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CONSUMER LAW

Sector-Specific Consumer Law
(01 July 2013)

Loan Brokering

  1. Overview
    (a) Definitions
    (b) Transition
  2. Content and Disclosure Requirments for Loan Brokering Agreements
  3. Advance Fees and Security Prohibited
  4. Consumer Cancellation Rights
    (a) 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. Where Lender Not Professional, Loan Brokers Takes on Their Legal Duties
  7. 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 Ontario 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

------------------------------

Note:
In addition to the specific CPA 'loan broker' provisions discussed in this chapter, loan brokers also owe extensive disclosure duties to borrowers at the commencement of a credit agreement [these are discussed in the Part B chapter entitled "Loans and Credit Agreements" at s.3(g): "Disclosure Duties at Commencement and During Credit Agreement: Additional In itial Disclosure Where Loan Broker Involved (Any Credit Agreement)"].


1. Overview

(a) Definitions

The Consumer Protection Act (CPA) sets out some specific regulation applicable to "loan brokering", which [CPA s.1]:
... means services or goods that are intended to assist a consumer in obtaining credit or a loan of money, including obtaining credit or a loan of money from the loan broker who is providing the services or goods to the consumer;
The essence of "loan brokering" then is the activity (almost always services) of the loan broker in locating - or even themselves providing - a loan or credit (collectively, a "credit agreement") to the consumer. This activity relates directly to the more primary topic of "credit agreements", which are treated in their own Part B chapter: "Loans and Credit Agreements". Remember that both credit agreements and loan broker agreements are 'consumer agreements' under the CPA.

In an apparent effort to capture fraudulent activities, "loan broker" includes both a person who supplies loan brokering services and one who "holds themself out" as one who does so [CPA s.1]. The CPA itself will sometimes refer to loan brokers as 'operators', a broader category of legislative convenience which also captures 'credit repairers' (who are subject to near-identical regulation) [CPA s.48] (for our purposes the terms 'operator' and 'loan broker' are interchangeable).

(b) Transition

The CPA regulation of loan brokers set out in this chapter only applies to consumer agreements created since the new CPA come into force (30 July 2005). Prior to that such activities were regulated under the now-repealed Loan Brokers Act, and that Act still applies to the few (if any) remaining "agreements to assist a consumer in obtaining a loan of money" entered into prior to its repeal [CPA 54(2)]. As most of these contracts are now spent, I have not bothered to analyze or explain these old
provisions.


2. Content and Disclosure Requirments for Loan Brokering Agreements

All consumer agreements for loan brokering services must be in writing, signed by both parties, delivered to the consumer and contain the following information [CPA s.49, CP Reg 44]:
  • Consumer Identification

    The name of the consumer.

  • Loan Broker Identification and Contact

    - the name of the loan broker,

    - additionally, if the name under which the loan broker carries on business is different from their own, that business name as well.

    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, s.3: 'Parties: Identifying and Naming Business Organizations'.

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

  • Loan Broker 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 loan broker is to supply to the consumer, that fairly and accurately describes each service and good and that includes:

    - if known, the names of the persons from whom the loan broker will attempt to obtain credit or a loan of money for the consumer, and

    - the amount of the credit or loan of money that the loan broker will attempt to obtain for the consumer".

  • Dates of Performance

    "(T)he date or dates on which delivery, commencement of performance, ongoing performance and completion of performance are to occur", as applicable.

  • Date of Receipt of Credit or Loan

    "(T)he date by which the consumer is to receive the credit or the loan of money".

  • Total Consumer Payment and Attribution

    - "the total amount payable by the consumer to the loan broker 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 exchange 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].

  • 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 loan broker".

  • Consumer Information Statement

    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, 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 loan broker 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 loan broker, 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 loan broker 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 loan broker to require or accept payment or security for payment before you receive the credit or the loan of money that the loan broker is assisting you to obtain. If, before you receive the credit or the loan of money, the loan broker requires or accepts payment, or security for payment, from you, you may, within one (1) year after the date of providing the payment or security, demand that it be returned.

    If you cancel this agreement, the loan broker 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

Loan brokers are prohibited from requiring or accepting payment, or security for payment - either directly or indirectly - for their services "unless and until ... the consumer receives the credit or loan of money that the loan broker has assisted the consumer to obtain" [CPA 50(1)]. To aid in this provision, any such advance security improperly taken 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 loan brokers to avoid this provision by setting up other charges.

Without the prohibition on taking a security interest until funds are available, a loan broker would normally take security for payment in the form of a written and consumer-signed 'direction and assignment' telling the eventual lender to make payment of the loan broker's fees directly to the loan broker from (in the case of fixed credit), or as (in the case of open credit), the first credit advance. This document would normally be required by the loan broker as part of the consumer contract between the parties. Given the strong ("unless and until") language used for the prohibition, the best interpretation seems to be that such a document, taken before the advance but only being effective after it, is illegal. To hold otherwise would be to allow the taking of a security interest clearly in violation of the intent of the legislation. This conclusion is bolstered by the addition of the adjectives "directly or indirectly" to the prohibition, which enables it to capture ambiguous situations such as this.


4. Consumer Cancellation Rights

(a) Before Consumer Agreement Delivered

A consumer may cancel a consumer agreement for loan brokering 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 loan brokering 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 Loan Brokering Consumer Agreements"] [CPA 51(1)].

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

Where a loan broker 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 for Loan Brokering 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 allow cancellation even on trivial and technical non-compliance. However consumers should expect some judicial resistance on upholding such cancellations where the non-compliance is not material to the their situation (ie. where the non-compliance made no different to their decision to enter into the consumer agreement). Judges are trained to find a causal relationship between a wrong and a remedy, and are not used to the 'absolutist' approach taken in the CPA.


5. Prohibited Representations

(a) Overview

The CPA prohibits loan brokers from 'communicating or causing to be communicated' specific representations made with respect to loan brokering [CPA 53].

Under the CPA, 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"], and similar provisions regulating advertising of credit agreements [see the Part B chapter entitled "Loans and Credit Agreements", s.4: Disclosure in Advertising Credit Agreements"].
(b) Prohibitions

Specifically, loan brokers are prohibited from making an express or implied representation that [CP Reg 45]:
  • 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

  • "that the operations of the loan broker 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 loan brokers 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.


6. Where Lender Not Professional, Loan Brokers Takes on Their Legal Duties

In the Part B chapter entitled "Loans and Credit Agreements" I set out the extensive duties of creditors regarding disclosure, 'cost of borrowing' regulation, prepayment, credit cards, optional services, assignment of security and such. However, where the loan broker is connecting the consumer (borrower) with a creditor who is "not in the business of extending credit or lending money" [CPA 67(2)] (ie. an amateur) then the loan broker takes on these extensive lender duties themself.

This provision is meant to protect consumers and inexperienced lenders (who may be solicited by loan brokers to participate in credit agreements), from the consequences of creditors taking on legal duties that they are unfamiliar with.

The only exception to this is that the loan broker does not have responsibility for the giving of any credit or refunds due to the consumer (borrower) where the consumer has exercised any CPA prepayment rights [CP Reg 60(3)] [see the Part B chapter entitled "Loans and Credit Agreements", s.6: "Prepayment Rights"].


7. 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 loan brokering 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 'loan broker') 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 loan brokering. Such representations could be used as a basis for claiming rescission of the consumer agreement.

  • Officer and Director Liability

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

    In such situations, and where the loan broker 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 loan broker corporation is sued on the basis of a consumer's CPA rights, 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 loan brokering 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."

  • Deceptive or Negligent Representation Re Availability of Goods or Services

    "A representation that the goods or services or any part of them are available or can be delivered or performed when the person making the representation knows or ought to know they are not available or cannot be delivered or performed'"

    This addresses situations where people try to sell goods or services that are not available in order to get a sale now, and then come up with delaying excuses later. In light of the next-following example, this one must refer to the COMPLETE unavailability (that even waiting won't fix) of the goods or services.

  • False or Misleading Representation Re Timing of Availability

    "A representation that the goods or services or any part of them will be available or can be delivered or performed by a specified time when the person making the representation knows or ought to know they will not be available or cannot be delivered or performed by the specified time."

  • 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.

    It is a particularly pernicious technique when applied to seniors and those with reduced critical faculties, and who are sometimes just plain lonely.

  • 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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