FCAC to Provide HELOC Findings to OSFI and the DoF

After the Financial Consumer Agency of Canada (FCAC) released its critical report on HELOCs Tuesday, industry folks started wondering what the regulator is going to do with this information.

We asked the agency and it told us, “FCAC’s mandate includes the responsibility to monitor and evaluate trends and emerging issues that may have an impact on consumers of financial products and services. This information is published and shared with policy-makers (i.e., Department of Finance) to inform the policy development process. It is also shared with the other government organizations in the financial sector, such as OSFI.”

One of the report’s recommendations was that “financial institutions should take into account the financial needs and circumstances of consumers…” In other words, assess suitability instead of selling HELOCs like candy. That suggests that FIs are not doing this already, at least not adequately.

The FCAC added, “Survey results suggest that some HELOC holders lack an adequate understanding of the terms and conditions of their HELOC.

In reaction, the consumer protector promised to “work with financial institutions to improve the disclosure of HELOC terms and conditions…The Agency will communicate its expectation to financial institutions that they do more to ensure customers thoroughly understand HELOCs and that the products are appropriate based on their consumers’ financial needs and circumstances.”

“I can add that, along with other sources of information, the data from these types of surveys provide input on evolving financial sector issues and…concerns regarding the delivery of financial services, and changes in the financial services sector,” said the FCAC’s Michael Toope. “The Agency takes these factors, among others, into account when developing its…supervision plans.”

The message is simply this: banks can expect more paperwork and procedures when selling HELOCs. But that stuff is mainly an annoyance to them. What they’ll really be waiting to see is what the DoF / OSFI do to tighten HELOC underwriting, if anything.

With HELOCs growing at double the clip of mortgages and the growing trend in interest-only repayment, doing nothing is simply not consistent with past regulatory responses.