This year’s federal budget promises a variety of measures designed to bolster consumer protection in the federally-regulated financial sector, but it stops short of sweeping reforms.

Consumer protection is one of many policy issues resulting from the financial crisis. At the heart of the crisis was the U.S. sub-prime mortgage market, which saw too many households taking on more mortgage debt than they could afford. These sketchy mortgages were then packaged and sold to consumers as part of supposedly-safe income products. This has led to calls for tougher consumer protection on both sides of the border.

Last month, the federal Finance department announced a series of changes to mortgage insurance rules designed to take some of the air out of possible bubble in that market — by toughening the insurance qualification standards, among other rule changes. Securities regulators have also proposed some changes to their rules in response to the fact that investors were sold structured products that their advisors seemingly did not understand.

In Thursday’s federal budget, the federal government proposed another series of measures, which it says will further bolster consumer protection. Some of these steps will impact firms directly, others are more prospective.

In particular, the government promises to enact regulations to prevent “negative-option billing” in the financial sector — the practice by which companies automatically impose new costs on clients, and leave it up to them to object. The budget says that it will propose rules requiring firms to offer products and services on an opt-in basis only, and that they provide sufficient pre-sale disclosure. It also promises to standardize the calculation and disclosure of mortgage pre-payment penalties. And, it pledges to improve complaint handling and dispute resolution practices at the banks.

As the budget notes, financial firms are already required to have people and procedures in place to deal with consumer complaints. However, it says that, “there is a wide variation in terms of the procedures used”; and, as a result, it has decided to require that banks belong to an approved third-party dispute handling body.

Criteria will be established to govern the approval of dispute-handling bodies, and the government plans to work with the industry to establish minimum regulatory standards for institutions’ internal complaint-handling procedures, the budget promises. “This will ensure fair, efficient and timely treatment of consumers’ complaints and improve the effectiveness of the third-party dispute resolution process,” it says.

The budget also imagines a beefed up the role for the Financial Consumer Agency of Canada. It says that the FCAC will be given new responsibilities that will see the agency generating more timely information for the government on financial consumer trends and emerging issues. Additionally, the FCAC’s mandate will be revised to give it the authority to monitor compliance with a forthcoming new code of conduct for credit card and debit card industries.

The comment period on that code closed on Jan. 18, and the government says that it will be finalized, and implemented, shortly. However, in addition to giving the FCAC the job of monitoring compliance with the code, which “aims to promote fair business practices and ensure that merchants and consumers clearly understand the costs and benefits associated with credit and debit cards”, the government is also planning to seek legislative authority to regulate the market conduct of the credit and debit card networks and their participants.

IE