A winding road to open banking
Canada’s winding road to a regulated open banking system has taken a major step forward. Rebranded by the 2024 Federal Budget (the 2024 Budget) as consumer-driven banking (CDB), the Government of Canada (the Government) announced the following key proposals:
- The Financial Consumer Agency of Canada (FCAC)’s mandate will expand to include oversight, administration, and enforcement of Canada’s CDB framework.
- The Government will introduce its first tranche of legislation to implement CDB this spring/summer, which will cover foundational elements like scope, system participation (accreditation), safeguards and common rules (on privacy, liability and security).
- One technical standard for data sharing for CDB participating businesses will be selected.
- Three years after full implementation, Canada’s CDB framework will be reviewed.
Open banking: Full implementation on the horizon
Open banking, and by extension, open finance, aims to empower Canadians and small/medium businesses with control over their financial information (data portability rights), offering no-fee access to data and phasing out the less secure screen scraping method. In the 2024 Budget, the Government disclosed its intention to introduce legislation later this year to establish the country’s inaugural open banking framework, which promises a robust governance framework, strict liability rules for data breaches, and the potential to stimulate more competitive financial products and services. The initial phase will see mandatory participation from larger banks, read-only access, and an inclusive approach for smaller institutions and third parties. An initial CDB system was targeted to go live in January 2023, a goal put forth by the federal Open Banking Advisory Committee (the Advisory Committee) as “ambitious but achievable”.1 The goal now for open banking in Canada, rebranded as CDB, is full implementation in 2025.
Building open banking regulation in Canada: A timeline
The Government has long contemplated designing and implementing a regulated open banking framework in Canada. In the timeline below we map out some of the key CDB dates since 2018.
What will CDB/open banking look like in Canada?
Given the key Government’s actions described above, we can be certain that open banking in Canada will be a regulated system, as opposed to solely market-driven. We can also glean from the Advisory Committee’s final report that businesses engaged in open banking activities will be subject to an accreditation framework, with a focus on protecting consumers and their data. Accredited participants will likely be subject to common rules in the system that must be followed in the course of sharing or receiving consumer financial data. According to the Advisory Committee, there should be rules addressing how liability will be allocated among participating businesses; what privacy measures specific to CDB should be taken (as there is already a privacy regime for the private sector in Canada); and what security standards must be maintained in accordance with best practices.
As announced in the 2024 Budget, the FCAC will be the authority of Canada’s CDB framework. This accords with an observed reluctance to create a net-new regulatory entity for open banking and aligns with the FCAC’s recently enhanced financial consumer protection mandate, enshrined in amendments to the Bank Act and its associated regulations under the same banner.
Consumer protection from predatory lending practices
Criminal interest rate
The Government has indicated it will introduce an amendment to section 347 of the Criminal Code, to create a new criminal offence prohibiting the offer or advertisement of credit at a criminal interest rate.
Currently, section 347 of the Criminal Code includes two distinct offences, namely (1) entering into an agreement or arrangement to receive interest at a criminal rate, and (2) receiving interest at such a rate.
In Canada, the criminal annual interest rate is presently set at 60 per cent. However, the previous year's federal budget implementation bill included provisions to reduce this rate to 35 per cent. This reduced rate has not yet taken effect and will be implemented on a date determined by order of the Governor in Council. It should be noted that in December 2023, draft regulations were published to clarify which agreements the amended criminal interest rate provision would cover, for which a final version has not yet been published.
Although the Government has announced its intention to introduce a new offence concerning the advertising of an offer to enter into an agreement at a criminal rate of interest, it remains to be seen whether this new offence will be broadly worded to include all types of agreements that may involve interest charges, or if it will have a narrower scope, targeting only specific types of agreements such as consumer loans. This is particularly important, as historically, offences related to criminal interest rates have encompassed a broad range of agreements, including service agreements where interest may be charged for late payment.
The Government has also indicated plans to further amend section 347 of the Criminal Code. This amendment aims to eliminate the requirement for obtaining the Attorney General's consent before initiating criminal proceedings for offences related to this section of the Criminal Code.
Consumer protection, payday loans and other federal changes
The 2024 Budget also announced the Government's intention to further protect consumers against predatory lending by working with provinces and territories to harmonize and enhance consumer protections across Canada.
In this regard, the Government will need to coordinate its actions with the provinces, as consumer protection legislation, as per the Canadian constitutions, mostly falls under provincial responsibility, although the Government has indicated that it may consider legislative initiatives as well.
As an illustration, currently, in Canada, payday loan rules differ from one province to the other. For instance, the definition of “high-cost loan” is not consistent across Canadian jurisdictions, with the province of Québec having the lowest threshold for a loan to be deemed “high-cost”.
The proposed federal measures related to consumer protection encompass the following:
- Implementing caps on the costs of optional insurance products for high-cost loans, such as payday loans.
- Improving transparency and marketing practices for high-cost and payday loans, which includes restrictions on advertising these products.
- More restrictive rules and disclosure requirements for payday, including by establishing a minimum duration for loan terms, mandating repayment in instalments, and banning payday loan rollovers.
- Increasing action and harmonization on proactive approach towards lead generators.
- Increasing monitoring and data collection practices within the high-cost loan market, including payday loans.
Other specific changes related to consumer protection as proposed by the 2024 Budget includes the following:
- Telecommunications. The 2024 Budget includes proposed amendments to federal telecommunications legislation to, inter alia, require telecommunication services providers to (i) provide consumers with advance notice of contract expiration, (ii) provide consumers with information on available plans-in market, (iii) prohibit service providers from charging “switching fees” to consumers, and (iv) to require that consumers be provided with a self-service mechanism providing the ability to cancel or modify plans with their existing service provider.
- Airline fees. The 2024 Budget proposes measure to address the disclosure of air passenger fees by prescribing the manner of disclosure of fees for optional services charged by airlines, including fees in relation to seat selection, checked and carry-on baggage, meals on board, and in-flight entertainment.
- Junk fees. The Government will work with the provincial and territorial governments to identify and legislate “junk fees”. As previously announced, the Government is targeting unexpected, hidden, and additional fees charged to consumers for goods and services. Additionally, the Office of Consumer Affairs will research historical deceptive “junk fee” practices in Canada, presumably to inform legislation.
- Right to repair. Further to earlier initiatives, the Government will launch public consultations to develop a right to repair framework and is asking the common law provinces and territories to, similar to Québec , amend their consumer protection legislation to support a right to repair and interoperability.
- Ticket sales. The Government will work with the provinces and territories to address “excess fees”, timely refunds when events are cancelled, and reseller practices that drive prices up including by use of bot technology.
