. a credit agreement for an amount that comprises, in whole or in part, an outstanding balance from a prior credit agreement is a new credit agreement for the purpose of the calculation.
2. The cost of borrowing for a loan obtained under a credit card agreement or a line of credit is,
  1. if the loan has a fixed annual interest rate, that annual interest rate; or
  2. if the loan has a variable interest rate, the annual interest rate that applies on the date of the disclosure.

Annual interest rate as APR

The APR for a credit agreement is the annual interest rate if there is no cost of borrowing other than interest.

Included and excluded charges

1. Subject to subsection (2), the cost of borrowing for a loan under a credit agreement, other than an agreement for a credit card or line of credit, consists of all the costs of borrowing under the loan over its term, in particular the interest or discount that applies to the loan and includes the following charges:
  1. Administrative charges, including charges for services, transactions or any other activity in relation to the loan.
  2. Charges for the services, or disbursements, of a lawyer or notary that an insurer required the borrower to retain.
  3. Insurance charges other than those excluded under clauses (2) (a), (f) and (h).
  4. Charges for a broker, if the broker's charges are included in the amount borrowed and are paid directly by the insurer to the broker.
  5. Charges for appraisal, inspection or surveying services, other than those mentioned in paragraph (2) (g), related to property that is security for a loan, if those services are required by the insurer.
2. The cost of borrowing for a loan does not include,
  1. charges for insurance on the loan,
    1. if the insurance is optional, or
    2. if the borrower is its beneficiary and the amount insured reflects the value of an asset that is security for the loan;
  2. charges for an overdraft;
  3. charges paid to register documents or obtain information from a public registry about security interests related to property given as security;
  4. penalty charges for the prepayment of a loan;
  5. charges for the services, or disbursements, of a lawyer or notary, other than those mentioned in paragraph 2 of subsection (1);
  6. charges for insurance against defects in title to real or immovable property, if the insurance is paid for directly by the borrower;
  7. charges for appraisal, inspection or surveying services provided directly to the borrower in relation to property that is security for a loan;
  8. charges for insurance against default on a high-ratio mortgage;
  9. charges to maintain an account that are required for a high-ratio mortgage or that are optional;
  10. any charge to discharge a security interest; or
  11. default charges.

DISCLOSURE TO BORROWERS

Manner of making disclosures

1. An insurer that grants credit must give the borrower a written disclosure statement that provides the information required by this Regulation.
2. A disclosure statement may be a separate document or may be part of a credit agreement or an application for a credit agreement.
3. Information disclosed in a disclosure statement may be based on an assumption or an estimate if the assumption or estimate is reasonable and if the information,
  1. cannot be known by the insurer when it makes the statement; and
  2. is identified to the borrower as an assumption or estimate.
4. A disclosure statement, or a consent in relation to a disclosure statement, must be written in plain language that is clear and concise and it must be presented in a manner that is logical and likely to bring to the borrower's attention the information that is required to be disclosed.
5. If the borrower consents in writing, the disclosure statement may be provided by electronic means in an electronic form that the borrower can retrieve and retain.

Timing of initial disclosure

1. An insurer that proposes to enter into a credit agreement with a borrower must give the initial disclosure statement required by this Regulation to the borrower on or before the day that is the earlier of the day on which the borrower makes the first payment, other than a disbursement charge, in relation to the credit agreement and,
  1. two clear business days before the borrower and the insurer enter into the credit agreement, in the case of a credit agreement for a mortgage; or
  2. the day on which the borrower and the insurer enter into the credit agreement, in any other case.
2. Clause (1) (a) does not apply if the borrower consents in writing to being given the initial disclosure for the credit agreement on the day on which the borrower and the insurer enter into the credit agreement.

Disclosure - fixed interest loans for a fixed amount

1. An insurer that enters into a credit agreement for a loan for a fixed interest rate for a fixed amount, to be repaid on a fixed future date or by instalment payments, must give the borrower an initial disclosure statement that includes the following information:
  1. The principal amount of the loan.
  2. The amount of each advance of the principal and when each advance is to be made.
  3. The total amount of all payments.
  4. The cost of borrowing over the term of the loan, expressed in dollars and cents.
  5. The term of the loan, and the period of amortization if it is different from the term.
  6. The annual interest rate and the circumstances, if any, under which interest is compounded.
  7. The APR, if it differs from the annual interest rate.
  8. The date on and after which interest is charged and information concerning any period during which interest does not accrue.
  9. The amount of each payment and when it is due.
  10. The fact that each payment made on a loan must be applied first to pay the accumulated cost of borrowing and then to pay the outstanding principal.
  11. Information about any optional service in relation to the credit agreement that the borrower accepts, the charges for each optional service and the conditions under which the borrower may cancel the service, if that information is not disclosed in a separate statement before the optional service is provided.
  12. The information required by section 437.4 of the Act (additional disclosure - term loans) including default charges that may be imposed under sections 17 and 18 of this Regulation.
  13. The property, if any, in which the insurer takes a security interest under the credit agreement.
  14. Any charge paid for a broker, if the broker's charges are included in the amount borrowed and are paid directly by the insurer to the broker.
  15. The fact that there is a charge to discharge a security interest and the amount of the charge on the day that the statement was provided.
  16. The nature and amount of any charge other than an interest charge, or the formula if the amount cannot be determined at the time of disclosure.
2. If the outstanding balance of the loan is increased because the borrower has missed a scheduled instalment payment or because a default charge is levied on the borrower for missing a scheduled instalment payment, the insurer must give the borrower an additional disclosure statement within 30 days after the payment is missed or the default charge is levied and the disclosure statement must describe what occurred and the consequences.

Disclosure - variable interest loans for a fixed amount

1. An insurer that enters into a credit agreement for a loan with a variable interest rate for a fixed amount, to be repaid on a fixed future date or by instalment payments, must give the borrower an initial disclosure statement that includes the following information:
  1. The information required by paragraphs 1, 2, 5, 7, 8 and 10 to 16 of subsection 8(1).
  2. The annual rate of interest that applies on the date of the disclosure statement.
  3. The method for determining the annual interest rate that applies after the date of the disclosure statement and when that determination is made.
  4. The amount of each payment based on the annual interest rate that applies on the date of the disclosure statement and the dates when those payments are due.
  5. The total amount of all payments and of the cost of borrowing based on the annual interest rate that applies on the date of the disclosure statement.
  6. If the loan is to be paid by instalment payments and the amount to be paid is not adjusted automatically to reflect changes in the annual interest rate that applies to each instalment payment,
    1. the annual interest rate above which the amount of a scheduled instalment payment on the initial principal does not cover the interest due on the instalment payment, and
    2. the fact that negative amortization is possible.
  7. If the loan does not have regularly-scheduled payments,
    1. the conditions that must occur for the entire outstanding balance, or part of it, to become due, or
    2. the provisions of the credit agreement that set out those conditions.
2. If the variable interest rate for the loan is determined by adding or subtracting a fixed percentage rate of interest to or from a public index that is a variable rate, the insurer must give the borrower an additional disclosure statement at least once every 12 months that contains the following information:
  1. The annual interest rate at the beginning and end of the period covered by the disclosure statement.
  2. The outstanding balance at the beginning and end of the period covered by the disclosure statement.
  3. The amount of each instalment payment due under a payment schedule and the time when each payment is due, based on the annual interest rate that applies at the end of the period covered by the disclosure statement.
3. If the variable interest rate for the loan is determined by a method other than that referred to in subsection (2), the insurer must give the borrower an additional disclosure statement no more than 30 days after increasing the annual interest rate by more than 1 per cent above the most recently disclosed rate and the disclosure statement must contain the following information:
  1. The new annual interest rate and the date on which it takes effect.
  2. The amount of each instalment payment and the time when each payment is due, for payments that are affected by the new annual interest rate.

Disclosure - lines of credit

1. An insurer that enters into a credit agreement for a line of credit must give the borrower an initial disclosure statement that includes the following information:
  1. The initial credit limit, if it is known at the time the disclosure is made.
  2. The annual interest rate, or the method for determining it if it is variable.
  3. The nature and amounts of any non-interest charges.
  4. The minimum payment during each payment period or the method for determining it.
  5. Each period for which a statement of account is to be provided.
  6. The date on and after which interest accrues and information concerning any grace period that applies.
  7. The particulars of the charges or penalties, including default charges that may be imposed under section 18.
  8. The property, if any, in which the insurer takes a security interest under the credit agreement.
  9. Information about any optional service in relation to the credit agreement that the borrower accepts, the charges for each optional service and the conditions under which the borrower may cancel the service, if that information is not disclosed in a separate statement before the optional service is provided.
  10. A local or toll-free telephone number, or a telephone number with a prominent indication that collect calls are accepted, that the borrower may use to get information about the account during the insurer's regular business hours.
  11. Any charge paid for a broker, if the broker's charges are included in the amount borrowed and are paid directly by the insurer to the broker.
2. If the initial credit limit is not known when the initial disclosure statement is made, the insurer must disclose it,
  1. in the first statement of account provided to the borrower; or
  2. in a separate statement that the borrower receives on or before the date on which the borrower receives that first statement of account.
3. Subject to subsection (4), the insurer must give the borrower an additional disclosure statement at least once a month that contains the following information:
  1. The period covered by the disclosure statement and the opening and closing balances in the period.
  2. An itemized statement of account that discloses each amount credited or charged, including interest, and the dates when those amounts were posted to the account.
  3. The sum for payments and the sum for credit advances and interest and other charges.
  4. The annual interest rate that applied on each day in the period and the total of interest charged at those rates in the period.
  5. The credit limit and the amount of credit available at the end of the period.
  6. The minimum payment and its due date.
  7. The borrower's rights and obligations regarding any billing error that may appear in the statement of account.
  8. A local or toll-free telephone number, or a telephone number with a prominent indication that collect calls are accepted, that the borrower may use to get information about the account during the insurer's regular business hours.
4. The additional disclosure statements described in subsection (3) are not required for a period during which there are no advances or payments and,
  1. there is no outstanding balance at the end of the period; or
  2. the borrower has notice that the credit agreement has been suspended or cancelled due to default and the insurer has demanded payment of the outstanding balance.

Disclosure - credit card applications

1. An insurer that issues credit cards and that distributes an application form for credit cards must specify the following information in the form or in a document accompanying it, including the date on which each of the matters mentioned takes effect:
  1. The annual interest rate for a credit card with a fixed rate of interest.
  2. If the credit card does not have a fixed rate of interest, the fact that the variable interest rate is determined by adding or subtracting a fixed percentage rate of interest to or from a public index, the public index and the fixed percentage rate to be added or subtracted from it.
  3. The day on and after which interest accrues and information concerning any grace period that applies.
  4. The amount of any charges other than interest charges.
2. Subsection (1) does not apply if, on the application form or in a document accompanying it, the insurer prominently discloses,
  1. a local or toll-free telephone number, or a telephone number with a prominent indication that collect calls are accepted, that the borrower may use to get information required by subsection (1) during the insurer's regular business hours; and
  2. the fact that the applicant may obtain the information otherwise required by subsection (1) at that telephone number.
3. If an individual applies for a credit card by telephone or any electronic means, the insurer must give the applicant the information required by paragraphs 1 and 4 of subsection (1) when the application is made.
4. If an insurer that issues credit cards solicits applications for them in person, by mail, by telephone or by any electronic means, the information required by paragraphs 1 and 4 of subsection (1) must be disclosed at the time of the solicitation.

Disclosure - credit cards

1. An insurer that enters into a credit agreement for a credit card must give the borrower an initial disclosure statement that includes the following information:
  1. The information described in paragraphs 1 and 3 to 11 of subsection 10 (1).
  2. The manner in which interest is calculated and the information required by paragraph 1 or 2, as the case may be, of subsection 11 (1).
  3. If the credit agreement requires the borrower to pay the outstanding balance in full on receiving a statement of account,
    1. mention of that requirement,
    2. the grace period by the end of which the borrower must have paid that balance, and
    3. the annual interest rate charged on any outstanding balance not paid when due.
  4. If a lost or stolen credit card is used in an unauthorized manner, the fact that the maximum liability of the borrower is the lesser of $50 and the maximum set by the credit agreement.
  5. If a transaction is entered into at an automated teller machine by using the borrower's personal identification number, the fact that the liability incurred by the transaction is the borrower's maximum liability, despite paragraph 4.
  6. If the insurer has received a report from the borrower, whether written or verbal, of a lost or stolen credit card, the fact that the borrower is not liable for any transaction entered into through the use of the card after the insurer receives the report.
1. If the initial credit limit is not known when the initial disclosure statement is made, the insurer must disclose it,
  1. in the first statement of account provided to the borrower; or
  2. in a separate statement that the borrower receives on or before the date on which the borrower receives that first statement of account.
2. Despite section 13, if a credit agreement for a credit card is amended, the insurer must give the borrower a written statement at least 30 days before the amendment takes effect, and the statement must set out the changes to the information that was required to be given to the borrower in the initial disclosure statement, excluding information about the following changes:
  1. Any change in the credit limit.
  2. Any extension to the grace period.
  3. Any decrease in charges other than interest charges and default charges referred to in paragraphs 3 and 7 of subsection 10 (l).
  4. Any change concerning information about any optional service in relation to the credit agreement that is referred to in paragraph 9 of subsection 10 (1).
  5. Any change in a variable interest rate referred to in paragraph 2 of subsection 11 (1) as a result of a change in the public index referred to in that paragraph.
3. A change described in paragraphs 1 to 4 of subsection (3) must be disclosed in the first periodic disclosure statement that is given to the borrower after the amendment to the credit agreement is made.
4. An insurer that issues credit cards must give each borrower additional disclosure statements on a regular periodic basis, at least once a month that contain the following information:
  1. The information described in subsections 10 (3) and (4), other than paragraphs 2 and 3 of subsection 10 (3).
  2. An itemized statement of account that describes each transaction and discloses each amount credited or charged, including interest, and the dates when those amounts were posted to the account.
  3. The amount that the borrower must pay, on or before a specified due date, in order to have the benefit of a grace period.
  4. The sum for payments and the sum for purchases, credit advances and interest and other charges.
5. For the purpose of paragraph 2 of subsection (5), an itemized statement of account is adequate if it permits the borrower to verify each transaction described by linking it with a transaction record provided to the borrower.

Disclosure after amendment to a credit agreement

1. Subject to subsection (2), if a credit agreement is amended by a subsequent agreement, the insurer must give the borrower a written statement within 30 days after the subsequent agreement is entered into, and the statement must describe the changes to the information in the initial disclosure statement for the credit agreement.
2. If a credit agreement for a fixed amount has a schedule for instalment payments and the schedule is amended by a subsequent agreement, the insurer must give the borrower a written statement within 30 days after the subsequent agreement is entered into, and the statement must set out the new payment schedule and any increase in the total amount to be paid or the cost of borrowing.

Disclosure - renewal of a mortgage

1. If a credit agreement for a loan secured by a mortgage is to be renewed on a specified date, the insurer must give the borrower an additional disclosure statement at least 21 days before the specified renewal date and the statement must contain the information required by,
  1. section 8, if the credit agreement is for a fixed interest rate; or
  2. section 9, if the credit agreement is for a variable interest rate.
2. The additional disclosure statement must specify that,
  1. the cost of borrowing will not be increased after the disclosure statement is given to the borrower and before the credit agreement is renewed; and
  2. the borrower's rights under the credit agreement continue, and the renewal does not take effect, until the day that is the later of the specified renewal date and the day that is 21 days after the borrower receives the statement.
3. An insurer that does not intend to renew a credit agreement for a loan secured by a mortgage after its term ends shall notify the borrower of its intention at least 21 days before the end of the term.

Disclosure - offer to waive payment

1. If, under a credit agreement for a loan for a fixed amount, an insurer offers to waive a payment without waiving the accrual of interest during the period covered by the payment, the insurer must disclose to the borrower in a prominent manner in the offer that interest will continue to accrue during that period if the borrower accepts the offer.
2. If an insurer offers to waive a payment under a credit agreement for a line of credit or a credit card, the insurer must disclose to the borrower in a prominent manner in the offer whether interest will continue to accrue during any period covered by the offer if the borrower accepts the offer.

Disclosure - cancellation of optional services

1. A disclosure statement made in relation to a credit agreement under which optional services, including insurance services, are provided on an on-going basis must specify that,
  1. the borrower may cancel the optional service by notifying the insurer that the service is to be cancelled effective on the earlier of,
    1. one month after the day that the insurer gave the borrower the disclosure statement, and
    2. the last day of the notice period, if any, provided for in the credit agreement; and
  2. the insurer shall, without delay, refund or credit the borrower with the proportional amount, calculated in accordance with the formula set out in subsection (2), of any charges for the service paid for by the borrower or added to the balance of the loan, but unused as of the cancellation date described in clause (a).
2. The proportion of charges to be refunded or credited to a borrower are calculated using the formula,
  
  in which,
  "R" is the amount to be refunded or credited,
  
  "A" is the amount of the charges,
  
  "n" is the period between the imposition of the charge and the time when the services were, before the cancellation, scheduled to end, and
  
  "m" is the period between the imposition of the charge and the cancellation.

PAYMENTS AND CHARGES

Prepayment of loans

1. This section applies to loans for fixed amounts of credit.
2. A borrower may prepay the outstanding balance under a credit agreement, at any time, without incurring any charge or penalty for making the prepayment.
3. If the borrower prepays the outstanding balance, the insurer must refund to the borrower or credit the borrower with the proportional amount of any charges, other than interest charges and disbursement charges, paid by the borrower or added to the balance, calculated in accordance with the formula set out in subsection (6).
4. A borrower may prepay part of the outstanding balance under a credit agreement,
  1. on the date of any scheduled payment, if payments are scheduled once a month or more often; and
  2. at any time but only once a month, in any other case.
5. A borrower who prepays part of the outstanding balance is not entitled to a refund or to a credit for charges other than interest charges.
6. The proportion of the charges to be refunded or credited to a borrower under this section is determined using the formula,
  
  in which,
  "R" is the amount to be refunded or credited,
  
  "A" is the amount of the charges other than interest charges,
  
  "n" is the period between the imposition of the charge and the scheduled end of the term of the loan, and
  
  "m" is the period between the imposition of the charge and the prepayment.

Default charges

If a borrower under a credit agreement fails to make a payment when it becomes due or fails to comply with an obligation in the agreement, in addition to interest, the insurer may impose charges for the sole purpose of recovering the costs reasonably incurred,
1. for legal services required to collect or attempt to collect the payment;
2. for expenses incurred to realize on a security interest taken under the credit agreement or to protect such a security interest, including the cost of legal services required for that purpose; or
3. for expenses incurred to process a cheque or other payment instrument that the borrower used to make a payment under the loan but that was dishonoured.

ADVERTISING

Advertising - loan for a fixed amount

1. If an insurer advertises a loan involving a fixed amount of credit and if the advertisement includes a representation about the interest rate or the amount of any payment or of any charge other than interest, the advertisement must also include the APR and the term of the loan, and the APR must be provided at least as prominently as the representation and in the same manner as the representation is made, whether visually or aurally or both.
2. If the APR or the term of the loan is not the same for all loans to which the advertisement relates, the disclosure must be based on an example of a loan that fairly depicts those loans and is identified as a representative example of them.

Advertising - line of credit

If an insurer advertises a loan involving a line of credit and if the advertisement includes a representation about the annual interest rate or the amount of any payment or of any charge other than interest, the advertisement must also include the annual rate of interest on the date of the advertisement and any initial or periodic charges other than interest and that information must be provided at least as prominently as the representation and in the same manner as the representation is made, whether visually or aurally or both.

Advertising - credit card

If an insurer advertises a credit card and if the advertisement includes a representation about the annual interest rate or the amount of any payment or of any charge other than interest, the advertisement must include the annual rate of interest on the date of the advertisement and any initial or periodic charges other than interest and that information must be provided at least as prominently as the representation and in the same manner as the representation is made, whether visually or aurally or both.

Advertising - interest-free periods

1. If an insurer advertises that it will finance a transaction and if the advertisement includes a representation, express or implied, that a period of the loan is free of any interest charges, the advertisement must indicate whether interest accrues during the period and is payable after the period and that information must be provided at least as prominently as the representation, if it was express, or in a prominent manner, if it was implied.
2. If interest does not accrue during the period, the advertisement must also disclose any conditions that apply to the forgiving of the accrued interest and the APR, or the annual interest rate in the case of credit cards or lines of credit, for a period when those conditions are not met.

PURCHASING INSURANCE

Insurance re loan

1. A borrower who is required by an insurer (if the insurer is providing a loan) to purchase any insurance may purchase it from any insurer who may lawfully provide that type of insurance, except that the insurer who is providing the loan may reserve the right to disapprove, on reasonable grounds, another insurer selected by the borrower.
2. An insurer (if the insurer is providing a loan) who offers to provide or to arrange insurance referred to in subsection (1) must at the same time clearly disclose to the borrower in writing that the borrower may purchase the required insurance through an agent and from another insurer of the borrower's choice.
COMMENCEMENT

COMMENCEMENT

This Regulation comes into force on [insert date].