Guillaume Talbot-Lachance July 26 2022 Overview of federal and Quebec consumer protection regimes governing certain financial products and services: part two Borden Ladner Gervais LLP | Banking & Financial Services - Canada Guillaume Talbot-Lachance Banking & Financial Services IntroductionFramework rules from Quebec perspectiveSupervisory and regulatory authoritiesIntroductionA 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.(2)For further details on the federal and provincial consumer protection responsibilities with regard to financial services, see "Overview of federal and Quebec consumer protection regimes governing certain financial products and services: part one".Framework rules from Quebec perspectiveRepayment conditionsThe federal Framework is more flexible than the Quebec regulatory environment with regard to repayment terms on consumer loans. Subject to some exceptions,(3) Quebec requires that all payments on such loans be equal,(4) except the final payment, which can be lower, and includes rules to incentivise lenders to ensure, in certain circumstances, that there are no more than 35 days between payments.(5) In practice, an effect of these principles is that the loan amortisation period and the term of the credit agreement are the same.Information boxesThe Framework will continue to require that fees be disclosed to consumers in information boxes containing the elements prescribed by regulation.(6) In this regard, the Framework drops the templates currently contained in the Cost of Borrowing (Banks) Regulations, leaving more discretion to banks as to how the information is presented.(7) The required information will still need to be prominently presented, in a single information box.The Quebec regime has imposed mandatory information box templates since 2019, notably for money loan and credit card contracts.(8) It will continue to require such boxes, albeit in more limited circumstances than under the Framework.(9) The content that needs to be included in the boxes will also continue to vary slightly depending on the jurisdiction. Whereas Quebec will continue to impose wording and templates for information boxes, the Framework will abandon this more prescriptive approach.(10)Fees or penalties improperly billedThe Framework will state that if a bank has billed fees or penalties not contemplated in the agreement, it will need to refund them, with interest at the Bank of Canada's overnight rates from the date the fees or penalties were billed.(11) Although it is generally forbidden in Quebec to charge fees not expressly indicated in the agreement,(12) there are no measures similar to the Framework's in Quebec. Nonetheless, consumers whose agreements are subject to the Consumer Protection Act (CPA) have access to a wide range of remedies, including potential punitive damages.(13)High-cost credit contractsUnlike the federal Framework, Quebec has specific rules applicable to high-cost credit contracts.(14) A high-cost credit contract is one whose credit rate is at least 22 percentage points higher than the Bank of Canada's bank rate.(15) Quebec grants consumers the right to withdraw from such contracts within 10 days, in order to allow them time to change their minds.(16) The Quebec CPA contains a presumption that such contracts constitute an excessive, harsh or unconscionable obligation where the consumer's debt ratio, computed using a formula prescribed by regulation, is greater than 45%.(17)Promotional periodsThe Framework includes protections applicable to promotional offers. These could notably be applicable to credit cards that offer a promotional period as part of the benefits of enrolment.(18) If the promotional period exceeds 30 days, then as the end of that period approaches, the customer is to receive two reminders: the first sent 21 days before the last day of the promotion period, and the second sent five days before the last day of the promotion period. These serve to remind the customer of the end of the promotional period and to notify the customer of the costs that will apply from that point forward.(19) In Quebec, the CPA does not impose equivalent measures with respect to promotional offers. However, when advertising offers of credit that include an interest-free period, institutions subject to the CPA's jurisdiction must state the credit rate applicable at the end of that period if the balance has not been completely paid off by that time.(20)Disclosures regarding complaintsUnder the Framework, disclosures will have to be made to customers and the public regarding the complaints process, and the Financial Consumer Agency of Canada's contact information must be provided.(21) It is worth noting that the impact analysis statement associated with the Framework states that a strengthened complaints system is a key element of the Framework.(22) In Quebec, strengthened complaints processes for financial institutions under provincial jurisdiction will probably be adopted soon.(23) For the time being, the Quebec regime establishes certain measures, such as a requirement to have a complaints processing policy.(24)Supervisory and regulatory authoritiesThe Quebec and federal legislatures have each created distinct supervisory and regulatory authorities, with different supervisory approaches and powers.(25)The minister responsible for the Bank Act is the federal minister of finance.(26) In addition, banks operate under the supervision of the Office of the Superintendent of Financial Institutions (OSFI). Among other things, OSFI ensures that banks adopt practices that keep them in good financial condition, that they establish appropriate risk management measures, and more broadly, that they comply with their governing laws and adopt commercial practices in furtherance of such compliance.(27) The Financial Consumer Agency of Canada (FCAC), another federal entity, also has a supervisory role over banks. This role includes monitoring the application of the Framework and the complaint-handling process by banks.(28)As part of its supervisory activities, the FCAC can impose administrative monetary penalties (AMPs) up to C$10 million. In that regard, the FCAC has developed and published a framework detailing the way in which it determines the amounts of these AMPs.(29) As for OSFI, it is also given a wide array of means to intervene to carry out its mission, including the ability to impose AMPs on entities that fall under its authority.(30)The Quebec minister currently responsible for the CPA is the minister of justice(31) and the Office de la protection du consommateur (OPC) is in charge of supervising the activities governed by that Act and other activities governed by consumer protection laws.(32) Among other things, the OPC supervises activities related to consumer credit, long-term leasing of personal property (such as automobiles), prepaid cards and reward programmes. Its investigative powers are very broad.(33) The OPC cannot impose AMPs, but its supervisory activities can lead to penal prosecutions and fines for any person who has committed an offence or even advised, encouraged or incited a person to commit an offence.(34) As part of its supervisory activities, the OPC issues notices of offence to merchants when it believes they are not complying with the Act.(35)In Quebec, the laws and regulations applicable to deposits of money have historically come under the aegis of the Autorité des marchés financiers (AMF),(36) though this could soon change in a very specific way if the Act respecting remittance of deposits of money to account coholders who are spouses or former spouses is adopted.(37) That statute would entrust certain supervisory activities regarding deposits to the OPC, though most of the supervisory activities on the subject would remain with the AMF.The AMF also oversees the activities of financial institutions that fall under provincial jurisdiction, such as financial services cooperatives,(38) insurers(39) and several financial intermediaries. The AMF has broad powers to fulfil its mission, including investigative powers(40) and the power to issue orders and establish guidelines and written instructions. It also has the power to impose AMPs.(41) Interestingly, under Quebec's law, the AMF is entitled to keep half of the AMP amounts it imposes and must remit the other half to the minister of finance, whereas under federal law, OSFI and the FCAC must remit all the amounts they collect from AMPs to the Receiver General for Canada.(42)It should also be noted that, at the federal level, OSFI and the FCAC publish material that provides information on their expectations and interpretation of the statutes and regulations under their responsibility. For example, they both issue guidelines detailing practices that they expect financial institutions to follow and that set standards applicable to the activities of the entities under their authority.(43) The OPC, for its part, does not issue guidelines or interpretation bulletins. In practice, some of the OPC's positions can be found by consulting its website and publications.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) For the first article in this series, see "Overview of federal and Quebec consumer protection regimes governing certain financial products and services: part one".(3) Such as certain loans secured by a first-ranking or second-ranking hypothec (Regulation respecting the application of the Consumer Protection Act (RRACPA), CQLR c P-40.1, r 3, sections 21 and 22), as well as loans payable on demand, loans in which the consumer's total obligation is repayable in full on a fixed date (Consumer Protection Act (CPA), CQLR c P-40.1, section 89) and credit contracts intended to finance certain mobile homes (RRACPA, section 19).(4) CPA, ibid, section 86.(5) CPA, ibid, sections 67(b) and 87. See also section 85 of the CPA, regarding interest; it deals with cases where the first payment required from the consumer falls more than 35 days after the contract formation date.(6) Bank Act, supra note 1, sections 627.57 and 627.92. See sections 38, 39, 52, 59 and 60 and 72, among others.(7) Cost of Borrowing (Banks) Regulations, SOR/2001-101, Schedule 1.(8) For example, see RRACPA, supra note 3, sections 61.0.8 and 61.0.11.(9) For instance, the federal Framework provides for an information box for prepaid credit cards, while Quebec does not.(10) RRACPA, supra note 3, sections 61.0.8, 61.0.9, 61.0.11, 61.0.12, 61.0.14 and 61.0.16.(11) Bank Act, supra note 1, section 627.997.(12) CPA, supra note 3, section 12.(13) CPA, ibid, section 272. In addition, see section 103.1 of the CPA, which has no equivalent in the Framework.(14) For example, see section 103.4 of the CPA.(15) This rate can be found on the Statistics Canada website.(16) CPA, supra note 3, section 73, para 2.(17) CPA, ibid, section 103.5, and RRACPA, supra note 3, section 61.0.6.(18) Bank Act, supra note 1, section 627.61.(19) Ibid, section 627.61. For promotional periods of 30 days or less, a single reminder sent five days before the end of the period will be required. Bank Act, section 627.61(1).(20) CPA, supra note 3, section 247.2.(21) Bank Act, section 627.65 (see also section 627.59(d)) and Financial Consumer Protection Regulations, supra note 1, section 17.(22) SI/2021-42, supra note 1 at 2684.(23) Autorité des marchés financiers, "Notice of Consultation", (PDF).(24) For example, see Act respecting financial services cooperatives, CQLR c C-67.3, section 66.1(2) and Securities Act, CQLR c V-1.1, section 168.1. A complaint processing regulation is expected to be adopted soon. See the draft Regulation respecting complaint processing and dispute resolution in the financial sector, (PDF).(25) Given the subject of this article, the role of the Canada Deposit Insurance Company (CDIC) will not be covered.(26) Bank Act, supra note 1, section 2. The minister has numerous powers, including the power to authorize the issuance of letters patent incorporating a bank.(27) Office of the Superintendent of Financial Institutions Act, RSC 1985, c 18 (3d Supp), Part I, section 4(2)(a).(28) Financial Consumer Agency of Canada Act, SC2001, c 9, section 3(2)(a).(29) For more information on the FCAC's practices on the subject, and on the process leading up to such penalties, see Financial Consumer Agency of Canada, "FCAC Administrative Monetary Penalties Framework".(30) Office of the Superintendent of Financial Institutions Act, supra note 28, section 25(2) and Administrative Monetary Penalties (OSFI) Regulations, SOR/2005-267.(31) In the past, this responsibility has been assigned to ministers whose mandates specifically pertain to consumer protection.(32) Act respecting the collection of certain debts, CQLR c R-2.2; Travel Agents Act, CQLR c A-10; Act Respecting Arrangements for Funeral Services And Sepultures, CQLR c A-23.001.(33) CPA, supra note 3, section 305.(34) CPA, ibid, section 283.(35) The most recent OPC annual report notes that 130 notices of offence were issued. Office de la protection du consommateur, Rapport annuel de gestion ("annual management report"), 2020-2021 at 50 (French only).(36) Notably the Deposit Institutions and Deposit Protection Act, CQLR c I-13.2.2; the Act respecting the distribution of financial products and services, CQLR c D-9.2; and the Securities Act, CQLR c V-1.1. See also CPA, supra note 3, section 6.(37) This law could soon be enacted pursuant to section 346 of Bill 2, An Act respecting family law reform with regard to filiation and amending the Civil Code in relation to personality rights and civil status, 2nd Sess, 42nd Leg, 2021 (Quebec).(38) Act respecting financial services cooperatives, CQLR c C-67.3.(39) Insurers Act, CQLR c A-32.1.(40) Notably the Act respecting the regulation of the financial sector, CQLR c E-6.1, sections 12 and 14.(41) These powers are contained in the specific statutes that are under the AMF's authority. For example, the Insurers Act, CQLR c A-32.1, sections 465–467 (orders), section 462 (written instructions), section 463 (guidelines) and sections 491–496 (AMPs).(42) Act respecting the regulation of the financial sector, supra note 41, sections 38.1 and 38.2. Financial Consumer Agency of Canada Act, supra note 29, section 25(3) and Office of the Superintendent of Financial Institutions Act, supra note 28, section 31. The Receiver General for Canada is the federal government's central treasurer and its accountant.(43) AMF, OSFI and FCAC guidelines are established following a consultation period.