Executive Summary: Key Legal and Evidentiary Issues

• CTC admitted to failing to disclose a $100 Statement Fee in the required Information Box of mortgage agreements from January 1, 2010 to November 30, 2020, violating paragraph 6(2.1)(b) of the Regulations.

• The Commissioner erred by exclusively applying the post-April 30, 2020 maximum penalty of $10 million to violations that predominantly occurred under earlier, lower penalty caps.

• Retrospective application of amended penalty provisions violated the presumption against retrospectivity, as 95% of breaches occurred before the legislative amendments.

• Statutory interpretation of paragraph 8(1)(p) regarding the $100 Statement Fee was flawed due to the Commissioner's exclusive focus on purpose without proper textual analysis.

• No procedural unfairness was found despite CTC not receiving a Notice of Breach prior to the Notice of Violation, as CTC had sufficient opportunity to know and respond to the case.

• The Federal Court declined to calculate a revised penalty itself, remitting the matter back to the Commissioner given the highly discretionary nature of penalty determination.

Background and parties involved

Community Trust Company (CTC) is a federally regulated financial institution licensed under the Trust and Loan Companies Act, offering fixed rate residential mortgages as an alternative to large financial institutions. In January 2020, a customer made a formal complaint regarding undisclosed mortgage discharge fees charged by CTC. The matter was referred to the Financial Consumer Agency of Canada (FCAC), an independent federal body tasked with supervising financial institutions to determine whether they comply with the consumer provisions of various statutes applicable to them.

The fees at issue

At all relevant times, CTC charged two fees at the time of the discharge of a customer's fixed rate mortgage. The first was a $495 Discharge Administration Fee to discharge CTC's security interest in the property, which was always properly disclosed by CTC. The second was a $100 Statement Fee to produce a final mortgage statement relating to the discharge. CTC acknowledges that between January 20, 2007 and November 30, 2020, it failed to disclose the $100 Statement Fee in the Information Box of credit agreements as required by paragraph 6(2.1)(b) of the Regulations, instead disclosing it in its Schedule of Additional Costs.

The FCAC investigation and findings

Following a complaint reported by the Ombudsman for Banking Services and Investments (OBSI), the FCAC Staff commenced an investigation in April 2021. On October 30, 2023, the Commissioner issued a decision finding that CTC had contravened two provisions of the Cost of Borrowing (Trust and Loan Companies) Regulations: Violation 1 under paragraph 6(2.1)(b) for failing to provide borrowers with an Information Box that included the types and amount of other fees, and Violation 2 under paragraph 8(1)(p) for failing to provide borrowers with an initial disclosure statement that included a fee to discharge a security interest. The Commissioner imposed an administrative monetary penalty (AMP) of $1.6 million for Violation 1 and directed FCAC Staff to address all outstanding compliance issues, including the refunding of amounts uniquely related to Violation 2, through a Compliance Agreement with CTC.

CTC's appeal arguments

CTC brought the appeal on the basis that the Decision contains errors of law and was arrived at in a manner that was procedurally unfair. While CTC admitted that it committed Violation 1, it submitted that the AMP imposed by the Commissioner is inappropriate and excessive. CTC challenged the Commissioner's exclusive application of the post-April 30, 2020 maximum AMP of $10 million, arguing that 95% of the breaches occurred before the legislative amendments when maximum penalties were lower ($200,000 from January 1, 2010 to May 23, 2012, and $500,000 from May 24, 2012 to April 29, 2020). CTC denied liability for Violation 2 as alleged, arguing that only the Administrative Discharge Fee is charged to discharge a mortgage and this fee was properly disclosed. Additionally, CTC claimed procedural unfairness because no Notice of Breach was issued prior to the Notice of Violation.

The Court's analysis on the penalty calculation

The Federal Court found that the Commissioner erred in law by exclusively applying the post-April 30, 2020 maximum AMP of $10 million under subsection 19(2) of the FCAC Act to Violation 1 when breaches that occurred before the amendment on April 30, 2020, should have been subject to the maximum penalties in force when they were committed. The Court rejected the Respondent's argument that the public protection exception to the presumption against retrospectivity applied, finding there is no clear nexus between the protective measure and the risks to the public associated with the prior conduct to which it attaches nor any attempt to tailor the measure to prevent risks prospectively. However, the Court found that CTC has not shown that the Commissioner fettered her discretion in her consideration of the factors that must be considered in imposing an AMP for Violation 1.

The Court's analysis on Violation 2

The Court agreed that the Commissioner erred in her approach to the statutory interpretation of paragraph 8(1)(p) of the Regulations. While the Commissioner purported to consider a "plain reading" of the Trust and Loan Companies Act and the Regulations, the Commissioner's exclusive focus was on the context and purpose of the legislative scheme which emphasizes the importance of full disclosure and accountability. This approach is not in keeping with the modern approach to statutory interpretation and the "text as anchor" approach dictated by the Supreme Court of Canada. The Court declined to consider whether Violation 2 falls within paragraph 8(1)(p) of the Regulations based on a proper statutory interpretation, as to do so would be to usurp the role of the Commissioner who Parliament determined is best suited to determine Parliament's intention given her expertise and experience.

Procedural fairness finding

The Court found no merit in CTC's suggestion that it was denied procedural fairness. The Commissioner clearly focused on the right question: whether CTC knew that there was an issue regarding the disclosure of its $100 Statement Fee in connection with a customer's discharge of a mortgage and had a chance to respond to the issue. CTC had several opportunities to know the case against it and to present its views prior to the issuance of the Notice of Violation on April 5, 2023. FCAC Staff and CTC were actively engaged in discussing the issues giving rise to Violation 2, through calls and written exchanges, in late 2022. CTC sought and received a 30-day extension in order to provide extensive written representations relating to the proceeding.

Ruling and outcome

The Federal Court allowed CTC's appeal on January 15, 2026. The decision of the Commissioner of the Financial Consumer Agency of Canada dated October 30, 2023 was set aside, and the matter was remitted back to the Commissioner for redetermination on the issues of the amount of the administrative monetary penalty for Violation 1 and whether Violation 2 was committed as alleged. CTC was awarded costs in the amount of $2,644.20 payable within 60 days with interest to accrue thereafter at a rate of 3% per annum. The Court declined to calculate a revised penalty itself, noting that the selection of an AMP under subsection 19(2) of the FCAC Act is a highly discretionary exercise that requires the Commissioner's expertise in a specialized field of regulation as well as her understanding and experience in setting an AMP that is not punitive but instead promotes compliance with the FCAC Act.