Canada's banking sector is questioning why the Conservative government wants to more than double the maximum fines that can be levied on financial institutions for breaches of consumer-protection laws.
Examples of consumer rules that would be subject to the heavier fines include requirements that banks obtain written permission from customers before raising credit-card borrowing limits and rules that bank ads promoting interest rates include an explanation of how rates are calculated.
The Financial System Review Act tabled last week by the government in the Senate would raise the maximum penalties for breaching such rules from $200,000 to $500,000.
The heftier fines are creating some confusion in the banking sector.
"It's unclear what the rationale is behind increasing the fines when the existing maximum fine has rarely been levied," said Canadian Bankers Association president Terry Campbell in a statement.
A federal agency called the Financial Consumer Agency of Canada is responsible for looking into potential violations and issuing fines. Last year it levied a total of $175,000 in fines, down from the $450,000 total a year earlier.
A Finance Canada official said the reason for the new fines is to enhance consumer protection and bring the consumer agency's rules in line with other federal regulators such as the Office of the Superintendent of Financial Institutions and the Financial Transactions Research and Analysis Center.
Finance Minister Jim Flaherty is also poised to introduce another consumer-focused bill as early as Wednesday that would create and fund a new office of "financial literacy leader." The individual would report to the Finance Minister, working with banks and other governments to promote a better understanding of banking rules and savings options.
The government is introducing the bills to coincide with Financial Literacy Month, an awareness campaign supported by the financial industry and the federal government.
Mr. Flaherty and Bank of Canada Governor Mark Carney have often warned Canadians not to get in over their heads during this period of very low interest rates because they may run into financial trouble when the rates inevitably rise.
Bruce Cran, president of the volunteer-based Consumers Association of Canada, said increasing the fines suggests Mr. Flaherty does have some concerns about banking practices. However, the consumer advocate questioned whether new financial literacy programs are really needed.
"In our opinion, consumers are nowhere near as ill-informed as some of the government departments think they are," he said. "I think we're a pretty savvy bunch. I suppose anything will help but I don't know that any drastic effort to re-educate Canadian consumers on financial matters is something of a hugely high priority."