A Quebec bill was introduced on May 2, 2017 to modernize the Quebec Consumer Protection Act (Bill 134). The provisions on credit have not been amended since 1978 and are long overdue. The objectives of the proposed reforms are to develop uniform cost of credit disclosure requirements to reduce compliance costs, provide uniform consumer protection across Canada and simplify cost of credit disclosure rules.
The explanatory notes prefacing the Bill state that measures arising from harmonization proposals that were agreed to in principle by the federal and provincial consumer affairs ministers in 1996 are to be integrated into the Bill, in particular the measures concerning the information that must be provided to a consumer if the applicable credit rate is subject to change as well as the measures relating to the content of the application forms for credit cards. While seven provinces and one territory have enacted laws incorporating these harmonization measures, the Quebec Bill does not go as far as the laws enacted in the other common law provinces, so critical differences will remain.
Cost of Credit Disclosure Laws
While the concept of a credit rate remains under the CPA for open credit, Bill 134 sets out certain fees that are not required to be included in the credit rate for an open credit contract, such as credit card customization fees, card replacement fees and statement fees, as well as other fees that are not required to be included in the credit rate for open credit, such as security registration fees and optional insurance fees. However, the list omits certain fees that are routinely charged by lenders, such as fees for optional services (not just optional insurance), foreign exchange fees, cash advance fees and not sufficient funds (NSF) fees, although additional fees may be excluded under the regulations.
We also note that the Bill provides that format requirements may be set out in regulations. The contract form for open credit must be “presented in conformity with the model provided by regulation”. While there may not be a prescribed format, such as the information box that is required under the federal Bank Act, the extent of any format or presentation requirements remains to be seen.
Additional Requirements for Credit Cards
- continues to mandate the requirement to disclose the credit rate, rather than the annual interest rate.
- mandates that a merchant must give consumers a grace period of at least 21 days, starting after the last day of the applicable statement period. During this period, no credit charges can accrue except for an advance of money.
- requires that the minimum monthly payment for a credit card contract must be at least five per cent of the outstanding balance, exclusive of any payments required under an instalment payment program. No other Canadian jurisdiction has a similar requirement.
- requires that credit limits for all open credit cannot be increased except with the consumer’s express consent.
- prohibits a merchant from allowing a consumer to make a transaction that would exceed the credit limit unless:
- The merchant sends a notice to the consumer
- No charges are imposed for exceeding the credit limit
- The excess must be included as part of the minimum payment required for the subsequent period.
- provides that a consumer can end pre-authorized credit card payments at any time upon notice to the merchant.
- requires card issuers to post up-to-date versions of their credit card contracts on their website.
- imposes restrictions on credit card holds. Before an amount can be withheld on a credit card, the consumer must receive, before the transaction, information on the amount that will be withheld, the reason for the hold and how long the amount will be withheld.
- gives consumers the right to limit their joint liability with another consumer for card transactions. A consumer will be released from any joint obligations if the consumer notifies the merchant in writing that the consumer will no longer use the credit and no longer intends to be jointly liable. The consumer must also provide proof to the merchant that a similar notice was provided to the other consumer(s) who are liable under the contract.
- clarifies that credit cards issuers (as well lenders offering lines of credit) can charge a variable credit rate. Further, a change in the variable credit rate does not constitute an amendment to the contract.
- The maximum card liability for unauthorized use of a lost or stolen card extends the C$50 cap to instances of fraud or other unauthorized use of the card unless the card is used at ATM together with a PIN provided that the issuer can prove the consumer committed a gross fault regarding the protection of the PIN.
High Cost Credit Contracts
Bill 134 introduces a regime for “high-cost” credit, including new licensing requirements for high-cost credit grantors. The proposed amendments are silent on what constitutes high-cost credit although Quebec courts have previously held that credit agreements that provide for a credit rate that exceeds 35 per cent, 32 per cent or even 28 per cent are considered to be harsh and unconscionable.
Capacity to Repay
Bill 134 imposes a new requirement on consumer credit grantors to assess the consumer’s capacity to repay a loan before entering into a credit agreement, or granting a credit limit increase. If a credit grantor offers high-cost credit, the credit grantor must also provide the consumer with a written copy of the assessment and information on the consumer’s debt ratio. The information to be taken into account to conduct the assessment of the consumer’s capacity to repay and the formula used to calculate the consumer’s debt ratio will be set out in the regulations.
For high-cost credit grantors, if the debt ratio exceeds a maximum percentage, to be set out in the regulations, the contract will be deemed to be unconscionable.
The consequences of failing to comply with these new requirements are significant. Credit grantors, as well as any person who approves and takes assignment of the contract, may be required to forfeit all future credit charges and refund the credit charges that have already been paid.
Marketing and Advertising
The Bill provides that no person may, by any means, in any advertisement, falsely or misleadingly represent to consumers that credit may improve their financial situation or solve their debt problems.
Bill 134 requires merchants to provide certain disclosures (to be set out in the regulations) to the consumer before entering into a contract relating to a loyalty program; prohibit the expiry of points by a set date or by the lapse of time; and prevent the unilateral amendment of the rewards program contract, unless the contract indicates the elements that may be unilaterally amended and the merchant provides written notice of the change.
Under the Bill, the Act respecting the collection of certain debts will be amended so that punitive damages may be claimed for a failure to perform an obligation under that Act. In addition, collection agent representatives must hold a certificate issued by the president of the Office de la protection du consommateur.
Bill 134 was assented to on November 15, 2017. It will come into force on a date to be fixed by proclamation. Many of the amendments require standards or requirements to be determined by regulation. Regulations are expected to be published in 2018.