Federal and provincial consumer protection responsibilities with regard to financial services
Framework rules from Quebec perspective
A new federal Financial Consumer Protection Framework, with its associated regulations (the Framework), came into force on 30 June 2022.(1) In light of this development, this article is part of a series on financial consumer protection in Canada and, in particular, discusses some of the Framework's rules from the perspective of Quebec's consumer protection rules governing financial services.
Federal and provincial consumer protection responsibilities with regard to financial services
In Canada, bank products and services are federally regulated.(2) When these products and services are offered to consumers, they are governed by the Bank Act,(3) which is the legislative source of the Framework. Nonetheless, consumer protection in general remains under the authority of provinces.(4) In Quebec, the best-known consumer protection statute is probably the Consumer Protection Act (CPA).(5) The CPA contains several general consumer protection rules applicable to all consumer contracts, including certain contracts used in the financial services context.(6) In fact, the CPA contains rules specifically directed at certain financial services, such as loans of money, credit cards, prepaid cards and debt settlement services.(7)
The CPA is vast in scope and applies to numerous merchants and financial institutions that do business in Quebec. In comparison, the scope of the Framework is more specific, as it exclusively governs banks' and authorised foreign banks' activities. In other words, the Framework does not apply to lenders or financial institutions that are not banks; many of these fall under provincial jurisdiction.(8) Examples include provincially regulated financial services cooperatives, trust companies, car loan providers, credit-card issuers(9) and credit assessment agents.(10) The Framework applies to banks and thus establishes a body of specific rules within the financial services ecosystem.
Framework rules from Quebec perspective
Electronic alerts
The Framework states that banks will need to send automated alerts to customers with deposit accounts, credit cards or lines of credit. These alerts will notify customers that their account balance or credit limit has reached a certain amount, established by default at C$100; customers will be able to specify a different threshold if they wish.(11) The alerts will also inform customers that they may face fees or penalties because of the transaction that triggered the alert, and will explain how customers can avoid such fees, if applicable. Customers will be allowed to opt out of these alerts at any time. In comparison, Quebec has no rule requiring such alerts.(12) However, the CPA requires that notices be sent to consumers who exceed their credit card or line of credit limits. Unlike the Framework, the CPA requires that these notices be sent in paper or electronic format.(13) The CPA also expressly forbids over-limit fees,(14) while the Framework is more flexible in this regard.(15)
Allocation of payments to credit card balances
In addition to introducing new measures,(16) the Framework restates several rules currently in force in various regulations applicable to federal financial institutions.(17) One instance of this is the rule governing the way credit card payments are allocated.(18) The federal allocation rule requires banks to allocate a consumer's payment to the balance using one of two permitted methods.(19) The purpose of these methods is to protect consumers whose credit card balance bears more than one interest rate. In practice, credit card issuers often charge different annual interest rates depending on whether the transaction is a cash advance, a balance transfer or a regular purchase. For the moment, there is no equivalent obligation in Quebec.(20)
Oral communications
The federal regime includes a specific mechanism protecting consumers who do business with a bank over the phone. It requires the bank to send a written confirmation without delay after consent is given orally. The confirmation must contain specific information.(21) Quebec has no equivalent mechanism for customers who wish to use the phone to do business with their financial institutions, although a consumer who has agreed by phone to the provision of a product or services can have, in certain circumstances, a termination right within seven days of receiving the contract.(22) Since its original enactment, the CPA has been cautious about agreements or commitments made orally; in fact, it still requires the use of paper in some cases.(23) In practice, the formalistic requirements of the CPA sometimes make it difficult,(24) or at the very least more complex, to help customers over the phone.
Right to terminate
The Framework will give customers additional termination rights for certain products and services. For example, any person who has opened a personal deposit account will be able to terminate the contract without charge up to 14 days after the account has been opened. The bank is to refund charges related to the operation of the account that were incurred while the account was open.(25) A similar termination (resiliation) option does not exist in Quebec. However, there is a termination right applicable to credit contracts covered by the CPA, including credit card contracts. The time limit for exercising the right depends on the type of credit contract and varies from two to 10 days.(26)
Credit-card minimum payments
The federal regime does not regulate the minimum payment of credit cards issued by banks. In comparison, Quebec requires all credit card issuers, on each account statement, to impose a payment at least equal to 5% of the card balance.(27) Quebec remains the only jurisdiction in Canada with such a requirement.
Umbrella hypothecs on real property
Quebec has enacted measures to make it less attractive for financial institutions to use umbrella hypothecs on real property in the context of financing offered to consumers. An umbrella hypothec is a hypothec worded so broadly that the lender enjoys a security that automatically becomes applicable to all of the borrower's current and future debts, up to the amount indicated in the hypothec. In Quebec, certain rules apply to the practice of imposing this type of security,(28) which make it less attractive for lenders to use umbrella hypothecs with consumers. If a lender were to violate these rules, the CPA would become entirely applicable to the associated credit contracts. Since the CPA forbids various practices such as early repayment charges,(29) real property lenders have a strong incentive to comply with the requirements of the Regulation respecting the application of the Consumer Protection Act on umbrella hypothecs.(30) The Framework does not specifically govern practices related to this matter.
For further information on this topic please contact Guillaume Talbot-Lachance at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or email ([email protected]). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
Endnotes
(1) Order Fixing June 30, 2022 as the Day on Which Certain Provisions of the [Budget Implementation] Act, 2018, No. 2 Come into Force, SI/2021-42, (2021) Canada Gazette Part 2, and, in particular Part XII.2 ("Dealings With Customers and the Public") of the Bank Act, SC 1991, c 46 as well as the Financial Consumer Protection Regulations, SOR/2021-181. To make this article easier to consult, references to sections are references to the sections of the Act and Regulations as they will be numbered when the Framework comes into force.
(2) Constitution Act 1867 (UK), 30 & 31 Vict, c 3, section 91(15), reprinted in RSC 1985, Appendix II, No 5.
(4) Bank of Montreal v Marcotte, 2014 SCC 55.
(6) Subject to certain exceptions, notably transactions governed by the Securities Act, CQLR c V-1.1 and insurance contracts. See CPA, sections 5 and 6.
(7) Bank Act, supra note 1, section 627(1), definition of "institution". The banks are listed in Schedules I and II of the Bank Act. As for foreign authorised banks, they will be the subject of a ministerial order authorising them to conduct banking activities in Canada.
(8) Others, such as trust companies, loan companies and insurers created under the authority of a federal statute, are under federal jurisdiction.
(9) In fact, one of these provincially regulated institutions is designated as a "domestic systemically important" institution. This designation ensures that the financial system remains financially stable and is based on recommendations and criteria established in that regard by the Basel Committee and the Financial Stability Board. See Autorité des marchés financiers, "Notice related to designation of Desjardins Group as a domestic systemically important financial institution" (19 June 2013).
(10) Credit Assessment Agents Act, CQLR c A-8.2.
(11) Bank Act, supra note 3, section 627.13(1).
(12) Although there is no formal obligation, some provincially regulated financial institutions voluntarily offer their customers subscriptions to similar alerts.
(13) CPA, supra note 5, sections 128.1 and 128.3.
(14) CPA, ibid, section 128.1(b).
(15) Bank Act, supra note 3, section 627.36.
(16) In fact, according to the regulatory impact analysis statement associated with the Framework:
The majority of the regulatory requirements result in no substantive policy change to the financial consumer protection regulations that banks and authorized foreign banks must currently follow.
Financial Consumer Protection Framework Regulations, SOR/2021-181.
- the Disclosure of Interest (Banks) Regulations, SOR/92-321;
- the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations; SOR/2009-257;
- the Cost of Borrowing (Banks) Regulations, SOR/2001-101; and
- the Prepaid Payment Products Regulations, SOR/2013-209.
(18) Bank Act, supra note 3, section 627.35. Current regulations: Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations, SOR/2009-257, section 4.
(19) The method that each bank chooses is stated in the cardholder agreement.
(20) A proposed rule on this matter has been rejected in the past in Quebec. For more information, see: Bill 24 (2011): "An Act mainly to combat consumer debt overload and modernize consumer credit rules", 2nd Sess, 39th Leg, 2011 (Quebec), section 36.
(21) Bank Act, sections 627.08(2), 627.55 and 627.57(2). In addition, see sections 20(1)(i) and 61 of the Financial Consumer Protection Regulations, supra note 1.
(22) Regulation respecting the application of the Consumer Protection Act (RRACPA) CQLR c P-40.1, r 3, section 6.5.
(23) CPA, supra note 5, section 25.
(24) See for example sections 25, 27 and 80 of the CPA, ibid.
(25) Section 5 of the Regulations, supra note 1.
(26) CPA, supra note 5, sections 73–76 and section 33.
(27) CPA, ibid, section 126.1. Certain credit-card account holders whose contracts were entered into before 1 August 2019 may have a minimum payment below this percentage provided there are progressive annual increases of 0.5 percentage points; such terms are permitted until 1 August 2025.
(28) RRACPA, CQLR c P-40.1, r 3, sections 21 and 22.