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Collection Agencies (Ontario)
Legal Guide
Chapter 7 - The Consumer Protection Act (CPA) and Collection Practices
(01 July 2013)- CPA Application to Collection of Consumer-Related Debts
- CPA Unfair Practices Defined
(a) Overview
(b) False, Misleading or Deceptive Representations
(c) Unconscionable Representations
- CPA Unfair Practices Remedies
(a) Overview
(b) CPA Administrative Orders
(c) Rescission and Statutory Damages Rarely Available Against Unfair Practices in Collection Activities
(d) Prosecutions
1. CPA Application to Collection of Consumer-Related Debts
Commonly overlooked when considering remedies against collection activities are the Consumer Protection Act's (CPA) Part III "unfair practices" provisions. While the primary target of CPA unfair practices law (which primarily consists of a prohibition against "false, misleading or deceptive" representations) is consumer advertising, it also has application to consumer debt collection activities by virtue of sub-clause (b) of the CPA definition of "representation" (emphasis added below): CPA s.1
“representation” means a representation, claim, statement, offer, request or proposal that is or purports to be,
(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; The following CPA definitions clarify the application of the CPA to 'consumer' debts, which are a high proportion of the debts being sent to external collection: CPA s.1
"consumer" means an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes;
"consumer transactions" means any act or instance of conducting business or other dealings with a consumer, including a consumer agreement; Further supporting the position that the CPA can apply to collection activities is the fact that there is no mention whatsover of collection agencies, collectors, or collection activities in the extensive list of activities exempt from the CPA [CPA s.2(1)]. Finally there is the fact that complaints, charges and other regulatory action taken against Collection and Debt Settlement Services Act (CADSSA) registrants must be included in the CPA Director's Public Enforcement Record (CPA Reg 88-90) [see the below-linked CPA Legal Guide at Ch.10].
Lastly, but significantly, the fact that CPA applies broadly to all activities (except the CPA exemptions, none of which bear here) means that non-CADSSA collection activities (such as where a creditor attempts collection action by themselves, outside of CADSSA regulation) are still governed by the CPA. This brings to bear the significant body of CPA law against activities where creditors feel that they have 'free range' over debtors.
2. CPA Unfair Practices Defined
(a) Overview
The full range of the CPA's 'unfair practices' consumer protections and remedies are set out in the Isthatlegal.ca Consumer Protection (Ontario) Legal Guide, Ch.6: Unfair Practices. The two main categories of 'unfair practice' representations are:- false, misleading or deceptive representations; and
- unconscionable representations.
(b) False, Misleading or Deceptive Representations
This category covers a large range of intentional, negligent and even innocent but 'false, misleading or deceptive' representations that are made to consumer debtors for the "purpose of receiving payment for goods or services supplied or purporting to be supplied to consumers".
The CPA [s.14(2)] sets out a non-exhaustive sample list of representations that can be 'false, misleading or deceptive'. Of those the following might logically have application to collection communications:- "a representation that the transaction involves or does not involve rights, remedies or obligations if the representation is false, misleading or deceptive";
- "a representation using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if such use or failure deceives or tends to deceive"; and
- "a representation that misrepresents the purpose or intent of any solicitation of or any communication with a consumer."
These descriptions do not exhaust the CPA list of behaviours that might constitute 'false, misleading or deceptive' representations, and neither is the full CPA list itself exhaustive. Some specific behaviours (more can be imagined) that might satisfy the unfair practice definition include a collector:- threatening legal remedies that are not available to it, such as seizure of the debtor's property without a prior court judgment (unless they are seized under a security agreement granting that right) or when a limitation on the right to sue is expired (normally two years);
- exaggerating the negative credit rating impact of a debt being reported to a credit bureau; or
- misrepresenting their purpose or identity during a communication to the debtor in an attempt to gain useful information about them without giving rise to the debtor's suspicions.
(c) Unconscionable Representations
Examples of 'unconscionable representations' that may arise during collection activities include those involving [CPA 15(2)]:- "reduced capacity", where the "consumer is not reasonably able to protect his or her interests because of disability, ignorance, illiteracy, inability to understand the language of an agreement or similar factors";
- "impecuniosity", where "there is no reasonable probability of payment of the obligation in full by the consumer";
- "materially misleading opinion", which occurs when "a statement of opinion is misleading and the consumer is likely to rely on it to his or her detriment";
- "relative inequity" occurs when "the consumer transaction is excessively one-sided in favour of someone other than the consumer" (ie. the creditor);
- "absolute inequity" occurs when "the terms of the consumer transaction are so adverse to the consumer as to be inequitable"; and
- "duress", which occurs when "the consumer is being subjected to undue pressure to enter into a consumer transaction" (the CPA definition of consumer transaction is quite broad and this arguably could apply to the 'entering into' of an unfair debt settlement).
The above examples are drawn from a list set out in the CPA itself, and are by no means exhaustive of that list (and the list itself is non-exhaustive) so more examples could easily be imagined.
As is noted above, day-to-day advocacy of CPA rights in collection activities is negligible, despite their legal potency. Indeed, their application to situations where undue collection pressure continues after either 'impecuniosity' or 'reduced capacity' are established offers the prospect of radically new debtor defences.
3. CPA Unfair Practices Remedies
(a) Overview
The CPA provides that: CPA 17(1)
No person shall engage in an unfair practice. Unfortunately for consumer debtors, a collector's commission of a CPA 'unfair practice' in the course of collection activities cannot be used to reach back and rescind (cancel) the original consumer contract [see (c) below], nor can it be the basis of a statutory damage claim based on pre-contractual unfair practices (as collection activities will always be post-contractual). In terms of privately-initiated remedies, unfair practice remedies can only bear on civil action against the 'new' contract of a debt settlement agreement (if any) [see (c) below].
However, such 'unfair practice' collector behaviour can be used as the basis of a complaint to the CPA Director [(b) next] which may result in administrative orders being made against them and their employer collection agency.
The final remedy available against unfair practices is prosecution. As unfair practices are considered more egregious than other CPA 'wrongs' it is more likely that they will be prosecuted by CPA administration [see (d) following].
(b) CPA Administrative Orders
Chapter 8 of the CPA Legal Guide discusses the range of CPA administrative Orders that may be brought to bear against unfair practices. They include:- Proposed Compliance Orders [CPA 111(1)]
- Immediate Compliance Orders [CPA 112(1)], and
- Unfair Practice Stop Orders [CPA 109]
- Freeze Orders [CPA 110(3)].
These remedies would be initiated by a formal complaint made to the Ministry of Consumer and Business Services [see Ch.8, s.2 of the Isthatlegal.ca Consumer Protection (Ontario) Legal Guide]. While normally Ontario's administrative enforcement agencies act only infrequently, the stigma associated with any such finding is such that the filing of a complaint alone may deter collection agencies and their collectors from such actions in future.
(c) Rescission and Statutory Damages Rarely Available Against Unfair Practices in Collection Activities
The CPA also allows the victims of unfair practices the remedies of 'rescission' (which here can be understood to mean 'cancellation' of a contract back to it's commencement), and as well related general and punitive damages [CPA 18(1,11)] (see the CPA Legal Guide, Ch.6, s.5).
However, these remedies are only available against agreements "entered into by a consumer after or while a person has engaged in an unfair practice" [CPA 18(1)]. In other words they are normally available against original sales contracts tainted by unfair practices, but only in the collection context against any separate debt settlement agreements impugned by unfair practices [although where an original retailer engages in unfair practices in collection (ie. in non-CADSSA collection), the case for 'reaching back' to the original contract is stronger]:CPA 18(1)
Any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages.
CPA 18(11)
A court may award exemplary or punitive damages in addition to any other remedy in an action commenced under this section. (d) Prosecutions
The availability of CPA prosecutions, conducted under the Provincial Offences Act, is addressed in the CPA Legal Guide at Ch.9. This remedial option, which can be initiated by either the Minister of Consumer and Business Services or the consumer/debtor themselves (in a private prosecution) is created by the general prohibition against unfair practices [CPA 17(1)] in conjunction with CPA 116(1)]: CPA 116(1)
A person is guilty of an offence if the person,
(a) fails to comply with any order, direction or other requirement under this Act; or
(b) contravenes or fails to comply with,
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(ii) in respect of Part III, Unfair Practices, subsection 17 (1),
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