Further to our March 2012 Update on Federal Consumer Protection Measures in which we reported on the new CG-8 Mortgage Prepayment Penalty Disclosure Guidance (Guidance) published by the Financial Consumer Agency of Canada (FCAC), enhancing disclosure of mortgage prepayment charges, on April 13, 2012, the FCAC announced revisions to the Guidance, likely in response to early feedback from affected Federally Regulated Financial Institutions (FRFIs). The revisions themselves are relatively minor but have the effect of clarifying the application of the Guidance and the nature of the disclosure expected.

Application of the Guidance

The FCAC has revised the Guidance by adding a footnote explaining that the stated expectations with respect to mortgage prepayment disclosure documents apply to both initial mortgage disclosure statements and mortgage renewal disclosure statements.

Nature of Required Disclosure

The original Guidance stated that FRFIs must include four elements in mortgage prepayment disclosure documents. The first element requires FRFIs to disclose the manner in which a mortgage prepayment charge or penalty is actually calculated by disclosing the formula or an actual penalty or charge that would be assessed to the customer. The word "or" has been underlined, to emphasize these alternatives. In addition, a footnote has been added explaining that the disclosure should be "brief and concise" with a view to allowing consumers to understand the manner in which the charge or penalty is calculated.

While the FCAC does not provide further details, the footnote is consistent with other initiatives of the FCAC to make personal finance more accessible to consumers and increase financial literacy. However, FRFIs will have to take care not to sacrifice accurate and full disclosure for the sake of accessibility.

It is our understanding that the FCAC has contacted all affected FRFIs with amended timelines for:

  • a response as to the compliance status of their mortgage disclosure documents with the Guidance (May 7, 2012); and
  • if deficiencies are noted, full compliance with the Guidance (March 4, 2013).

This will require a review and assessment of the prepayment charge provisions in all initial mortgage disclosure statements and mortgage renewal disclosure statements prior the May 7, 2012 response date.

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