Canada’s financial institutions watchdog fined Bank of Montreal (BMO) $500,000 because of the bank’s failure to gain proper consent from customers for optional creditor insurance and to provide proper written confirmation.
Creditors insurance is an optional insurance product that may cover a customer’s credit card balance in certain circumstances. Regulations require banks to obtain consent before providing the product. Consent may be given verbally, but confirmation must be provided in writing. Financial Consumer Agency of Canada (FCAC) found that BMO procedures failed to properly gain express consent and failed to provide the written confirmation from October 2014 to March 2017. It was fined $350,000 for the lack of consent and $150,000 for the lack of confirmation.
The release announcing the judgment indicated that a customer complained to BMO personnel after media reports on improper sales of creditor insurance at Canadian banks, and that the bank had not acted on at least three previous complaints that reached bank compliance officers. After the fourth complaint BMO began its internal investigation and notified FCAC. BMO’s review showed many employees were not following procedures, could not prove consent, and many of the agreements were not endorsed. Additional investigation showed that 25% of creditor insurance agreements were cancelled in the first six months and in audio recordings of those cancellation requests, more than half of consumers claimed they had never consented to the insurance.
After initially contending the issue was more a staff training than compliance problem, BMO conceded that there “likely have been isolated instances where customers did not consent to [creditor insurance]”, turned off sales prompts, improved training and oversight, undertook communication to ensure consumers were aware they had purchased the insurance, informed them of their right to cancel, and refunded premium payments to those who indicated they had not consented to the purchase. A total of 29,341 customers were sold creditors insurance during that period.
FCAC Commissioner Judith Robertson acknowledged that BMO paid the penalties proposed in May 2019, self-reported the issue, adopted a voluntary remediation plan, refunded customers and improved consent disclosure.
She said those factors were considered in her decision whether to name the bank in the release announcing the decision. She said three prior complaints about lack of consent had reached BMO compliance personnel and no action was taken until the March 2017 report, which was “coincident with media reports and FCAC staff inquiries.”
Robertson said publishing BMO’s name would encourage the bank to “learn from this issue” and that “publication would also have a deterrent effect on other institutions generally.”
“Publication would also serve to advance the awareness of financial consumers of their rights and responsibilities. I note that this issue came to light as a result of a customer complaint. Improving consumer awareness of the requirement for express consent is an important outcome consistent with FCAC’s purpose,” she wrote in the judgment.
Earlier this year, FCAC fined CIBC $1.2 million for a number of violations, including failure to properly disclose information about optional insurance services.