Are you being tricked into applying for credit?


If you've been approached at Wal-Mart or Loblaws by someone offering you a fantastic loyalty card that turned out to be a credit card, you know the frustration that comes with being duped. Such tactics are illegal. Here's what the rules are, and what you can do if you've been tricked.

In February 2017, the Financial Consumer Agency of Canada (FCAC) issued a consumer alert to warn Canadians about salespeople signing up consumers for credit cards without their consent.

"That goes against federal consumer protection laws, so it's a concern to us," says Lynne Santerre, media relations officer with the FCAC.

The FCAC oversees federal consumer protection laws and regulations, which apply to federally regulated financial institutions, including banks. Every province has at least one body to regulate those financial institutions under provincial responsibility as well, such as credit unions and caisses populaires. You can find the list of these on the FCAC website.

It's not only the banks that need to comply with consumer protection requirements, though.

"Even if they engage with third parties to solicit new customers, we want to make sure that the consumer protection measures that are in place are still being followed and respected," Santerre says.

How do these laws apply to cards offered in stores?
Simply put, the cards you see offered in stores are under a bank, whether federally regulated or provincially regulated.

"To issue a credit card, you have to be a bank or work with one," says John Lawford, executive director of the Public Interest Advocacy Centre. You might not be aware of it, but Loblaws owns PC Financial, and Wal-Mart owns Wal-Mart Canada Bank.

This is a big part of the problem, Lawford says. When you're buying groceries and someone approaches you about a card, you're not thinking it's a financial product.

"Even though you see the banking machine at the kiosk as you're leaving, you don't put two and two together," Lawford says. In addition, he says, it's usually more vulnerable consumers who fall for these tactics.

"People who are new immigrants, don't speak English, older, younger, trouble with literacy or numeracy, very low income or have problems for various reasons," he says. "They need to be treated better."

What regulations apply?
"It's clearly against the negative option billing regulations," says Lawford, pointing to subsections 3(1) and (4) in particular. "They say there has to be express consent obtained in a manner that's clear, simple and not misleading."

When the FCAC issued its advisory, it found that clear consent was not happening, Santerre says.

In addition, she says, "If a person provides their consent orally, the institution must provide the person with confirmation in writing of their consent without delay." But it's not clear exactly what "without delay" means.

"I don't know that it's been defined by the courts yet as being on the spot, which is what it really should be in a retail location," Lawford says.

There's another piece of legislation that applies as well.

"The cost of borrowing regulations require federally regulated financial institutions, such as banks, to disclose to consumers important and accurate information about the products and services they offer," says Santerre.

The regulations require that details including interest rates and fees that are associated with the card must be clearly displayed in an information box at the beginning of the application. That information box also must appear on the credit card agreement that is sent with your card.

"When people are applying, it should be clear," says Santerre.

However, Lawford believes these presentation violations, if they occur, are secondary.

"The main point is, the stores are being misleading," he says. "If you're not following the formal way of presenting the credit application, then that in itself is misleading."

How can you protect yourself?
"It's very much ‘buyer beware,'" says Lawford. He recommends not signing up for anything you haven't asked for yourself.

"Be very suspicious of anyone trying to give you free stuff," he says, "but especially in retail locations, because there's no longer necessarily any division between financial services and other products and services."

"Before submitting an application, consumers should read it carefully," adds Santerre. "They should ask questions about anything that they don't understand."

What can you do if you've been duped?
Unfortunately, not much.

The best thing to do is to close the new card account. Santerre says it's important to take the following steps when you cancel your card:

  1. Contact the credit card issuer by phone or in writing to cancel the card.
  2. Ask for confirmation in writing that it has been cancelled. Once you receive confirmation, cut up the card.
  3. Check your credit report to make sure the card has been closed. It may take the card issuer 30 days to report the change to the credit bureau.

Even when the card is cancelled, it will still appear on your credit report, as will the credit check that the lender made when you submitted your application. You can try to dispute it with the credit bureaus, but, Lawford says, "You've technically made the application, even though you didn't know you did - so you have nothing to dispute."

Beyond that, Santerre and Lawford encourage you to complain to both the credit card issuer and the FCAC. If enough people do, Lawford says, the institutions will be fined.

"Complaints are a useful component for a healthy financial system," says Santerre. "At FCAC, we actually monitor the complaints lodged with federally regulated financial institutions as well as their complaint resolution process. This helps us monitor and analyze trends in consumer service issues."

Santerre says the FCAC has investigated 32 complaints regarding this issue since 2015. Because of these complaints, she says, "We did issue a letter to the banks to remind them of their obligations, and that's why we also issued the consumer alert."

"The number of complaints, to me, shows how little awareness there is of FCAC's role," says Lawford.

Apart from that, he says, "It's probably best to just cut up the credit card, maybe try to dispute it, make sure you never use it and take your shopping business elsewhere."

See related: Is there privacy in a cashless society?, Can the statute of limitations erase your debt?
Published March 28, 2017

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