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4. Disclosure in Advertising Credit Agreements
In addition to extensive sanctions against "unfair practices" (false or misleading representations) which are applicable to consumer transactions generally [they are discussed in Part C, Ch.6: "CPA Unfair Practices"], the CPA also specifically regulates 'representations' ('advertising') made respecting credit agreements.
For this purpose, 'representations' are defined as [CPA s.1]:
"representation" means a representation, claim, statement, offer, request or proposal that is or purports to be,'Representations' by, or caused by, lenders respecting credit agreements - whether made orally, in writing or in any other form - are prohibited unless they comply with the requirements set out below [CPA 77; CP reg 61(1)].
(a) made respecting or with a view to the supplying of goods or services to consumers, or
(b) made for the purpose of receiving payment for goods or services supplied or purporting to be supplied to consumers;
(b) Disclosure Requirements Where 'No Interest' Advertisement: Fixed or Open Credit Agreements
Any credit agreement (fixed or open) advertisement stating or implying that no interest is payable for a definite or indefinite period shall disclose the following information [CP Reg 61(8)]:
(c) Disclosure Requirements in Advertising: Fixed Credit
- if the credit agreement is unconditionally interest-free during the period, or
- if interest accrues during the period but will be forgiven if certain conditions are met, and if so:
- those conditions;
- in the case of fixed credit, "what the annual percentage rate for the credit agreement would be if the conditions were not met";
- in the case of open credit, AND if "the annual interest rate payable under the credit agreement at the time of the advertisement applied to the period", then "what the annual interest rate for the period would be if the conditions were not met'.
Any advertising respecting a credit agreement that offers fixed credit and that discloses the interest rate payable, or the amount of payments to be made, shall also disclose the following [CP Reg 61(2)]:
(d) Disclosure Requirements in Advertising: Open Credit
- Interest Rate
The annual percentage rate [even if is zero: CP Reg 61(3)].
The prominence given the annual percentage interest rate in the advertisement cannot be less than that afforded either the interest rate payable by the borrower, or the amount of a payment to be made [CP Reg 61(4)].
The length of the term.
- Where Supplier Credit Agreement for Specific Good or Service
A 'supplier credit agreement' is one for fixed credit, extended by a supplier or their associates, to assist a borrower in purchasing goods or services from the supplier [CPA 66; see s.2(c) above].
If the advertisement is for a supplier credit agreement and applies to a specifically identified good or service:
- the cash price of the good or service, and
- the cost of borrowing [even if the amount of a payment to be made is zero: CP Reg 61(3)], unless the only element of the cost of borrowing is interest, or unless "the advertisement is broadcast on radio or television, displayed on a billboard or bus board or made through any other medium with similar time or space limitations.'
- Where Supplier Credit Agreement for Range of Goods or Services
A 'supplier credit agreement' is one for fixed credit, extended by a supplier or their associates, to assist a borrower in purchasing goods or services from the supplier [CPA 66; see s.2(c) above].
If the advertisement is for a supplier credit agreement, applies to a range of goods or services and uses a representative credit agreement, the advertisement must disclose the cash price of the good or service represented in the representative credit agreement [even if the amount of a payment to be made is zero: CP Reg 61(3)].
A "representative credit agreement" means an example credit agreement that fairly depicts the credit agreements to which the advertisement applies and is identified as a representative of those credit agreements [CP Reg 61(9)].
Where different annual percentage rates and/or terms apply to a range of credit agreements, then the advertisement shall disclose that information for a representative credit agreement and shall state that the information is for a representative credit agreement [CP Reg 61(5)].
Any representation respecting a credit agreement that offers open credit and that discloses the amount of any element of the 'cost of borrowing' shall also disclose the following [CP Reg 61(6)]:
(e) Disclosure Requirements on Credit Card Solicitations
- Interest Rate
The annual interest rate at the time of the advertisement.
- Extra charges
The amount of non-interest costs of borrowing (extra charges) that a borrower is required to pay at the time the borrower enters into the agreement, or on a periodic basis. If the amount cannot be determined at the time of the disclosure, the manner of determining the amount shall be disclosed.
All such disclosures shall be of equal prominence [CP Reg 61(7)].
Related disclosure provisions respecting credit card sales soliciting (by mail, phone, electronically or directly in person) are addressed below in s.7(d): "credit Card Regulation: Credit Card Application and Solicitation Disclosure".
5. Cost-of-Borrowing Regulation
The definition of 'cost-of borrowing' is set out in the Glossary at s.2(d) (above), but can briefly be summarized as 'interest and some extra charges'.
This section addresses the meagre attempts of the CPA regime to limit the 'cost of borrowing' under credit agreements. I start with an illustration to set the context properly.
Consider the related consumer field of residential rent regulation [explained in the Isthatlegal.ca] Residential Tenancies (Ontario) Legal Guide]. To be effective, any attempt to impose rent regulation requires a broad, certain - and most important, all-encompassing - definition of just what 'rent' is. If this is not done well, any attempt at 'rent regulation' will be defeated by the introduction of numerous (and often quite imaginative) 'extra (non-'rent') charges' that soon render rent controls ineffectual.
This same problem faced the drafters of the Consumer Protection Act. The closest parallel that the CPA regime has to the rent regulation concept of "rent" is the concept of "cost of borrowing", which - roughly - includes interest and other charges, but excludes principal.
Readers will see that substantial 'regulation' of credit agreements, being the imposition of legal prohibitions on the charging of elements of 'cost of borrowing', is only a minor and - for the most part - ineffectual part of the CPA regime.
(b) "Cost of Borrowing" Unregulated, But Disclosure Required
Unlike rent regulation's treatment of "rent", the CPA does not impose direct restrictions on the amount of 'cost of borrowing' as such (though there are some on its component elements, below), but rather opts for a broad disclosure regime. In so doing, it implicitly falls back on the free market ethic of trying to ensure that consumers 'know what they are getting into'.
Under these "Disclosure Duties" [see s.3, above], "cost of borrowing", interest, default charges and other 'extra charges' are all required to be disclosed to the consumer at the beginning of the consumer agreement, and afterwards if varied.
It is only when these disclosure duties are breached that the cost-of-borrowing can actually be reduced or eliminated [see s.3(g) "Consequences of Disclosure Non-Compliance"].
(c) Interest Unregulated
Note as well that the primary element of 'cost of borrowing', interest, is unregulated by the CPA regime (except perhaps by the Criminal Code), though it too is subject to the disclosure requirements noted in (b) above.
Again, breach of disclosure duties relating to interest may result in cost-of-borrowing (of which interest is a component) charges being reduced or eliminated [see s.3(g) "Consequences of Disclosure Non-Compliance"].
(d) Most 'Extra Charges' Unregulated
Note: This discussion is not about 'extra charges' in the sense of unauthorized charges made on a credit card. For that topic see s.7: "Credit Cards Regulation", below.As the definition of "cost of borrowing" in the Glossary [see s.2(d), above] anticipates, there are several potential types of 'extra charges' that a borrower can be subject to. Indeed, that definition only anticipates a few of the potential charges that
the imaginat ion of lenders could impose on borrowers in the fine print of contracts.
For present purposes however all that need be noted is that most 'extra charges', with some exceptions [explained in (e) and (f) below], are unregulated - though they are subject to the disclosure requirements noted in (b) above.
As with overall 'cost of borrowing' and 'interest' disclosure duties, breach of disclosure duties with respect to extra charges may result the cost-of-borrowing being reduced or eliminated [see s.3(c) "Consequences of Disclosure Non-Compliance"].
(e) Prohibition of 'Default Charges'; Exceptions
. Default Charges Defined
The regulation of 'default charges' is the most aggressive that the CPA regime gets when it comes to truly regulating (ie. restricting any aspect of the 'cost of borrowing' (of which extra charges are an element).
The CPA prohibits (with the exceptions noted below) additional non-interest 'default' charges, which are defined as [CPA 66]:
"default charge' means a charge imposed on a borrower who does not make a payment as it comes due under a credit agreement or who does not comply with any other obligation under a credit agreement, but does not include interest on an overdue payment;Essentially, 'default charges' are contractual charges for any late payments, and for any other defaults under the credit agreement.
. Default Charges Generally Prohibited; Exceptions
Generally, such charges are prohibited, subject to the following exceptions [CPA 75]:
These exceptions are clearly designed to capture and compensate a lender for disbursements they engage in with respect to the described activities, and should preclude the charging of 'flat-rate' amounts that are more reflective of a 'penalty'. In fact the design of these exceptions maps fairly closely the current common law attitude to penalty clauses, which is that courts will only honour penalty clauses to the extent that they are a reasonable pre-estimate of actual costs incurred by the default.
- Debt Collection Legal Costs
"reasonable charges in respect of legal costs that the lender incurs in collecting or attempting to collect a required payment by the borrower under the agreement";
- Security Enforcement Costs
"reasonable charges in respect of costs, including legal costs, that the lender incurs in realizing a security interest or protecting the subject-matter of a security interest after default under the agreement"; and
- NSF Cheque Charges
"reasonable charges reflecting the costs that the lender incurs because a cheque or other instrument of payment given by the borrower under the agreement has been dishonoured."
While some such charges will often, by their nature, be consistent in amount (eg. NSF fees from a bank), the lender would be moving into prohibited default charges territory as soon as they started to charge more than their actual disbursed expenses.
Where the lender has engaged third parties to do the collection or security enforcement for them, the amount of the allowable default charge should simply be the amount of the expense charged to the lender by the third party. However, where the work is done 'in-house' the task of isolating the specific expense from employees' other general duties will more difficult for the borrower to assess, and more easy for the lender to exaggerate.
(f) Prohibition of Prepayment Charges or Penalties
The CPA [see s.6 below] allows a borrower in most circumstances to prepay ('pay down' early) all or part of an outstanding balance, and prohibits the lender from imposing charges or penalties for doing so.
(g) Illegal Charges Recoverable by Civil Action
In relation to the illegal charges mentioned in (e) and (f) above, readers should be aware that borrowers may recover illegal charges against a lender by civil action - though it will be unusual that the amount of such illegal charges justifies commencement of a civil proceeding on their own. Remedies for illegal charges are discussed further in s.11 below ["Remedies"].
6. Prepayment Rights
The CPA entitles borrowers, in some circumstances, to prepay (ie. pay down before the due date/s) all or part of the outstanding balance under a credit agreement.
These rights vary depending on whether the credit agreement is one for fixed credit or not. Recall from s.2(c) above that 'fixed credit' is generally where the amount of the credit or loan advanced is just that: fixed or certain in amount. The CPA defines all credit agreements that are not 'open' (ie. where draws may be made at the will of the borrower, subject to limits), to be fixed [CPA s.66].
(b) Prepayment of Full Balance and Refund: Fixed and Open Credit
Borrowers have the right at any time to prepay all of the outstanding balance owing under a credit agreement (for fixed or open credit), without charge or penalty [CPA 76(1)].
Where such full prepayment is made under a credit agreement for fixed credit, the borrower is entitled to a refund of (or credit for) a portion of non-interest charges made against them or paid by them [CPA 76(2)].
The portion of the charge to be refunded or credited is measured by the proportion of the time period between the charge being made and prepayment - divided by - the time period between the charge being made and the full anticipated term of the credit agreement, as follows [CP Reg 60(1,2)]:
C x [(N-M) / N]Where a loan broker assists the borrower in obtaining credit or a loan, and the creditor is not in the business of extending credit or lending money, then normally the loan broker bears the duties of the lender (under Part VII of the CPA, the subject of this chapter) [CPA 67(2)]. However that rule does not apply to the giving of refunds or credits as just discussed, and the lender/creditor bears the duty to refund or credit [CP Reg 60(3)].
C = Full Amount of the Charge
N = amount of time between when the charge was imposed and when the credit agreement terminates
M = amount of time between when the charge was imposed and when the prepayment in full was made
(c) Partial Prepayment Where Fixed Credit Balance
Further, borrowers under a credit agreement for fixed credit have the right to prepay part of the outstanding balance owing, without charge or penalty, "on any scheduled date of the borrower's required payments under the agreement or once in any month" [CPA 76(4)].
Unlike the case in (b) above however, such a borrower is not entitled to a refund or credit of a portion of non-interest charges made against them or paid by them [CPA 76(5)].
7. Credit Card Regulation
Note: (a) Overview
Within the CPA regulatory regime, credit cards agreements are a sub-category of the larger class of 'open credit' agreements. Generally, 'open credit' agreements are ones where the amount of the credit or loan advanced is at the will of the borrower, subject to a credit limit (a line of credit is another type of 'open credit' agreements) [CPA s.1; see s.2(c) above].
That being the case, any credit card agreement - in addition to being subject to the rules set out in this section - is ALSO subject to the rules imposed over 'open credit' agreements generally. Those rules include extensive disclosure requirements at the commencement and during running of the credit agreements [see s.3(b, d-f)], disclosure in advertising of credit agreements [s.4], some "cost of Borrowing" regulation [s.5], prepayment rights [s.6] and other general provisions applicable to all credit agreements.
The CPA defines "credit cards" as [CPA 1]:
"credit card" means a card or device under which a borrower can obtain advances under a credit agreement, as defined in Part VII, for open credit;Essentially then, a credit card is proof (along with your signature or PIN) to a retailer that you have an open credit agreement with a credit card company that they also have a retailer's agreement with. In short, it shows that the credit card company will honour payment for your purchases.
This section addresses the rules that apply specifically to credit cards. As per the above note, credit agreements for credit cards ('credit card agreements') are also significantly regulated by virtue of their CPA status as 'open credit' agreements, 'credit agreements' and 'consumer agreements' for that matter.
(b) Commencement of Credit Card Agreement
. Types of Credit Card Agreement Commencement
There are three ways (other than renewals) that new credit card agreements can be executed (ie. commenced): written, oral and implied.
The first, the written - is the more traditional. There the consumer (borrower) completes and signs a credit card application form and mails it into the credit card company (lender) who then runs a credit check and decides whether to accept the consumer's offer or not. If the offer is accepted then a credit card is sent out in the mail.
The second, the oral is a slight variation on the first, dispensing with writing (at least at the contract formation stage), and being consummated by oral communications only, typically a phone call.
The third or 'implied' execution, reflects more aggressive sales techniques [similar to those discussed in Part C, Ch.5, s.5: "CPA General Consumer Rights: Negative-Option Contract Formation"]. It occurs when the credit card company sends out notices of 'pre-approval' to consumers, often containing within them 'ready-to-use' physical credit cards. The intention of the credit card company is that the consumer 'accept' the offer of the card by using it as a credit card.
. 'Regulation' of Commencement of Oral and Implied Credit Card Agreements
The oral method of credit card agreement commencement is inherently risky for all concerned in that it tempts unscrupulous sales prospects into misrepresentation of identity or qualifying information, putting both the credit card company and the 'real' onsumer at serious risk of fraud. That is, a wrong or old phone number can result in a card being sent in one person's name to another person who has simply lied about who they are, and who then fraudulently uses the card for purchases. The potential for mischief against innocent parties is plain.
The implied method of credit card agreement commencement shares similar risks, not only in that they tempt would-be fraudsters through mail theft, but also because they provide a sometimes irresistable temptation to people already over-their-heads with other serious debt problems.
In what is only questionably a pro-consumer move, the CPA addresses both oral and implied credit card commencement scenarios by exempting them from the general 'negative-option contract formation' provisions [under which implied commencements at least would otherwise be illegal: CPA s.13(1)], providing that the credit card agreement does not commence until the consumer uses it [CPA 68(1)]. This provision essentially condones the credit card companies' problematic sales techniques in the first place.
Case Note: RBC v Law (c) Fraudulent Use of Credit Cards by Third Parties
In RBC v Lau (Ont Sup Ct, 2008) a bank sued the defendant wife for a credit card debt. Although the wife never signed the credit card application she did sign the back of the card agreeing to be bound by the terms of the agreement. Unique cards with different numbers had been issued to both husband and wife and both had used them. The application made it clear that multiple users would be held jointly and severally liable. The company merged monthly statements into one, with an itemization of the separate charges. The husband bankrupted and as such could not be sued for the debt.
The issue was whether the wife was jointly and severally liable, along with the husband, for the full collective billings.
Although it appears certain that the court would have found the defendant wife liable just on the basis of her signing the back of the card in order to use it, the court expressly did so on the basis of CPA 68(1), which provides that an unsolicited card card does invoke liability under the credit card agreement once the recipient uses it.
Case Note: RBC v Travani
In RBC v Travani (Ont Sup Ct, 2009) a credit card issuer sued a father and son jointly and severally on the outstanding account, but were unsuccessful when moving for summary judgment against the father (the son did not defend the lawsuit). There was no signed application or card agreement, and the bank relied on CPA 68(1) that usage of an unsolicited card constituted acceptance of liability and thus rendered the father liable. Statements were issued to both defendants in a single document, with charges for each users itemized.
The father argued in defence that he was only an 'authorized user' on what was the son's credit card, and the son bore all liability for its use. Further, the statements were sent to the son's address, not his. The credit card agreement recognized a status for 'authorized user' which did not involve them in joint liability for the card.
The court refused to grant the summary judgment motion on the grounds that evidence needed to be called on the nature and extent of the father's ratification of the credit card agreement, and whether his use was business use or consumer use. Referring to Lau (above), the court noted that even if CPA 68(1) applied, it had to be determined whether this just involved the father as an 'authorized user' with no joint liability, or as a full account holder.
. Case Note: Royal Bank v Raincock [2013 ONSC 2876 (CanLII)]
This was a case similar to Lau and Travani (above). It involved joint use of a credit card, applied for by the husband alone, by both husband and wife. When the husband went bankrupt the bank sued the wife. Citing additionally the wife's prior compliance with the bank's income information request when the limit of the card was increased, and the fact that statements were sent to their common address, the court applied CPA 68(1) to hold the wife jointly liable.
In the case of any credit card identity fraud, the difficulty for the innocent consumer will always be proving that it was 'not me' who used the card. This task is inherently difficult to start with given their complete lack of knowledge and information about the fraud (from card issuance to transactions) - the situation coming to their attention essentially 'out of the blue'. This problem is not adequately addressed by the CPA provisions considered here.
Firstly, and following on from the immediately above discussion, CPA s.68(2) peripherally addresses fraud by mandating that the consumer is 'not liable for any charges on the card until they first use it'. As it is trite law that the consumer IS liable for THEIR charges on such a card, this provision only has meaning with respect to fraudulent use of a credit, though this meaning is slight. It would however be useful in the limited case where a consumer, facing fraudulent use of a credit card in their name, can show that they did not use the card BEFORE the fraudster (though this is still a 'not me' problem).
The main provision addressing fraudulent use of a credit card (actually any 'open credit' agreement) has some teeth to it, though only in circumstances of 'loss or theft' of the physical card itself [not in the common situation of 'theft' of the credit card number and subsequent oral or electronic use ('number theft')].
The CPA provides that, when a card is used after being lost or stolen, that [CPA 69; Reg 58]:
In the case of 'number theft', it may be the market that provides a more satisfactory response to credit card fraud, with company policies that provide for lenient, and relatively accessible, reversals of charges that the consumer alleges were fraudulent (if such allegations are made within set timelines after the bill is sent out). Consumers must however be aware that in cases of 'number fraud' that such 'protections' are entirely a creature of the credit agreement (contract) between them and the credit card company - and as such there is no guarantee that they will be 'forgiving'.
- the victim's liability for the credit card ends "after the borrower gives the lender oral or written notice of the loss or theft of the credit card"; and
- before such notice is given, the maximum liability of the borrower is the lesser of,
- $50, and
- the amount contractually agreed to.
(d) Credit Card Application and Solicitation Disclosure
Note: . Overview
Readers should note that, in addition to these disclosure requirements, credit cards agreements are also subject to a range of additional disclosure requirements by virtue of their status as 'open credit' agreements [see s.3(b,d-f), above].
Special disclosure requirements are also imposed on credit card issuers ('lenders') at pre-agreement application and solicitation (sales) stages.
. On Application Forms and in Phone Applications
Written credit card application forms must include, either on the application form itself or on a separate document accompanying the application form, the following [CP Reg 62(1)] [terms indicated in 'parentheses' are defined in the Glossary at s.2(d) above]:
Where a credit card application is made by a consumer/borrower over the phone (ie. is initiated by the consumer), the above information shall be disclosed to the borrower by the lender (issuer) at that time [CP Reg 62(2)].
- where the annual interest rate IS NOT a floating rate, that rate;
- where the annual interest rate IS a 'floating rate', the public index to which it is tied and the "mathematical" formula used to determine the rate;
- the nature of each non-interest 'cost-of-borrowing' element, and with respect to each:
- its known cost or if unknown its manner of determination;
- 'grace period' details;
- the date that this information is current.
- a telephone number at which the borrower can obtain the above information during ordinary business hours without incurring any charges for the telephone call.
. On Direct Solicitation
Where the credit card issuer solicits the prospective borrower directly, by any means ["in person, by mail, by telephone or by any other means, including electronic means" (ie. email)], the issuer shall also disclose the following at the time of the solicitation [CP Reg 62(3)]:
(e) Rights to Have Charges Reversed or Cancelled
- the current annual interest rate;
- where the annual interest rate is a 'floating rate', the public index to which it is tied and the "mathematical" formula used to determine the rate;
- the nature of each non-interest 'cost of borrowing' element, and with respect to each:
- its known cost or if unknown its manner of determination; and
- 'grace period' details.
The CPA, in addition to general civil remedial provisions for illegal charges and other breaches of the CPA, provides for specific credit card remedies such as rights to have certain charges cancelled and reversed [see Part C, Ch.7, s.8: "CPA Civil Remedies: Cancellation and Reversal of Credit Card Charges"].
8. Insurance Requirements
It is common for lenders to require that the borrower obtain insurance, in favour of the lender, to secure the repayment of the credit or loan advanced.
Invariably of course the lender (or a corporation very closely allied with them) just happens to be in the business of selling such insurance - a situation which renders the 'sale' of insurance in such cases fraught with conflict of interest.
(b) Borrower May Purchase Independent Insurance
In an effort to ameliorate the conflict of interest involved in such insurance requirements, the CPA allows the borrower to arrange their own independent insurance from a licensed insurer, subject to the lender's right "on reasonable grounds" to disappove of the consumer's choice [CPA 72(1)]. This provision is similar to provisions in residential tenancy law where landlords have traditionally had the right to consent to an existing tenant's choice for subtenant or assignee, which consent shall
not be 'arbit rarily withheld'.
In that field the right to withhold consent has been read to encompass legitimate concerns such as the credit adequacy of the 'new' tenant, and this present insurance provision can be anticipated to similarly tolerate legitimate concerns such as the adequacy of the insurance coverage. Attempts by lenders to arbitrarily use this disapproval right to maintain a monopoly on insurance coverage are illegitimate.
Additionally, the lender who offers insurance has a duty to advise the borrower in writing of their right to independent insurance [CPA 72(2)].
9. Optional Services
The CPA defines 'optional services' as [CPA 66]:
CPA s.66 "optional service" means a service that is offered to a borrower in connection with a credit agreement and that the borrower does not have to accept in order to enter into the agreement;Lenders sometimes offer, with varying degrees of clarity, additional services that can be purchased in association with the credit agreement. What makes a service truly 'optional' is that the consumer is not required to buy or
'tie' the serv ice with the main contract if they don't want to.
(b) 'Negative-Option' Optional Services
In a world where business ethics were widespread, the purchase of such optional services should require a clear positive act by the borrower such as an obvious 'check-box' option. However borrowers will still face attempts by lenders to include (ie. bury) these within credit agreements (indeed, any 'consumer agreements') in the 'negative-option' fashion discussed in Part C, Ch.5, s.5: "CPA Consumer Rights: Negative-Option Contract Formation". That is, borrowers will be presented with contracts
where a posit ive act (often difficult to understand) is required to 'opt-out' of the 'optional service'. In internet sales one way this is attempted is to 'pre-check' check-boxes in the screen as first displayed to the consumer, requiring a positive act to 'un-check' it - IF you can find it.
This raises the interesting question as to whether the CPA protections against negative-option contract formation extend to the inclusion of optional services within credit agreements by such means.
The key to this issue under CPA law would be whether a borrower who simply 'misses' the negative-option buried either in the fine print or in confusingly-presented information, but who still executes the main contract, is "soliciting" the service (or good for that matter) by such an act: CPA s.31(1). That issue in turn resolves down to the less-than-helpful question of whether the consumer (borrower) 'requested' the services [CPA 13(9)].
The common law on this issue is embodied in the Ontario case of Tilden v Clendenning (Ont CA, 1978), which holds essentially that the more important a clause is, the more prominently it should be displayed in standard form contract applications. That is, "reasonable measures to draw such terms to the attention of the other party" are required before they can be relied on by a plaintiff supplier seeking enforcement. The clause at issue in Tilden - which was overridden by the court - was in fine print on the back of the document, and purported to relieve an auto insurance company of liability for accidents caused while the driver had been drinking.
Some readers may be aware of the recent class action case from the Supreme Court of Canada (SCC), Dell Computer v Union des Consommateurs (2007), where Dell accidently posted online incorrect prices for computers which were eagerly snapped up by quick consumers. The webpage had a hyperlink to contractual terms that contained a provision requiring all consumer disputes to be resolved by arbitration (such clauses are now overriden in Ontario law by the CPA), which would have been fatal to the class action procedure.
The SCC upheld the clause, holding that terms of sale set out in a 'linked' page were generally binding on the consumer, though it did this on specific Quebec statutory law and largely focussing on the unique nature of online contract formation. That said, while Dell can be argued to weaken Tilden, it is not clear what principled rationale can be drawn from it to assist in future negative-option optional services situations as are discussed here. It seems safe to say only that each similar future case will have to be considered and decided on its own facts.
While I am unaware of this specific issue being addressed in the context of CPA law, the following CPA provision will probably be relevant when it is [CPA 13(3)]:
CPA 13(3) (c) Termination Rights of Optional Services
A request for goods or services shall not be inferred solely on the basis of payment, inaction or the passing of time.
In any event, the CPA has provided for termination of optional services 'of a continuing nature' at the will of the consumer, on 30 days notice (or less if so specified by contract), and regardless of contrary terms in the credit agreement [CPA 73(2)].
Once such notice is effective (ie. at the end of the 30 days) the liability of the borrower for any such services into the future ends, and they are entitled to a refund for any prepayment of such future services (ie. they are liable for what they receive to the date of notice becoming effective, but not beyond) [CPA 73(2)].
The content of such notice is adequate "as long as it indicates the intention of the borrower to terminate the optional service" [CPA 73(3)]. Consumer-issued notice procedures are discussed in Part C, Ch.7, s.7: "CPA Civil Remedies: Consumer-Issued Notice Procedures".
Borrowers wishing to exercise this right would be well-advised to do so in clear writing, with proof of delivery (fax, with a verification print-out, if possible is both convenient and should be adequate for this purpose).
10. Assignment of Security
It is common for lenders (assignors) to 'sell' (or assign) their accounts receivable from credit agreements to other finance companies (assignees), along with the security interest given by the borrower. This practice is particularly common with "supplier credit agreements" [discussed in s.2(c) above] which are credit agreements offered by supplier or their associates to enable a consumer to purchase the supplier's good and/or services.
In essence the lender cashes-out their interest in the contract and the borrower may find themselves suddenly dealing with an entirely different company from the one they have executed the credit agreement with, one that has no knowledge or interest in the substance of the consumer transaction.
This section addresses those situations.
(b) Duties of Assignor of Negotiable Instrument to Assignee; Consequences of Breach
. Disclosure Duties
Where the security assigned is a negotiable instrument (ie. one that can be negotiated by the holder, such as an endorsed post-dated cheque or an I.O.U.), the assignor shall - with the delivery of the negotiable instrument - also deliver to the assignee a copy of the 'initial disclosure statement' [see s.3 above] originally given to the borrower.
Further, if the assignee is a 'supplier creditor' of fixed credit, the assignor must also deliver to them a copy of the credit agreement [CPA 82(1)]. Recall from s.2(c) above that 'fixed credit' is generally where the amount of the credit or loan advanced is just that, fixed or certain in amount. The CPA defines all credit agreements that are not 'open' (ie. where draws may be made at the will of the borrower, subject to limits), to be fixed [CPA s.66].
. Disclosure Duties on Re-Assignment
If the negotiable instrument is further assigned, then the above documents as received (if any) must also be delivered with the negotiable instruments to the re-assignee as required above [CPA 82(2)].
. Consequences of Non-Compliance with Disclosure Duties
Any assignor or re-assignor who fails in the above duties must indemnify (ie. pay the debt of) the 'maker' of the negotiable instrument (usually the borrower) against any action brought against the maker by the assignee (or re-assignee, respectively) [CPA 82(3)].
This indemnification will normally arise in a civil court proceeding by an assignee against the maker of the negotiable instrument (ie. tryig to realize on the security). However, an order for such indemnification may also be made in Provincial Offences Court on conviction of a offence for contravening violation of s.82 [all of this sub-sec. (b) considers s.82] [CPA 84(1)] (see Part C, Ch.9: "CPA Prosecutions" generally re CPA Offences). An order for indemnification made in provincial offences court may be filed in a civil court proceeding (before or after judgment) commenced by an assignee against the maker of the negotiable instrument [CPA 84(2)], and the court clerk shall then issue a default judgment with costs against the party under the duty to indemnify and in favour of the maker of the negotiable instrument [CPA 84(3)]. Such a default order is subject to being set aside or varied by the court on request [CPA 84(4)].
(c) Assignee Takes Assignment Subject to Borrower's Rights
In any assignment by a lender of their "rights in connection with the extension of credit or the lending of money', the assignee "has no greater rights than, and is subject to the same obligations, liabilities and duties as, the assignor", including their rights and duties under this Act [CPA 83(1)]. From the perspective of the borrower then (with one exception below), all that really happens to them on an assignment is that the (new) assignee 'steps into the shoes' of the (old) assignor.
The exception to this is that the borrower cannot recover (directly or by way of debt set-off) from an assignee more than the value of the financial interest of that assignee. That is, the borrower cannot recover from a current assignee more than the balance owing under the credit agreement at the time of assignment. Further, if the rights are further assigned, then the borrower cannot recover from any former assignee more than the value of the payments made to that former assignee [CPA 83(2)]. Because of this, in cases where a borrower is suing with respect to the credit agreement, they should sue the original lender and all subsequent assignees.
(d) Where Value of Trade-In Uncertain
Sometimes, when an assignment of a lender's is made, the value of a trade-in given is not yet settled due to uncertainty about other liens that may be placed on the trade-in property - thus creating uncertainty about the total amount due under the credit agreement (ie. it is subject to adjustment). In such a case, and in order to given certainty to the duties to disclose set out under the CPA [see s.3 above], the value of the trade-in shall be "as determined upon the information provided by the
consumer" [C PA 85(1)].
Any subsequent adjustments made to the total amount due, after this above (first) adjustment, may not change [CPA 85(2)]:
- the interest rate;
- the total number of instalments due; or
- the price shown in the consumer agreement.
In addition to the common law law remedies of tort, contract and restitution [discussed in Part A], CPA civil court remedies fall into three categories: 'general', 'sector-specific' (ie. those specific to the credit agreement sector), and 'unfair practices'.
Non-compliance with any of the general consumer rights [see Part C, Ch.5: "General Consumer Rights"] or with most of the sector-specific rights set out in this chapter can usually be addressed using the general remedies explained in Ch.7 ["CPA General Civil Remedies"]. These are summarized in (b) below.
However some sector-specific rights have their own remedial procedures [discussed in (c) below].
Any 'unfair practice' provisions (which deal primarily with 'false, misleading or deceptive' and unconscionable representations) which may have specific relevance to credit agreements are set out in (d) below.
As for non-civil court remedies, the CPA provides for a range of administrative Orders [see Part C, Ch.8: "Administrative Enforcement"] and regulatory prosecutions [see Part C, Ch.9: Prosecutions], neither of which are aggressively pursued by the Ministry of Consumer Services or the Director of the Consumer Protection Branch.
(b) General CPA Civil Remedies
This is a summary of the general civil remedies available to consumers under the CPA. The full version of this discussion is at Part C, Ch.7: "General Civil Remedies".
These remedial provisions apply to violations of general CPA consumer rights such as warranties, rules about estimates and illegal charges, prohibitions against negative-option contract formation [see Part C, Ch.5: "General Consumer Rights"] - and as well to non-compliance with most of the sector-specific rights discussed in this chapter.
Typically, supplier (here 'lender') non-compliance with any CPA right allows the consumer (here 'borrower') to cancel the consumer agreement at their election, on the delivery of a Notice of Cancellation to the supplier. Consumer-issued notice procedures are discussed in Part C, Ch.7, s.7: "CPA Civil Remedies: Consumer-Issued Notice Procedures".
However the form of cancellation (properly: 'rescission') used in the CPA does not just end the consumer's duties under the consumer agreement from the date of cancellation and then forward into the future. Rather the cancellation or rescission is 'ab initio' ('from the beginning' of the consumer agreement).
This form of 'ab initio' cancellation then necessitates that both parties, consumer and supplier alike, engage in post-cancellation restitution to each other respecting all that has passed between them since the consumer agreement commenced.
Typically with consumer agreements this involves the return of goods by the consumer and the return of monies paid by the supplier, and in the case of past services performed or perishable goods typically a value compensation provision is imposed on the consumer. With credit agreements however it is almost always (only) about balancing monies owed.
From the point that Notice of Cancellation is delivered, both parties are under specific timelines to complete their specific restitution duties, so even where the situation is no more complex than balancing monies owed, readers should be sure to review carefully both sections 5 and 6 in Part C, Ch.7 "General Civil Remedies".
. Right of Civil Action
Failure of a party to fulfil their restitution duties in the time required then automatically triggers a right of civil action in the aggrieved parties (the original Notice of Cancellation doubling as a de facto 'demand' notice). Practically most such claims will be suited to the Small Claims Court with its newly-raised $25,000 monetary jurisdiction, and parallel jurisdiction over the return of chattel property to the same dollar value.
Civil action is also a possibility in some cases where the consumer has not rescinded the consumer agreement fully, for example with the case of illegal charges. In that case there is still a 'Notice' requirement, but after the failure of the supplier to refund the monies the consumer can sue.
. Special Credit Card Remedies
Further, where consumer payments which are now subject to restitution were originally made by credit card, the consumer has a 'back up' right to demand, and then proceed in court, against the credit card issuer should the supplier remain in default of their restitution duties.
. Common Law Right of Action Preserved
The CPA rights of action do not prohibit use of common law remedies in tort, contract and restitution and claims may (and when called for, should) be advanced both under the CPA and common law causes of action.
(c) Sector-Specific Remedies
The CPA's credit agreement rules discussed in this chapter add the sector-specific remedy that in some circumstances relieves the borrower from having to pay the 'cost-of-borrowing' components of a credit agreement, where the lender has been non-compliant in their disclosure duties [see s.3(g) above].
(d) Unfair Practices
'Unfair practices' are discussed at length in Part C, Ch.6 in a chapter of that title. They primarily address 'false, misleading or deceptive' and unconscionable representations.
Specific 'unfair practices' which may relate to credit agreements include:
- False or Misleading Representation Re Price Advantage
"A representation that a specific price advantage exists, if it does not."
A fact example of this would be a false or misleading representation that the credit or loan is 'discounted', when that is not so. Pricing gimmicks are numerous and will be as varied as the imagination of suppliers. Each should be examined for its truth and forthrightness.
- Misrepresentation Re Purpose of Solicitation or Communication
"A representation that misrepresents the purpose or intent of any solicitation of or any communication with a consumer."
This is designed to catch sales contacts that purport to be something else. How many of us (I certainly have) have received telemarketing phone calls, asked immediately if this 'is a sales call', been told no - and then have the caller proceed to try to sell us something. Techniques here include purporting that the communication is to 'assess your credit profile', 'conduct a survey', etc. The techniques rely on people being too polite to hang up and so keep talking to the seller.
- Misrepresentation Re Purpose of Charge
"A representation that misrepresents the purpose of any charge or proposed charge."
This category both includes and exceeds the making of a charge for a good or service that was simply not provided (ie. simple mistake or fraud). Were it so limited, simpler language such as a "charge for a good or service not provided" would have sufficed.
It may include attempts by unscrupulous suppliers to impose 'extra charges' out of the blue in a bald attempt to squeeze more money out of the consumer. They usually have banal characterizations such as 'transaction fees', 'administration fees', etc where no significant or unusual reason exists to justify such charges.
This overall chapter ["Loan and Credit Regulation under the Consumer Protection Act (CPA)"] explains the CPA rules that govern credit agreements (loans, credit and credit cards). This section ["Exemptions"] sets out what credit agreements are exempt from CPA regulation, in whole or in part.
(b) Real Estate Mortgages
Loans and credit secured by real estate (real estate mortgages) are entirely excluded from the application of the CPA, as are most real estate transactions. These results are achieved by several CPA provisions.
Firstly, the definition of "credit agreement", central to the credit agreement consumer rules set out in this chapter, specifically excludes real estate mortgages:
CPA 66 Because the concept of "credit agreement" is so central to CPA loan and credit regulation, this exclusion effectively exempts real estate mortgages from all of the CPA loan and credit-related provisions considered in this chapter.
"credit agreement" means a consumer agreement under which a lender extends credit or lends money to a borrower and includes a supplier credit agreement and a prospective consumer agreement under which an extension of credit, loan of money or supplier credit agreement may occur in the future, but does not include an agreement under which a lender extends credit or lends money on the security of a mortgage of real property or consumer agreements of a prescribed type;
Next, a more general exclusion of mortgage loans and credit from any CPA regulation (ie. even the general provisions set out in Part C), is achieved by CPA 2(2)(c):
CPA 2(2) Lastly, even the non-financial aspects of real estate transactions are exempt from CPA regulation [CPA 2(2)(f)]:
This Act does not apply in respect of,
(c) financial products or services regulated under the Insurance Act, the Credit Unions and Caisses Populaires Act, 1994, the Loan and Trust Corporations Act or the Mortgage Brokerages, Lenders and Administrators Act, 2006;
CPA 2(2) This Act does not apply in respect of, (c) Banks
(f) consumer transactions for the purchase, sale or lease of real property, except transactions with respect to time share agreements as defined in section 20; ...
By virtue of their status as federally-regulated entities, consumer protection legislation applicable where banks are the lender is expressly addressed by Bank Act regulations. These regulations are explained further (and linked) in s.1(b) "Overview" (above).
(d) Credit Unions
As is explained in s.1(d) "Overview" (above), loans and credit where credit unions and caisses populaire are the lenders are - for consumer protection purposes - governed by their own provisions under the Credit Unions and Caisses Populaire Act (these are linked in s.1). As such they are exempt from CPA consumer regulation by virtue of CPA s.2(2)(c):
CPA 2(2) (e) Loan and Trust Companies
(2) This Act does not apply in respect of,
(c) financial products or services regulated under the Insurance Act, the Credit Unions and Caisses Populaires Act, 1994, the Loan and Trust Corporations Act or the Mortgage Brokerages, Lenders and Administrators Act, 2006;
As is explained in s.1(c) "Overview", the application of CPA consumer law to loans and credit where a Loan and Trust company is the lender is not immediately apparent. In that discussion my conclusion, despite CPA s.2(2) quoted above, is that such loans and credit are governed by the CPA provisions set out in this chapter.
(f) Payday Loans
"Payday loans" are a specific type of loan arrangement specifically addressed in Ontario under the Payday Loans Act (linked below).
The CPA expressly excludes payday loans from the loan and credit consumer protections set out in CPA Part VII (the subject of this entire chapter) [CPA 67(1)]:
CPA 67(1) Payday Loans Act
This Part [Part VII, ss. 66-85] and the regulations made under it do not apply to a payday loan agreement as defined in subsection 1 (1) of the Payday Loans Act, 2008 .....
The Payday Loans Act may be the subject of a future Isthatlegal.ca Consumer Legal Guide.
(g) Regular 'On Account' Purchases
The definition of "credit agreements" is very broad, and if left unchecked could accidentally capture the common business practice of offering 30-day (or other duration) regular account terms by retailers. Such 'regular account' arrangements are less a credit arrangement than a convenience agreed to between the parties to facilitate periodic and regular payment in trusting and ongoing business relationships.
Technically though, if they are offered for fixed credit (as they would be with one or a series of discrete and consensual 'account' purchases), they are a form of "supplier credit agreement". "Supplier credit agreements" are generally defined as situations where fixed credit is advanced by "a supplier or an associate of the supplier" to assist in the obtaining of consumer goods and services [CPA s.66] [see s.2(c): "Essential Concepts: Fixed and Open Credit", above].
Unless otherwise excepted such arrangements would fall to be regulated under the provisions explained in this chapter. However such arrangements are exempt from the credit agreement provisions of the CPA (the subject of this chapter) if they meet ALL of the following conditions [CPA s.67(1)]:
- they require the borrower to make payment in full in a single payment within a certain period (typically 30 days) after the supplier delivers a written invoice or statement of account to the
- they are unconditionally interest-free during that 'certain period' for payment:
- they do not provide for any non-interest charges,
- they are unsecured apart from liens on the goods or services supplied through the agreement that may arise by operation of law;
- the supplier cannot assign the accounts in the ordinary course of business other than as security.