What Information can a bank can retain on your consumer proposal?

Our consumer proposal was discharged in 2015 and expunged from both our credit bureaus in 2018. We were able to secure a mortgage this summer (from a credit union), but during the inquiry to do so, found that a bank that we currently deal with (chequing and savings accounts) has an “internal note” about our consumer proposal and it was one of the reasons they would not give us a mortgage (that is what they told our broker) or any credit products. They were not one of our original creditors and my husband had contacted them in 2019 (looking for a mortgage specialist) and made mention of it (he was just being honest), the agent he spoke to put this note in on our file. Now that we owe our home, we applied for a credit product through this bank and get a message that we have “something on our credit bureau” that they cannot approve it. We have checked both bureaus, and there is nothing derogatory, we have the mortgage, we pay our bills on time. We have worked very hard to improve our credit and have good to fair ratings currently (in 700 range). We are trying to deal with banks and stay away from “B lenders.” Can banks keep notes like this on file and have “internal policies” like not allowing lending until 10 years after discharge (that is what our broker mentioned to us)?

One Response to “What Information can a bank can retain on your consumer proposal?”

Chris Sinclair, CIRP, CPA, CA Licensed Insolvency Trustee said...

Let’s first skip to the reply, which I think is given by answering your question with another question: “Is it time for a new bank”? We can work backwards from there.

It sounds like your former consumer proposal has been removed from your respective credit reports in the appropriate period of time. It also sounds like you have taken all the proper steps to rebuild your credit since the insolvency proceeding, and you’ve even managed to get a mortgage and maintain strong payment and financial habits over the past few years. The consumer proposal did its job and got you out of an unhealthy financial situation. You’ve done your job since filing the proposal (i.e. in completing the proposal and then changing your financial habits).

If anything, although honesty is usually the best policy, I think your husband over-disclosed to the bank when mentioning the consumer proposal. I would never advocate giving false information on any credit application, and if your bank had asked your husband directly whether the two of you had ever filed a consumer proposal or bankruptcy, of course he should disclose the information. With that said, don’t forget, you and him “served your time” and the proposal was on your credit bureau for what was probably 7 or 8 years (I should note that since you went through the process, the credit reporting timeline has changed: the time a proposal is reported on the credit bureaus has decreased to a maximum of 6 years from the time of filing). I think the fact a consumer proposal is removed from the credit bureaus after 6 years is indicative of the fact that the Canadian “credit system” cannot and should not hold an insolvency filing against a consumer forever.

Financial institutions will make credit decisions based on a number of factors: a credit check, current income, current debts and various other ratios/metrics. Various banks may have different internal policies about credit applications and what other information they can maintain. If your current bank has a policy that they will not grant credit to a former consumer proposal debtor for a ten year period, there isn’t much you can do. Each bank is entitled to maintain its own client history and set its own policies, despite the credit reporting timelines for an insolvency process.

If you wish to open new accounts at a new institution, and apply for credit products, you will have to go through that institution’s credit application process, which will include the bank reviewing your credit file (Equifax or Transunion) and perhaps asking you additional questions. As discussed above, it is never a good idea to lie on a credit application, but “fair is fair” and you and your husband should not over-disclose. If the bank is happy with your application, and your credit reports meet the bank’s needs, you should not feel badly about obtaining a reasonable amount of new credit and maintaining the healthy financial balance you’ve found since completing your proposal.

So, in summary, the answer to your question is yes: banks can maintain whatever records and policies they wish. And yes: perhaps it is time to seek a new bank if you wish to expand your use of credit.