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Watchdog unveils guidelines to support mortgage-holders under financial stress

Canada's financial consumer watchdog is warning lenders not to take advantage of mortgage holders who are facing severe financial stress as interest rates and the cost of living rise.
A person walks past multiple for-sale and sold real estate signs in Mississauga, Ont., on Wednesday, May 24, 2023. Canada's financial consumer watchdog says it expects banks to support Canadians with mortgages who are experiencing severe financial stress due to the current environment of high household debt, rising interest rates and the increased cost of living. THE CANADIAN PRESS/Nathan Denette

Canada's financial consumer watchdog is warning lenders not to take advantage of mortgage holders who are facing severe financial stress as interest rates and the cost of living rise.

In guidelines released Wednesday, the Financial Consumer Agency of Canada said financial institutions need to help provide support to consumers who are facing rising mortgage payments.

It said mortgage holders with variable-rate loans have faced a higher cost of borrowing as interest rates have marched higher, while those with fixed-rate loans have faced increased costs as their mortgages come up for renewal.

"FCAC's research shows that homeowners with a mortgage are increasingly at risk of experiencing financial hardship, such as having to increase their borrowing for daily expenses or to draw on their savings," said Frank Lofranco, deputy commissioner of supervision and enforcement for the agency.

Lofranco told reporters that the federal watchdog expects financial institutions to proactively monitor and contact consumers who are at risk in order to provide appropriate relief measures based on individual needs and circumstances.

He said the guidelines are meant to ensure institutions "adopt fair and consistent approaches" when offering relief to consumers at risk of defaulting on their mortgage for their principal residence. 

The FCAC said it is not recommending any specific measures, but said lenders should be guided by the principles of fairness, appropriateness and accessibility.

However, it said it expects financial institutions to consider relief measures including waiving prepayment penalties, waiving internal fees and costs, not charging interest on interest and extending amortization for the shortest period possible.

It said lenders should avoid taking advantage of borrowers at risk who are renewing their mortgages by offering less advantageous rates based on their inability to adjust their mortgage credit agreement or switch to other lenders.

Lofranco said the agency would monitor financial institutions' level of compliance with the expectations it set out, which call for banks to report back on the measures they've put in place.

"There may be circumstances where we are not satisfied with how an institution is complying and in those cases, we will increase the intensity of our regulatory oversight and work with that institution to solve the problem," he said.

"If enforcement action is necessary because we've seen there to be a violation of a consumer protection set out in legislation and regulation, we will pursue that appropriately and, where warranted, undertake enforcement action."

Lofranco said that in cases where a consumer has concerns about how they were treated, they can pursue recourse through a complaint handling procedure that banks are obligated to follow.

"We have a lot of confidence in financial institutions adhering to the guidelines," he said, noting they take effect immediately.

No end date was attached to the guidelines, as the FCAC will "monitor the economic environment and adjust our regulatory approach as appropriate," said Lofranco.

The Canadian Bankers Association, which represents more than 60 domestic and foreign banks operating in Canada, said in a statement that it is reviewing the new guidelines to assess their impact on current practices.

Spokeswoman Laurie Lupton said Canadian banks already work with customers at risk to offer advice and measures to help keep their mortgages in good standing.

“Banks adhere to responsible lending practices and maintain high standards for risk management. They carefully assess the appropriateness of mortgage products for their customers and comply with requirements established under the Bank Act, existing FCAC guidance and those set by the Office of the Superintendent of Financial Institutions," said Lupton.

“Canadian banks know the financial well-being of their clients is critically important to the individual, to the health of communities and the economy.”

The guidelines underscore the importance of Canadian lenders avoiding en-masse mortgage defaults as a result of the higher interest rate environment, said Penelope Graham, director of content at

“While federally regulated financial institutions are already largely putting these suggestions – such as longer amortization schedules – into practice, these guidelines will ensure at-risk consumers will have the support they need to continue to carry their mortgages," Graham said in a press release.

“The guidelines also clarify expectations that FRFIs extend amortizations only for the shortest period possible, and take into consideration the borrower’s financial ability to return to their original amortization schedule. Given the financial implications of carrying a larger mortgage for a lengthier period of time is substantial, this is a positive move in educating borrowers and ensuring they understand their options.”

This report by The Canadian Press was first published July 5, 2023.

Sammy Hudes, The Canadian Press