Cost of Credit Disclosure

The “cost of credit” is the extra money a borrower has to pay to the lender in addition to the amount they borrowed. It includes all the interest, mandatory fees and any other charges the lender requires the borrower to pay. This means the borrower pays back the original amount plus all these extra costs, which make up the total cost of using the borrowed money.

Last reviewed: June 2024

Cost of credit disclosure is the process by which the lender informs the borrower of what the cost of credit is or will be in any given credit agreement.

Last reviewed: June 2024

Alberta’s Consumer Protection Act and Cost of Credit Disclosure Regulation set out rules for how and when lenders must disclose the cost of credit to borrowers. These rules ensure borrowers receive clear and straightforward information about the total cost of any credit agreement they enter into.

Last reviewed: June 2024

Alberta’s Consumer Protection Act applies to credit agreements between an individual borrower needing credit primarily for personal, family, household or farming purposes and a lender in the business of lending money. The Consumer Protection Act also covers credit agreements arranged by a loan broker. The Consumer Protection Act does not cover borrowing by businesses.

Last reviewed: June 2024

The Consumer Protection Act covers many types of credit agreements, including:

• fixed credit, such as mortgages, other fixed-amount loans and credit sales where the seller or manufacturer finances the purchase
• open credit, such as lines of credit and credit cards
• lease agreements

The Act regulates different types of credit agreements in different ways.

Last reviewed: June 2024

Open credit refers to a credit agreement that allows the borrower to request multiple advances for different amounts of money. However, there may be a credit limit. For example, you have a line of credit for $10,000. You can withdraw and repay any amount of money over time up to a limit of $10,000 – meaning you cannot owe the lender more than $10,000 at any one time.

Fixed credit means a credit agreement that advances a one-time, set amount of money. For example, you borrow $15,000 to buy a car and then repay that amount in set payments over time.

Last reviewed: June 2024

Yes. Alberta’s Consumer Protection Act requires advertisements encouraging individuals to enter into credit agreements to include clear and accurate information about the cost of credit. These regulations ensure consumers are fully informed about the financial terms before committing. This requirement applies to both fixed credit agreements, like personal loans, and open credit agreements, like credit cards.

Last reviewed: June 2024

Before signing a credit agreement, the lender must give the borrower a written initial disclosure statement. This statement provides clear and straightforward information about all aspects of the cost of the credit.

Keep reading to learn what needs to be in the initial disclosure statement for different types of credit agreements.

Last reviewed: June 2024

“Initial disclosure” refers to the written information a lender must provide to a borrower before the borrower signs a credit agreement. It’s a quick reference document that clearly sets out the terms, costs and obligations that apply to the borrower. The longer form credit agreement will include these same terms, costs and obligations.

Last reviewed: June 2024

The borrower is the person who borrows the money. The creditor is the lender – the person who lends money to the borrower.

For fixed credit agreements, the initial disclosure statement must include the effective date of the statement.

It should also include as much of the following information as possible:

• the outstanding balance and information about the charges, payments or advances included in the balance
• the term (and amortization period, if it is longer than the term)
• the date on which interest begins to accrue and details of any grace period
• details about the interest rate, including how the interest rate may change during the term
• the nature of any charges other than interest that the borrower must pay
• the amount and timing of any advancements and/or payments to be made after the effective date of the statement
• the total of all advances made and to be made by the creditor to the borrower under the credit agreement
• the total of all payments to be made by the borrower to the creditor under the credit agreement
• the total cost of credit (see the question above)
• the annual percentage rate (APR), which expresses the cost of credit as an annual percentage
• the nature of any charges the borrower must pay if they default on the agreement
• a description of any items the borrower has put up as security to secure the loan
• for credit sales, a description of the product the borrower purchased on credit
• for mortgage loans, details about any prepayment privileges the borrower has, including any charges for doing so
• for non-mortgage credit agreements, a statement that the borrower is entitled to prepay the entire outstanding balance at any time without penalty and is entitled to make partial prepayments without penalty on any scheduled payment date
• if scheduled payments are not part of the credit agreement, details about how the borrower must pay all or part of the outstanding balance

Last reviewed: June 2024

The borrower is the person who borrows the money. The creditor is the lender – the person who lends money to the borrower.

For open credit agreements, the initial disclosure statement must include as much of the following information as possible:

• the credit limit
• the minimum periodic payment or how to determine the minimum periodic payment
• the initial annual interest rate and the compounding period
• if the annual interest rate may change, how to determine the annual
interest rate at any time
• when interest begins to accrue on advances or different types of advances, and details of any grace period
• the nature and amount, or how to determine the amount, of any
charges other than interest that the borrower must pay
• any optional services the borrower purchased for which payments are to be made to or through the creditor, as well as the charges for such services
• a description of any items the borrower has put up as security to secure the loan
• the nature of any charges the borrower must pay if they default on the agreement
• how often the borrower will receive statements of account from the creditor
• if the borrower must pay the full outstanding balance once they receive each statement of account:
  • a statement saying so, and
  • the period for paying the outstanding balance to avoid being in default, and
  • the annual interest rate that applies to any amount not paid when due
• a telephone number the borrower can call with questions about their account during the creditor’s ordinary business hours and without incurring charges for the call
• if the open credit agreement is for a credit card, the maximum liability for unauthorized use of the credit card if it is lost or stolen

Last reviewed: June 2024

The lessee is the person who is leasing the goods. The lessor is the person who is leasing the goods to the lessee.

For lease agreements, the initial disclosure statement must include as much of the following information as possible:

• confirmation that the transaction is a lease
• a description of the leased goods
• the term of the lease
• the cash value of the leased goods
• the nature and amount of any other advances received or charges incurred by the lessee at or before the beginning of the term
• the amount and purpose of each payment the lessee made at or before the beginning of the term
• the capitalized amount
• the amount, timing and number of the periodic payments
• the estimated residual value of the leased goods at the end of the lease term
• if the lease agreement has an option for the borrower to purchase the leased item:
  • information about how to exercise this option, and
  • what the purchase price will be
• for a residual obligation lease:
  • the estimated residual cash payment, and
  • a statement that the lessee’s maximum liability at the end of the lease term is the sum of the estimated residual cash payment plus the difference, if any, between the estimated residual value and the realizable value of the leased goods
• when and how the lessee or lessor may terminate the lease before the end of the term and the amount (or how to determine the amount) the lessee must pay to terminate the lease early
• details about any other circumstances that will cause the lessee to incur any additional charges related to the lease
• the implicit finance charge
• the annual percentage rate (APR)
• the total lease cost

Last reviewed: June 2024

For mortgage loans, the lender must provide the borrower with the initial disclosure statement at least two business days before the earlier of the following occurs:

• the borrower incurs any obligation to the lender regarding the mortgage, or
• the borrower makes any payment to the lender related to the mortgage.

This creates a two-day ‘cooling-off period’ between when the borrower receives the cost of credit disclosure and when the borrower can sign the final credit agreement.

For non-mortgage credit agreements, the lender must give the borrower the initial disclosure statement at any time before the borrower commits or pays anything. There is no cooling-off period.

Last reviewed: June 2024

It depends.

For some credit agreements with a floating interest rate tied to an index like the prime lending rate, the lender must give a disclosure statement every 12 months. This statement must show how rate changes affected costs, balances and payment amounts.

Other credit agreements allow the lender to change the interest rate, even without an index. If the rate goes up by over 1%, the lender must give the borrower an updated disclosure statement within 30 days of the increase.

For credit cards without a floating rate, the lender must give the borrower an updated disclosure statement at least 30 days before the rate increases.

Last reviewed: June 2024

Unlike fixed credit agreements, the outstanding balance in an open credit agreement can change frequently as the borrower either makes payments or uses more credit. As a result, along with an initial disclosure statement, the lender must provide the borrower with monthly statements of account.

A statement of account must include as much of the following information as possible:

• the period the statement covers
• the outstanding balance at the beginning of the period
• the amount, description and posting date of each transaction or charge added to the outstanding balance during the period
• the amount and posting date of each payment or credit subtracted from the outstanding balance during the period
• the annual interest rate or rates in effect during the period or any part of it
• the total of all amounts added to the outstanding balance during the period
• the total of all amounts subtracted from the outstanding balance during the period
• the outstanding balance at the end of the period
• the credit limit
• the minimum payment the borrower must make
• the due date for payment
• the amount the borrower must pay on or before the due date to take advantage of a grace period
• the borrower’s rights and obligations regarding correcting billing errors
• a telephone number the borrower can call with questions about their account during the lender’s ordinary business hours and without incurring charges for the call

Last reviewed: June 2024

It depends on what type of credit agreement you have.

For mortgage loans, you can only pay it back early if the agreement allows for it. Some mortgages have strict payment schedules, while others allow prepayment with a penalty.

For all other types of credit agreements, the borrower can pay off all or part of the outstanding balance at any time without penalty.

Last reviewed: June 2024

Alberta’s Consumer Protection Act does not guarantee the cost of credit will stay the same if you default on the agreement. However, the Act does restrict default charges.

The credit agreement can only include default charges for reasonable:

• legal costs related to collecting or trying to collect payments,
• costs (including legal expenses) for realizing a security interest or protecting the secured property after a default, and
• charges due to a bad cheque or bounced payment provided by the borrower.

Last reviewed: June 2024

An acceleration clause is a term in a credit agreement that allows the lender to make you pay off your debt immediately or faster or to increase your interest rate if you default on the loan.

Before the lender can enforce the acceleration clause, they must give you a letter (either personally or by registered mail) that says you’ve missed payments. If the lender sends the letter by registered mail, they must wait 10 days after sending it before taking action.

Last reviewed: June 2024

Individual credit card agreements lay out specific rules about what happens if a credit card is lost or stolen. Alberta’s Consumer Protection Act also sets out minimum protections for the cardholder.

You must immediately inform the credit card company that your card has been lost or stolen. Once you do so, you are not liable for any charges that come afterwards. If someone incurs charges on your card after it is lost/stolen but before you inform the credit card company, you are liable for a maximum amount of $50 in charges. However, this $50 limitation does not apply if someone uses your lost/stolen card with your personal identification number (PIN) at an automated teller machine (ATM).

Last reviewed: June 2024

For some credit agreements, the law requires you to buy insurance. A lender can also make the loan conditional on you buying insurance.

However, where the lender requires the borrower to buy insurance, the borrower does not have to buy the insurance through the lender. They can buy insurance elsewhere. Any lender that makes a loan conditional on insurance and then offers to provide or arrange that insurance must clearly disclose in writing that the borrower is free to buy the required insurance from any insurer that can lawfully provide it.

Last reviewed: June 2024