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Customers use TD Bank cash machines under video information screens showing a computer error in Toronto on June 24, 2017.CHRIS HELGREN/Reuters

Canadians who bank with federally regulated financial institutions will now receive electronic alerts if their account balance runs low or they’re close to reaching their credit limit on products such as personal credit cards and lines of credit.

The automated messages are part of a slew of new federal requirements taking effect Thursday aimed at boosting protections for financial consumers. The rules also mandate that banks ensure their pay structures don’t incentivize employees to pitch inappropriate financial products to customers, among other measures.

“Good consumer outcomes are a shared responsibility and require a collective effort,” Judith Robertson, commissioner of the Financial Consumer Agency of Canada (FCAC), a federal financial consumer watchdog, said in an interview.

New bank rules come into force this month, but critics say they don’t go far enough

The electronic alerts, for example, are meant to help consumers avoid costs such as overdraft fees. Canadians will receive the notifications whenever the balance on their bank and other eligible registered accounts drops below a default level of $100 or another amount they set. Similar messages will notify consumers when they’re about to go over their credit limit on personal credit cards and lines of credit. Customers are free to opt out of receiving the alerts.

Banks are now also similarly required to send out notices about impending product renewals or when promotional offers – such as a low, introductory interest rate on a new credit card – are about to expire.

There is also a broad requirement that banks ensure the financial products they pitch are suitable to consumers’ circumstances. That includes ensuring that pay incentives don’t encourage bank employees to prioritize sales over catering to clients. For example, the FCAC said, financial institutions shouldn’t reward staff for meeting sales targets if they did so by pushing products that didn’t meet customers’ needs.

But while the FCAC has provided guidelines to assist the banks, the regulations leave it up to the financial institutions themselves to design internal procedures to ensure appropriate product recommendations, Ms. Robertson said.

When getting customers to sign on the dotted line, financial institutions must now also provide separate agreements for optional products and services. For example, clients taking out a mortgage will receive separate paperwork for disability insurance, which is often sold together.

“Providing a separate agreement ensures that the separate product is understood to be separate,” Ms. Robertson said.

Other new requirements include setting up whistleblowing programs for bank employees and broader protections against the use of high-pressure sales tactics.

The rules also mandate that banks deal with customer complaints within 56 days. Previously, there was no regulatory requirement on financial institutions to handle grievances within a specified time frame, although the FCAC’s guidelines recommended doing so within 90 days. The rules also tighten the timeline for external ombuds entities to deal with complaints that have been escalated beyond the banks’ internal process.

But the new consumer protection regulations stop short of a major overhaul of a complaint-handling system that the FCAC itself called “complex” and “cumbersome” in a 2020 report. Part of the problem is that Canada currently has two separate entities for handling serious disputes, the watchdog noted at the time, echoing a long-standing criticism by some consumer advocates.

Finance Minister Chrystia Freeland promised in the 2022 federal budget to return Canada to a system with a single banking ombuds body. The Ombudsman for Banking Services and Investments was the country’s only external complaints-handling entity until the Harper government allowed ADR Chambers, a company that provides dispute resolution services, to do the same. Financial institutions had the discretion to choose which organization to use.

But even without a drastic shake-up of the dispute-settlement system, the new financial consumer protection framework is a step in the right direction, said Elizabeth Mulholland, chief executive officer of Prosper Canada, a national charity focused on Canadians living in poverty.

The electronic alerts, in particular, will help lower-income bank customers avoid fees and penalties, Ms. Mulholland said, basing her comments on information on the new rules that was publicly available before June 30.

Another question is whether and how the FCAC will enforce the banks’ new legal obligations. Although the agency acquired new powers in April, 2020 – including being able to impose higher penalties on banks that commit violations – it remains to be seen whether it has enough teeth, some consumer groups warned.

“A rap on the knuckles” by the FCAC won’t be enough, said Ken Whitehurst executive director of the Consumers Council of Canada.

Monitoring bank compliance may include the use of secret shoppers, who pose as customers and report back on their client experience, Ms. Robertson said.

Editor’s note: An earlier version of this article included an incorrect example of an instance where a separate agreement would be required under the new consumer protection framework. It has been removed.

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