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Consumer Protection (Ontario) Law - Sector-Specific
Loan and Credit Regulation under the Consumer Protection Act (CPA)
(01 July 2013)- Overview
(a) General
(b) Banks
(c) Loan and Trust Companies
. Overview
. Consumer Regulation
(d) Credit Unions and Caisse Populaires
. Overview
. Consumer Regulation
(e) Transition Re Credit Agreements Pre-dating 30 July 2005
- Essential Concepts
(a) "Credit Agreements" Defined
(b) The Distinction Between Loan and Credit
(c) Fixed and Open Credit
(d) Glossary of Key Terms
. Overview
. Advance
. Borrower
. Lender
. Cost of Borrowing
. Annual Percentage Rate
. Floating Rate
. Grace Period
. Optional Services
. Brokerage Fee
. Default Charge
- Disclosure Duties At Commencement and During Credit Agreement
(a) Overview
(b) General Disclosure Requirements
(c) Disclosure Duties for Fixed Credit
. Initial Disclosure Statement: Fixed Credit
. Subsequent Disclosure: Fixed Credit Where Payments Inadequate to Cover Interest
. Subsequent Disclosure: Fixed Credit with Floating Rate
. Subsequent Disclosure: Fixed Credit not Floating Rate but Changeable Rate
. Supplementary Disclosure Statement: Fixed Credit Where Amended Credit Agreement
(d) Disclosure Duties for Open Credit
. Initial Disclosure Statement: Open Credit
. Monthly Statement of Account: Open Credit
. Supplementary Disclosure Statement: Open Credit
. Change in Interest Rate: Open Credit
(e) Disclosure of Interest Status When Deferral of Payments (Any Credit Agreement)
(f) Additional Initial Disclosure Where Loan Broker Involved (Any Credit Agreement)
(g) Consequences of Disclosure Non-Compliance
. Overview
. Disclosure Error In 'Cost-of-Borrowing'
. Complete Non-Disclosure
. Other Disclosure Non-Compliance
. Comment
- Disclosure in Advertising Credit Agreements
(a) Overview
(b) Disclosure Requirements Where 'No Interest' Advertisement: Fixed or Open Credit Agreements
(c) Disclosure Requirements in Advertising: Fixed Credit
(d) Disclosure Requirements in Advertising: Open Credit
(e) Disclosure Requirements on Credit Card Solicitations
- Cost-of-Borrowing Regulation
(a) Overview
(b) "Cost of Borrowing" Unregulated, But Disclosure Required
(c) Interest Unregulated
(d) Most 'Extra Charges' Unregulated
(e) Prohibition of 'Default Charges'; Exceptions
. Default Charges Defined
. Default Charges Generally Prohibited; Exceptions
(f) Prohibition of Prepayment Charges or Penalties
(g) Illegal Charges Recoverable by Civil Action
- Prepayment Rights
(a) Overview
(b) Prepayment of Full Balance and Refund: Fixed and Open Credit
(c) Partial Prepayment Where Fixed Credit Balance
- Credit Card Regulation
(a) Overview
(b) Commencement of Credit Card Agreement
. Types of Credit Card Agreement Commencement
. 'Regulation' of Commencement of Oral and Implied Credit Card Agreements
(c) Fraudulent Use of Credit Cards by Third Parties
(d) Credit Card Application and Solicitation Disclosure
. Overview
. On Application Forms and in Phone Applications
. On Direct Solicitation
(e) Rights to Have Charges Reversed or Cancelled
- Insurance Requirements
(a) Overview
(b) Borrower May Purchase Independent Insurance
(c) Disclosure
- Optional Services
(a) Overview
(b) 'Negative-Option' Optional Services
(c) Termination Rights of Optional Services
- Assignment of Security
(a) Overview
(b) Duties of Assignor of Negotiable Instrument to Assignee; Consequences of Breach
. Disclosure Duties
. Disclosure Duties on Re-Assignment
. Consequences of Non-Compliance with Disclosure Duties
(c) Assignee Takes Assignment Subject to Borrower's Rights
(d) Where Value of Trade-In Uncertain
- 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
- Exemptions
(a) Overview
(b) Real Estate Mortgages
(c) Banks
(d) Credit Unions
(e) Loan and Trust Companies
(f) Payday Loans
(g) Regular 'On Account' Purchases
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
1. Overview
(a) General
This chapter sets out the general regulation established over Ontario's consumer loan and credit sector by the Consumer Protection Act (CPA). This sector, for regulatory purposes, includes credit cards but excludes all real estate-backed loans or credit (such mortgages are separately-regulated).
As will be seen in the immediately following discussion, my interpretation of the law is that the CPA governs most private loan and credit agreements (that is, from lenders that are not deposit-taking institutions), as well as those advanced by 'loan & trust' companies governed by Ontario's Loan and Trust Corporations Act (which are deposit-taking institutions) [see (c) below].
Below I also link to the source law for two other specific loan and credit regulatory regimes that are excluded from CPA application, but which can also apply to Ontario consumers: those for credit unions [see (d) below] and banks [see (b) below] (which of course are federally-regulated under the Bank Act).
While this chapter does not analyse and explain credit union or bank loan and credit regulation - and while I do not expect to prepare a 'credit union' counterpart to this present CPA chapter in the future (as the market is relatively small) - I do expect to eventually complete one for federally-regulated banks, which are particularly dominant in the credit card market. Such a "Bank Consumer Law" Legal Guide will include the several other consumer provisions set out in the Bank Act's regulation
(these are a lso linked below).
While efforts have been made to harmonize the three loan and credit regimes (CPA, credit union and bank), the three sets of resulting regulatory provisions do not have identical structure or wording and it is not safe to assume that the interpretations set out in this chapter (for the CPA regime), may be corss-applied to the credit union and bank situations without carefully reviewing their specific source law.
Additionally, some other loan and credit situations [set out in Ch.12 "Exemptions"] are expressly excluded from even CPA regulation.
(b) Banks
As is noted above, banks are federally-regulated, deposit-taking institutions that are of course very active in the loan and credit sector - both consumer and business. Deposit-taking simply means that they take deposits from customers and then use that money for a variety of purposes and in a variety of ways, amongst them the advancing of loans and credit to consumers.
The case of CIBC v Donnelly (Ont Superior Ct, 2009) - considered below in s.3(d) regarding disclosure duties - discusses, without resolving, the apparent conflict between parallel Ontario and federal (Bank Act) regulation over bank-issued credit cards. In that case, the point was made in argument that the conflict may not make any difference as the two regimes, at least regarding the limited issues considered in that case, were identical. I disagree that that conclusion is sound beyond the single rule (notice of credit card interest rate increase) considered in that case, and here I link to the applicable Bank Act regulations governing consumer loans and credit, and some other regulations relevant to consumers generally:
Cost of Borrowing (Banks) Regulations
Disclosure of Charges (Banks) Regulations
Access to Basic Banking Services Regulations
Disclosure of Interest (Banks) Regulations
(c) Loan and Trust Companies
. Overview
Loan and Trust Companies (the term 'loan and trust' is used in a combined sense) are also similar to banks in the sense that they take deposits from 'depositors' and then advance that money out to others in the form of loans or credit. Similarly, they - as a class - are 'institutional' in the sense that they are governed by their own specific legislation, Ontario's Loan and Trust Corporations Act. They differ from banks however in that practically they are smaller than most banks (in valuation), they are pr ovincially-regulated, and they lack the broad authority to engage in the wide variety of financial transactions that banks have.
On the other hand, they differ from credit unions in that they are overtly profit-making entities, and are owned by share-holders, in the same fashion that business corporations are owned.
. Consumer Regulation
The status of Loan and Trust companies with respect to consumer regulation is less than clear, but I think the best position is that they are in law governed by the Consumer Protection Act provisions set out in this chapter. In reaching this conclusion I am unaware of any case law on this particular point so I am reasoning from first principles.
The intepretation problem starts here, in CPA s.2(2): CPA s.2
Exceptions
(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; On a quick read of this application-excluding provision one would think that any loan or credit agreements with a Loan & Trust as a lender are exempt from the CPA, and consumers would have to have recourse to whatever consumer protections the Loan and Trust Corporations Act affords them. The trouble with this interpretation is that the Loan and Trust Corporations Act used to have rules respecting disclosure of 'cost-of-borrowing' and other consumer protections similar to those now contained in the CPA, but that they were repealed by virtue of S.O. 2001, c.8, the then-titled "Responsible Choices for Growth and Accountability Act". As such, from that time it could not be said that loans or credit (a form of "financial product or service") were "regulated under the ... Loan and Trust Corporations Act" at all.
That being the case (at least in my analysis), such agreements do not fit the CPA s.2(2) exemption and thus ARE governed by the CPA provisions set out in this chapter.
As will be seen in the next paragraph, which deals with Credit Unions, the same cannot be said for credit agreements (at least after 01 October 2010), which are also included in that CPA s.2(2) exemption list. This is because pending regulations made under the Credit Unions and Caisses Pupulaire Act DO provide for extensive consumer regulation very much like that set out under the CPA. That being the case, "financial products and services" (including credit agreements) with credit unions will shortly be 're gulated under' the parent legislation and will shortly fit into the CPA s.2(2) exemption.
(d) Credit Unions and Caisse Populaires
. Overview
Credit Unions (I use the term here to include Caisses Populaire) are much like banks in that they take deposits and then advance money out in the forms of loans or credit. Similarly, they - as a class - are 'institutional' in the sense that they are governed by their own specific legislation, Ontario's Credit Union and Caisses Populaire Act.
Credit Unions however are distinct from banks in that they originate from social movements advocating co-operative community organization, in this case community and member control of financial institutions. Roughly, they are the 'non-profit' version of banks in the sense that they are not owned by a vast, scattered and constantly-changing collection of shareholders who have little stake in their involvement except personal financial gain, Further, they are much more actively governed by their local 'natura l person' (real, flesh and blood people) membership than banks, which are primarily owned by institutional investors. In fact, credit unions are not 'owned' as such at all, as non-profits lack a share structure and exist outside of the ownership model.
Reflecting this, credit unions may only lend money to members of the particular credit union doing the lending, or to members of affiliated credit unions.
. Consumer Regulation
Credit agreements with Credit Unions are a relatively small portion of the loan and credit market, and - commencing on 01 October 2010 - are subject to their own set of consumer loan and credit rules, linked here:
Credit Union and Caisse Populaires Act, Reg. 238/09: Cost of Borrowing and Disclosure to Borrowes
As is noted above in the discussion of Loan and Trust companies, this regulation should be sufficient to remove them from regulation under the CPA provisions discussed in this chapter (and the CPA generally for that matter). Correspondingly, my opinion is that credit agreements made with credit unions in past and up to that 01 October 2010 in-force date do fall under CPA consumer regulation. This is for the same reasons that I think Loan and Trust credit agreements are CPA-governed, as explained in that paragraph, above.
(e) Transition Re Credit Agreements Pre-dating 30 July 2005
Any credit agreements that have 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, in force on 30 July 2005. These provisions relate to CPA 67-69,75-76,78,80-81 - all provisions of Part VII of the CPA relating to credit agreements.
These transition provisions are contained in the current CP Reg s.71. As the vast majority of such credit agreements are now spent, I have not analysed or explained these transition provisions. However here I link that provision for reference:
CPA General Regulation: s.71
2. Essential Concepts
(a) "Credit Agreements" Defined
The CPA provisions (CPA Part VII) discussed in this chapter apply to "credit agreements", a CPA term which encompasses both the layperson's concepts of a consumer agreement for the direct borrowing of money (ie. a "loan"), and consumer agreements which involve the tolerance of debt - sometimes associated with a guarantee or indemnity for payment to third parties - (ie. "credit"). One particular form of credit agreement that is commonly used in conjunction with other consumer purchases is the "supplier credi t agreement", where a supplier or their associate offers financing for the purchase of other consumer goods or services.
As will be seen below, I identify the conditional tolerance of debt as the unifying and defining feature of ANY type of credit agreement: be it known commonly as either 'loan' or 'credit'.
For CPA purposes, the definition of "credit agreement" also includes "prospective consumer agreements under which an extension of credit, loan of money or supplier credit agreement may occur in the future" [CPA 66]. This is the CPA's way of asserting CPA regulation over behaviour occuring before contract-formation, such as advertising and negotiation.
(b) The Distinction Between Loan and Credit
Keeping in mind that the CPA term "credit agreement" covers both the advancing to a consumer of both 'loans' and 'credit', the two concepts are still distinguished from each other in lay usage. Here I discuss this distinction.
The concept of a loan is superficially quite straightforward: ie. cash advances given by the lender to the borrower, to be paid back in future with interest and in accordance with terms re amounts and timing.
'Credit' on the other hand has traditionally been distinguished from loans by the creditor offering (conditional) tolerance of debt on purchases of goods and services. In this sense the most basic form of credit is the simple advancing of goods and or services by a supplier (creditor) to a consumer (borrower without 'upfront' payment, an arrangement such that a person might experience when a local hardware store lets them run an account - either to or beyond typical 30-day terms.
A modern variation on this is the common 'credit card' agreement. In this case, instead of goods and services being advanced directly by the creditor, they are advanced by third party suppliers and then the creditor essentially 'buys' the debt from that actual supplier at the purchase price (in practice they pay a reduced rate). From that point, the credit card company deals with the consumer debt directly, superficially at least in the same fashion that the hardware store mentioned in the first example might.
However you characterize it, credit-card affiliated stores will let me (the borrower) purchase goods upon my presentating a valid credit card and proof that I approve the transaction (signature or PIN number), secure in the knowledge that the credit card company (the creditor) will in turn pay (ie. indemnify) the store for the purchase.
What can be seen from this discussion is that both 'loans' and 'credit' - as those terms are commonly used - necessarily involve the conditional tolerance of debt by the ultimate creditor, so that element cannot serve as a defining or distinguishing feature between the two concepts.
What in fact distinguishes the two is the nature of the advance which creates the debt. In the case of a 'loan' the advance is in the form of money, while in the case of 'credit' it is in the form of goods and/or services, by either the creditor directly or by third party suppliers whom the creditor indemnifies.
That said, even that fundamental distinction has been blurred by the flexibility of modern consumer financial instruments which allow both loan and 'credit' transactions to be conducted under the same consumer agreement. For example, both credit cards and lines of credit - in addition to allowing consumers to defer (and transfer) debt from third parties for purchases of goods and services, can now be used by the borrower to obtain direct cash advances: ie. a loan.
To the extent then that the distinction between loan and 'credit' - as the terms are commonly understood - makes a difference, it is not so much by virtue of the nature of the consumer agreement (though there are certainly 'loan-only' and 'credit-only' consumer agreements), but by the nature of the individual transaction. A debt-tolerant transaction where the consumer receives money is a loan, while one where they receive goods and/or services is 'credit'.
It may be because of this frequent blurring between the loan and credit transactions that the CPA has opted to locate both of them within the same legal definition of "credit agreements", though it often recognizes throughout its rules the loan/credit distinction as I have been discussing it here.
(c) Fixed and Open Credit
A second distinction, more openly acknowledged in the CPA and of more relevance to CPA regulation, is that between 'fixed' and 'open' credit agreements (regardless of whether they are credit agreements respecting loans, 'credit' or both).
"Open" credit means any situation where the amount is not exact but is determined by the borrower at his will, subject to amount limits - or more precisely [CPA s.1]: CPA s.1
"open credit" "open credit" means credit or a loan of money under a credit agreement, as defined in Part VII, that,
(a) anticipates multiple advances to be made as requested by the borrower in accordance with the agreement, and
(b) does not define the total amount to be advanced to the borrower under the agreement, although it may impose a credit limit. This would cover typical 'open' purchasing accounts kept with a retailer, and both line of credit and credit card arrangements. Indeed, "credit cards" as such are little more than physical proof to suppliers of goods and services that the holder has an arrangement of open credit with the credit card company (lender) such that the lender will honour the holder's debt. 'Line of credit' arrangements on the other hand are similar, though less portable, arrangements whereby the borrower can write cheques or conduct other transactions against the line of credit 'account' - even withdrawing cash from it in the same manner they would from their chequing account at a financial institution.
Any other credit arrangement is - by CPA definition - a "fixed credit" agreement: ie. "a loan of money under a credit agreement that is not for open credit" [CPA s.66]. Usually this simply means that the amount of the credit is exact in amount, but - due to the definition noted above, it can include any situation where the definition of 'open credit' is not met. An example of such an unusual 'fixed credit' arrangement might be where only a single advance is anticipated by the consumer agreement (thus avoidi ng the 'anticipated multiple advances' element of the defintion of open credit), but it's amount is uncertain at the time that the agreement is executed. The parallel to this in real estate transactions (to which the CPA does not apply) would be the pre-authorized mortgage, good up to a specified maximum amount.
A common type of fixed consumer credit is the "supplier credit agreement", 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]. Excluded from the definition of "supplier credit agreements" are [CPA 66]:- "consumer agreements involved leases to which Part VIII applies" (these are 'chattel leases' discussed in their own Part B chapter of that title), and
- consumer agreements where the goods or services to be obtained are (themselves) "credit or a loan of money".
This limits the definition of "supplier credit agreements" to true 'credit' arrangements (where goods or services are advanced), and not loans (where money is advanced).
Note however that while these two exceptions may not be "supplier credit agreements", they could still be either open or fixed credit agreements in their own right.
(d) Glossary of Key Terms
. Overview
Readers will find that much the CP regulation set out in this chapter turns on some fairly technical accounting definitions [CPA 66]. These are listed here.
. Advance
"Advance" means value received by a borrower, as it is further defined by Consumer Protection Act General Regulation s.54.
. Borrower
"Borrower" means a consumer who receives or may receive a loan or credit, or both, as a party under a credit agreement. Consistent with the definition of 'credit agreement' which covers pre-contractual dealings [see 2(a) above], the definition of borrower also includes a person "who indicates an interest in becoming such a party". A guarantor is not a borrower.
. Lender
"Lender" means a supplier who extends a loan or credit, or both, to a consumer, as party to a credit agreement.
Consistent with the definition of 'credit agreement' which covers pre-contractual dealings [see 2(a) above], the definition of lender also includes a person "who may extend credit ... or may lend money to the borrower". A credit card issuer is a lender.
. Cost of Borrowing
The definition of "cost of borrowing" includes interest and all amounts, payable by the borrower under or as a condition of entering into a credit agreement, or at the commencement of the credit agreement, for anything, including 'payment processing' [CPA 66, CP Reg 56(0.1)], but it excludes [CPA 66; CP Reg 56(2,3)]:- Principal
A payment or repayment of a portion of the principal under the agreement, or more specifically [CP Reg 56(1)]: "a payment or repayment by the borrower of any portion of the total of the advances received by the borrower";
- Security Expenses
In relation to security interests given on the debt, a range of security appraisal, insurance, search and registration expenses as follows:
- Appraisal
"(T)he cost of professional services obtained for the purpose of confirming the value, condition, location or conformity to law of the property that is subject to the security interest, if the borrower receives a report signed by the person providing the professional services and is entitled to give the report to others";
- Insurance
The cost of insuring the secured property "if the borrower is the beneficiary of the insurance and the insured amount is the full insurable value of the property";
- PPSA Search and Registration
"(T)he cost of registering a financing statement or financing change statement in a public registry of security interests in personal property, and the cost of searching or obtaining information from the registry, in relation to the security interest given by the borrower" ["costs" here includes "the fees paid for the registration, search or information and the service fees paid to an agent, if any"]; and
- Real Estate Title Search and Registration
"(T)he cost of registering in the land titles or registry system a notice of security interest under clause 54 (1) (a) of the Personal Property Security Act, an extension notice under subsection 54 (3) of that Act or a certificate to discharge or partially discharge a notice of security interest under subsection 54 (4) of that Act, and the cost of searching or obtaining information from the system, in relation to the security interest given by the borrower ["costs" here includes "the fees paid for the registration, search or information and the service fees paid to an agent, if any"].
- Vehicle Searches
"The cost of searching vehicle records under the Highway Traffic Act in order to confirm the ownership or vehicle identification number of a vehicle and the cost of obtaining a statement, or a certified copy of a statement, containing information from the vehicle records." ('cost' here includes "the fees paid for the search or statement and the service fees paid to an agent, if any" [CP Reg 56(3)]).
- Late Payment and other Default Charges
"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';
- Prepayment Charges and Penalities
Prepayment rights are discussed in s.6 below.
- Optional Service Charges
Charges for services that the borrower voluntarily opts for under the credit agreement, but that the borrower does not have to accept to enter into the credit agreement.
. Annual Percentage Rate
The concept of "annual percentage rate" is key to CPA regulation of credit agreements, and it is a very complex one.
"Annual percentage rate" means the annual percentage rate in respect of a credit agreement that is determined in accordance with Consumer Protection Act General Regulation s.55 and sub-section (2) of Consumer Protection Act General Regulation s.70.
The below Ministry of Government Services [.PDF] link may assist in sorting this concept out:
Calculation of APR under the CPA 2002
. Floating Rate
A "floating rate" is one that is tied to or "bears a specified mathematical relationship to a public index that meets the prescribed requirements" [CPA s.66]. Only public indexes "made public at least weekly in a publication that has general circulation in Ontario" [CP Reg s.57].
. Grace Period
A "grace period" is a period during which "charges specified in the credit agreement that accrue during the period will be forgiven if the borrower satisfies conditions specified in the credit agreement" [CP Reg s.53].
. Optional Services
"Optional services" are just what the term suggests. They are services offered to the borrower in connection with a credit agreement that the borrower does not have to accept in order to enter into the agreement [CPA s.66]. If the borrower could not decline such services as they were a condition of entering into the credit agreement (ie. if they were 'bundled' with the credit agreement) then they would not be 'optional'.
. Brokerage Fee
"Brokerage fee" means the payment that a borrower makes or agrees to make to a loan broker who assists the borrower in arranging a credit agreement, and includes an amount deducted from an advance made to the borrower that is paid to the broker.
'Loan Brokering' is the subject of its own extensive Part B chapter of that same title.
. Default Charge
"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.
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