FCAC sanctions CIBC for loan disclosure failings

The Financial Consumer Agency of Canada (FCAC) ordered CIBC to pay $5.6 million, after finding that it failed to adequately disclose certain non-interest fees to borrowers for nearly 20 years.

The charges included security registration and search and renewal fees for secured loans and lines of credit.

According to an FCAC ruling, the regulator’s staff alleged that the violations spanned almost 20 years from 2001 to 2020. They sought a $10.1 million penalty in the case, whereas the bank sought a lower penalty, admitting that the violations occurred, but contending that they only happened back to 2012 (over eight years).

The bank discovered the disclosure breaches in 2019 through an internal review, and reported them to the FCAC.

In 2020, it fixed the systems issue underlying the violation, and provided about $11 million in refunds to customers affected by the undisclosed fees since 2001.

The decision indicated that the commissioner concluded that it was likely that customer harm had occurred prior to 2012.

“While I accept the possibility that CIBC frontline staff could have corrected the non-compliant disclosure prior to 2012, where the records are unavailable, I find that to be highly unlikely given the absence of evidence of this corrective action in customer records post 2012,” the decision said.

Even if the violations only occurred over eight years, that was still too long for compliance violations to go undetected, the commissioner noted.

“It is the fact that the breaches continued for many years without identification that brings into question CIBC’s control framework, notwithstanding their eventual self-identification. I note that this finding would be valid whether the duration was the eight years admitted by CIBC or the nearly 20 years of the violations,” the decision said.

However, the commissioner also concluded that a lower penalty than the one sought by FCAC staff was warranted, as the harm resulting from the violations wasn’t as great as alleged by FCAC staff.

“My finding of a lower level of harm is further supported by the mitigating factors of the conservative and comprehensive assumptions used to generate these estimates and the fulsome remediation provided by CIBC, as accepted by FCAC staff,” the decision said. “To the extent possible, all customers were refunded the fees (with interest) that, absent the non-compliant disclosure, they would have been required to pay.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.