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CONSUMER LAW

Sector-Specific Consumer Law
(01 July 2013)

Credit Repair

  1. Overview
    (a) "Credit Repair" Defined
    (b) Related Key Definitions
    (c) Transition
  2. Content and Disclosure Requirements of Credit Repair Agreements
  3. Advance Fees and Security Prohibited
  4. Consumer Cancellation Rights
    (a) Cancellation Before Consumer Agreement Delivered
    (b) Early Cancellation Where Comsumer Agreement Compliant and Delivered
    (c) Where Consumer Agreement Non-Compliant or Not Delivered
  5. Prohibited Representations
    (a) Overview
    (b) Prohibitions
  6. Remedies
    (a) Overview
    (b) General CPA Civil Remedies
    . Overview
    . Rescission
    . Restitution
    . Right of Civil Action
    . Special Credit Card Remedies
    . Common Law Right of Action Preserved
    (c) Sector-Specific Remedies
    (d) Unfair Practices
------------------------------

CAUTION

This chapter involves law from the Consumer Protection Act. Anyone considering using the Consumer Protection Act (CPA) should first carefully sort out which of its rules apply to their situation. DO NOT ASSUME THAT BECAUSE YOU FOUND THE CHAPTER DEALING WITH THE RELEVANT ECONOMIC SECTOR THAT YOU HAVE ALL THE RIGHT RULES. The steps to do this properly are explained at this link:

Identifying Which CPA Rules Apply to Your Situation


1. Overview

(a) "Credit Repair" Defined

This chapter explains Consumer Protection Act (CPA) regulation of businesses which offer to improve consumer credit ratings, and for that reason should be read closely with any Part B 'Consumer Reporting' chapter that I may have written (ie. if I haven't yet written one I will: check the Part B Table of Contents). This topic is called 'credit repair' and it is defined as follows [CPA 48]:
"credit repair" means services or goods that are intended to improve a consumer report, credit information, file or personal information, including a credit record, credit history or credit rating;
(b) Related Key Definitions

The constituent terms of the definition of "credit repair" are drawn from and defined by the related Consumer Reporting Act (CRA) as follows [CPA 48, CRA s.1(1)]:
  • Consumer Report

    "Consumer report" means a written, oral or other communication by a consumer reporting agency of credit information or personal information, or both, pertaining to a consumer for consideration in connection with a purpose set out in clause 8(1)(d)" (which are):

    - the extension of credit to or the purchase or collection of a debt of the consumer to whom the information pertains,

    - the entering into or renewal of a tenancy agreement,

    - employment purposes,

    - the underwriting of insurance involving the consumer,

    - the consumer's eligibility for any matter under a statute or regulation where the information is relevant to the requirement prescribed by law,

    - a direct business need for the information in connection with a business or credit transaction involving the consumer, or

    - the purpose of up-dating the information in a consumer report previously given to the person for one of the reasons referred to above.

  • Consumer Reporting Agency

    Correspondingly, "consumer reporting agency" means a person who for gain or profit or on a regular co-operative non-profit basis furnishes consumer reports [CRA s.1].

    The term 'co-operative' here does not require that the venture be incorporated under the Co-operative Corporations Act, only that it generally be co-operative in nature. An example would be a non-profit effort by multiple businesses within the same industry or economic sector to share consumer information amongst themselves.

  • Consumer

    Noteworthy when considering the above CRA definitions, especially when one's mind is focussed on similar terms used in the CPA, is how the key CRA term "consumer", differs slightly from the same term used in the CPA [CRA s.1]:

    CRA s.1 "consumer" means a natural person but does not include a person engaging in a transaction, other than relating to employment, in the course of carrying on a business, trade or profession;

    "employment purposes" means the purposes of taking into employment, granting promotion, reassigning employment duties or retaining as an employee;

    In contrast, the CPA definition covers those engaging in transactions for "personal, family or household purposes", and also excludes all business activity [CPA s.1]. For most purposes then these definitions will be interchangeable but the fact that they are not identical should always be kept in mind.

  • Credit Information

    'credit information", means information about a consumer as to name, age, occupation, place of residence, previous places of residence, marital status, spouse's name and age, number of dependants, particulars of education or professional qualifications, places of employment, previous places of employment, estimated income, paying habits, outstanding debt obligations, cost of living obligations and assets;

  • Personal Information

    "personal information" means information other than credit information about a consumer's character, reputation, health, physical or personal characteristics or mode of living or about any other matter concerning the consumer.

  • Credit Repairer

    "Credit repairer" includes both a person who supplies credit repair services and one who "holds themself out" as one who does so [CPA s.48]. The CPA itself sometimes refers to credit repairers as 'operators', a broader regulatory category which also includes 'loan brokers' (who are subject to near-identical regulation) [CPA s.48].
(c) Transition

Any credit repair contract that existed on or before 30 July 2005 should be scrutinized for the impact of transition provisions brought about by a major revision of the CPA in 2002. These transition provisions are contained in the current CP Act s.54(3). As the vast majority of such credit repair contracts are now spent, I have not analysed or explained these transition provisions.


2. Content and Disclosure Requirements of Credit Repair Agreements

All consumer agreements for credit repair services must be in writing, signed by both parties, delivered to the consumer and contain the following information [CPA s.49, CP Reg 46]:
  • Consumer Identification

    The name of the consumer.

  • Credit Repairer Identification and Contact

    - the name of the credit repairer,

    - additionally, if the name under which the credit repairer carries on business is different from their own, that business name.

    It is common for individual, partnerships and corporations to conduct business under a 'business name' that is different from their own name. Such names should be registered under the Business Name Act (Ontario). The legal status of such names is discussed in the Isthatlegal.ca Small Claims (Ontario) Legal Guide: Ch.4, s3: 'Parties: Identifying and Naming Business Organizations'.

    - contact information for the credit repairer, including their phone number, business address, and "information respecting other ways, if any, in which the credit repairer can be contacted by the consumer, such as the fax number and e-mail address of the credit repairer".

  • Credit Repairer Agent Identification

    - the names of persons who solicited the consumer in connection with the agreement, if any;

    - the names of persons who negotiated the agreement with the consumer, if any;

    - the name of the person who concluded the agreement with the consumer.

  • List of Services and Goods

    "(A)n itemized list of the services and goods that the credit repairer is to supply to the consumer, that fairly and accurately describes each service and good."

  • Dates of Performance

    "(T)he date by which the credit repairer is to cause a material improvement to the consumer report, credit information, file, personal information, credit record, credit history or credit rating of the consumer", as applicable.

  • Total Consumer Payment and Attribution

    - "the total amount payable by the consumer to the credit repairer and the terms and methods of payment";

    - "the portion, expressed in dollars and cents, of the total amount payable that is attributable to each service or good to be supplied under the agreement".

  • Date of Consumer Agreement

    "(T)he date on which the agreement is entered into".

  • Trade-In Details, If Any

    "(I)f the agreement includes a trade-in arrangement, a description of the trade-in arrangement and the amount of the trade-in allowance";

    A "trade-in arrangement" means an arrangement under which a consumer agrees to sell his or her own goods or services to the supplier and the supplier accepts the goods or services as all or part of the consideration for supplying goods or services [CPA s.1]. Often consumer agreements involving trade-ins allow for later 'adjustments' (increasing the purchase price) if the trade-in value is not as high as originally anticipated.

    Trade-ins are rare in credit repair situations.

  • Currency if Not Canadian

    "(T)he currency in which amounts are expressed, if it is not Canadian currency".

  • Limitations and Conditions, If Any

    "(A)ny other restrictions, limitations and conditions that are imposed by the credit repairer".

  • Consumer Information Statement: Consumer Reporting Act

    The following statement:

    - "which shall be in at least 10 point type, except for the heading which shall be in at least 12 point bold type', and

    - "which shall appear on the first page of the agreement".

    -----------------------------------------------------------
    Your Rights under the Consumer Reporting Act

    If a consumer reporting agency maintains a credit file with respect to you, you have the right to dispute with the agency, at no cost to you, the accuracy or completeness of the information about you in its file. You do not need to hire a credit repairer, or anyone else, to exercise this right. If the file contains inaccurate or incomplete information, the consumer reporting agency must correct it within a reasonable period of time.

    However, you do not have the right to have negative information that is accurate removed from your credit file. The consumer reporting agency generally removes negative information after seven (7) years.

    You may also file a complaint with the Ministry of Consumer and Business Services regarding the information about you in a credit file maintained by a consumer reporting agency.
    -----------------------------------------------------------

  • Consumer Information Statement: Consumer Protection Act

    - "which shall be in at least 10 point type, except for the heading which shall be in at least 12 point bold type', and

    - "which shall appear on the first page of the agreement, unless there is a notice on the first page of the agreement in at least 12 point bold type indicating where in the agreement the statement appears."

    -------------------------------------------------------------
    Your Rights under the Consumer Protection Act, 2002

    You may cancel this agreement at any time during the period that ends ten (10) days after the day you receive a written copy of the agreement. You do not need to give the credit repairer a reason for cancelling during this 10-day period. In addition, there are grounds that allow you to cancel this agreement. You may also have other rights, duties and remedies at law. For more information, you may contact the Ministry of Consumer and Business Services.

    To cancel this agreement, you must give notice of cancellation to the credit repairer, at the address set out in the agreement, by any means that allows you to prove the date on which you gave notice. If no address is set out in the agreement, use any address of the credit repairer that is on record with the Government of Ontario or the Government of Canada or is known by you.

    It is an offence for the credit repairer to require or accept payment or security for payment in advance of causing a material improvement to your credit file. If, before causing a material improvement to your credit file, the credit repairer requires or accepts payment, or security for payment, from you, you may, within one (1) year from the date of providing the payment or security, demand that it be returned.

    If you cancel this agreement, the credit repairer has fifteen (15) days to refund any payment you have made and return to you all goods delivered under a trade-in arrangement (or refund an amount equal to the trade-in allowance).
    -------------------------------------------------------------
General requirements for disclosure are explained at this link:

General Disclosure Requirements


3. Advance Fees and Security Prohibited

Credit repairers are prohibited from requiring or accepting payment, or security for payment - either directly or indirectly - for their services until they "cause() a material improvement to the consumer report, credit information, file, personal information, credit record, credit history or credit rating of the consumer" [CPA 50(1)]. To aid in this provision, such advance security is unenforceable [CPA 50(2)].

"Payment" means "consideration of any kind, including an initiation fee" [CPA s.1], and as such should capture most attempts by credit repairers to avoid this provision by setting up other charges and establishing security over them.

Basically these provisions prohibit a credit repairer from charging for their services in advance.


4. Consumer Cancellation Rights

(a) Cancellation Before Consumer Agreement Delivered

A consumer may cancel a consumer agreement for credit repair at anytime, without reasons, before the written consumer agreement is delivered to them [CPA 51(1)].

(b) Early Cancellation Where Comsumer Agreement Compliant and Delivered

The consumer may cancel a credit repair consumer agreement without reasons at any time up to 10 days after they receive a copy of a written agreement that is compliant with the requirements set out in s.2 above ["Formalities and Contents of Credit Repair Consumer Agreements"] [CPA 51(1)].

(c) Where Consumer Agreement Non-Compliant or Not Delivered

Where a credit repair completely fails to deliver a copy of the consumer agreement, or where the delivered copy fails to comply with the requirements set out in s.2 above ["Content and Disclosure Requirements of Credit Repair Agreements"], the consumer may cancel it up to one year after the date of its execution (being entered into) [CPA 51(2)].

This provision has no requirement that the non-compliance be 'material' or otherwise essential to the transaction, and appears to anticipate cancellation even on trivial and technical non-compliance - although consumers should expect judges faced with rescission grounded in immaterial non-compliance to be resistant.


5. Prohibited Representations

(a) Overview

The CPA prohibits credit repairers from 'communicating or causing to be communicated' specific representations (explained below) made with respect to credit repair [CPA 53].

A "representation" includes "a representation, claim, statement, offer, request or proposal that is or purports to be [CPA s.1]:
  • made respecting or with a view to the supplying of goods or services to consumers, or

  • made for the purpose of receiving payment for goods or services supplied or purporting to be supplied to consumers".
On this topic, readers should also be aware of similar general CPA provisions over "unfair practices" (most of which are false or misleading 'representations') [see Part C, Ch.6: "CPA Unfair Practices"].

(b) Prohibitions

Specifically, credit repairers are prohibited from making an express or implied representation that [CP Reg 47]:
  • Regarding Government Approval, Licensing or Registration

    They are "approved, licensed or registered by the Government of Canada, the Government of Ontario or the government of any other province or territory of Canada"; or

  • Regarding Government Regulation

    "(T)hat the operations of the credit repairer are regulated by the Government of Canada, the Government of Ontario or the government of any other province or territory of Canada".

    I find this second prohibition confusing, as the CPA obviously 'regulates' the operations of credit repairers in all the ways set out in this chapter.

    Thus a plain statement that they are "regulated by the Province of Ontario" - however accurate - would clearly violate this prohibition, while a benign statement that they are "governed by the laws of Ontario" might not.

  • Regarding Empty Promises

    "(T)hat the credit repairer will be able to cause a material improvement to the consumer report, credit information, file, personal information, credit record, credit history or credit rating of a consumer", until the credit repairer has both:

    - examined the consumer's consumer report, credit information, file, personal information, credit record, credit history or credit rating;

    and

    - reasonably concluding that the consumer's consumer report, credit information, file, personal information, credit record, credit history or credit rating is inaccurate or incomplete and correcting, supplementing or deleting any item of information would cause a material improvement to the consumer?s consumer report, credit information, file, personal information, credit record, credit history or credit rating."

6. Remedies

(a) Overview

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 repair sector), and 'unfair practices'.

Non-compliance with any of the general consumer rights [see Part C, Ch.5: "General Consumer Rights"] or with 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 features [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 repair 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

. Overview

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 the sector-specific rights discussed in this chapter.

. Rescission

Typically, supplier (here 'credit repairer') non-compliance with any CPA right allows the consumer 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).

. Restitution

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 this involves the return of goods by the consumer and the return of monies paid by the supplier. In the case of past services performed or perishable goods typically a value compensation provision is imposed on the consumer.

Consumer restitution duties are sometimes complex, so readers should be sure to review carefully both sections 5 and 6 in Part C, Ch.7 "General Civil Remedies".

From the point that Notice of Cancellation is delivered, both parties are under specific timelines to complete their specific restitution duties.

. 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 completely, 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 adds the following sector-specific remedies and remedial features:
  • Prohibited Representations

    As discussed in s.5 above ("Prohibited Representations"), the CPA prohibits certain types of representations regarding credit repair. Such representations could be used as a basis for claiming rescission of the consumer agreement.

  • Officer and Director Liability

    As noted in (b) above, these credit repair provisions are enforceable by the general civil remedies set out in the CPA.

    Where the credit repairer is a corporation, its officers and directors are 'jointly and severally' liable with the corporation under any civil remedy [CPA 52]. This means that if a credit repairer corporation is sued on the basis of a consumer's CPA rights that it's officers and directors may be sued as co-defendants well, and that any judgments against the corporation may be enforced by the consumer against them without any need for the consumer to be fair between the defendants (ie. the consumer can collect the judgment wherever it finds any defendant's assets).

    Directors of a corporation are those listed in the corporations' Articles of Incorporation (as amended), which are public records [see the Isthatlegal.ca] Small Claims Court (Ontario) Legal Guide, Ch.4, s.3: "Parties: Identifying and Naming Business Organizations" on how to obtain this information].

    Officers of a corporation for these purposes are [CPA s.1]:
    CPA s.1 In this Act,

    "officer" includes the chair and any vice-chair of the board of directors, the president and any vice-president, the secretary and assistant secretary, the treasurer and assistant treasurer and the general manager and assistant general manager of the corporation or a partner or general manager and assistant general manager of a partnership, any other individual designated as an officer by by-law or resolution or any other individual who performs functions normally performed by an
    individual occupying such office.
(d) Unfair Practices

'Unfair practices' are discussed at length in Part C, Ch.6. They primarily address 'false, misleading or deceptive' and unconscionable representations.

Specific 'unfair practices' which may relate to credit repair include:
  • False or Misleading Representation Re Sponsorship or Affiliation of Supplier

    "A representation that the person who is to supply the goods or services has sponsorship, approval, status, affiliation or connection the person does not have."

  • False or Misleading Representation Re the Need for Repair or Replacement

    "A representation that a service, part, replacement or repair is needed or advisable, if it is not."

  • 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 our utility expenses', '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' on top of the principal amount negotiated for, 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.

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