Alberta’s mortgage lenders will need to prepare for significant changes to consumer protection legislation which are scheduled to come into force in January 2019.
The A Better Deal For Consumers and Business Bill changed the name of Alberta’s Fair Trading Act to the Consumer Protection Act and introduces a number of significant changes that affect Alberta’s mortgage industry.
I have attached at the bottom of this page a PDF file for your reference as a summary of the changes that are important to read and familiarize for yourselves. We will update this legislated summary when the regulations are published together with our recommendations on practice and procedures to comply with the legislation.
While the changes reflect several matters, we feel that the 4 most pressing issues facing lenders are relating to the Consumer Bill of Rights, Automatic Mortgage Renewals, Lending at an APR of 32% or more and finally in relation to court actions for breach of this legislation.
Consumer Bill of Rights
This part of the legislation grants the Minister the right to establish a Consumer Bill of Rights. This has not yet been established. They do state that a breach of the Bill of Rights or acting inconsistent with it will not in itself give rise to legal action or an offence under the Act. However, if you fail to give prominent and full disclosure of the details of the transaction including, duration, changes in price, renewals, extension or amendments, that failure WILL BE considered an “Unfair practice” under the Act and can lead to a court action or an offence or penalty under the Act.
Automatic Mortgage Renewals
An Automatic mortgage renewal is considered to be a unilateral change to substantive terms of the transaction between a borrower and a lender.
The Act states that you can not make a substantive change to a mortgage unless the borrower expressly consents to it not more than 120 days before the change is to take effect OR
If the following three things are met:
a) the original mortgage document provides, in writing, that you can make substantive changes without the borrower’s express consent; and
b) you have given the borrower at least 60 days’ but not more than 120 days’ written notice of the specific change or changes, and;
c) you comply with all other applicable conditions or restrictions that the regulations say you have to do
The Borrower must have at least 60 days from the renewal notice to cancel the mortgage, without penalty or costs, upon written notice to you.
You must send out your renewal documents between 120 and 60 days prior to maturity date and they must set out
a) each of the terms to be changed;
b) the proposed replacement terms;
c) the total financial impact (cost) to the borrower of those changed terms;
d) identify the date upon which the changes will take place and it must be at least 60 days from the date of the notice;
e) it must clearly identify that the borrower has a right to cancel and payout the mortgage without penalty or cost and provide the necessary contact information of the lender for the borrower to exercise that right in writing;
f) If your original mortgage document provides for an automatic renewal (and after January 1, 2019 provides for that in the wording required by the regulations we have not yet seen regarding making substantive changes without the borrower’s express consent) then you must also set the terms of the automatic renewal that will kick in on maturity if they don’t sign
On those automatic renewals, I see a couple difficulties based upon the legislation
a) The First is that they are saying an automatic renewal can not kick in for at least 60 days. So, you must trigger the automatic renewal terms, to kick in 60 days prior to maturity, to take effect the day after maturity. I would anticipate that if within the 60 days if you then got the signed renewal, that would take precedent over the automatic renewal effective the date on that signed renewal.
b) The Second is that they are saying that the borrower has to have the right to payout the mortgage (cancel the mortgage) at no cost or penalty within 60 days from the notice period or a longer period of time, by giving the lender written notice of cancellation.
The cancellation must be without cost or penalty.
What they don’t say, and I anticipate the regulations will provide for, is when that cancellation notice will take effect.
So, for example,
– if the borrower gets a renewal 120 days prior to maturity
– the borrower has 60 days to cancel the mortgage;
– the borrower sends a notice of cancellation up to 60 days prior to maturity
– does this now mean that the borrower gets the to pay out the mortgage in the last 60 days without penalty?
I can’t imagine the legislators planned for this but we will see with the regulations.
Up until January 1, 2019 I would recommend that each renewal sent on 120 days specifically provide for both the options to agree to renew and all the precise terms and conditions of the automatic renewal if they chose not to. The decision will have to be made, unfortunately on the 120 days if an automatic renewal will be offered or if the term will be called if they don’t sign a renewal.
I will be recommending that there be a change to the mortgage form or standard mortgage terms moving forward to allow for those automatic renewals to comply with the provisions of the regulations when they come into force and effect. Our team would be happy to make those changes for you upon your request We are happy to look at each of your mortgage terms in Alberta to see if they specifically provide at this time for an automatic renewal with changes in payments, interest rate, term, etc. Because those specific substantive changes have to be set out, I would think that the consent to those substantive changes have to reference what those specific things are to be compliant with the legislation after January 1, 2019
Please let me know if we can do that for you
The Act provides that anyone lending at a rate of 32% or more is carrying on a high-cost credit business.
The existing regulations define the interest rate in relation to the calculation of the Annual Percentage Rate.
Accordingly, based upon the Act, you can not provide high-cost credit or carry on a high-cost credit business unless you are the holder of a high-cost credit business license for each location you do business.
In addition, as a high-cost business you must disclose all necessary information the regulations (which we do not have yet) set out with respect to the agreement and use their prescribed terms and forms for that disclosure.
So, any of our Lenders that are lending at an APR at or above 32% you must be making the necessary application for a high-cost credit license.
As soon as we become aware of the regulations as to disclosure for these transactions and the forms to be used we will update you.
Court Actions for Breach
Please note that a borrower can sue for losses and damages resulting from breaches of the Act or the regulations. In addition and most importantly, a principal, director, manager, employee or agent of a Lender who engaged in or acquiesced in the breach of the Act or regulations can now be sued also for that loss or damage. There is no hiding behind a corporate veil if you are non-compliant.
If you have any questions or would like to discuss this further, please don’t hesitate to contact me or members of my team.