On January 20, 2020, the Court of Appeal of Quebec, in the matter of Meubles Léon ltée v. Option consommateurs1, rendered an important decision in consumer protection law, particularly with respect to credit-related advertising and the strict limitations in relation thereto.
Any business advertising credit or financing options for the sale of its products and services in Québec, or offering credit as a service, should be aware of the rules set forth by the court, which may entail significant changes in how credit is advertised to consumers.
I. The dispute
Leon’s Furniture (“Leon’s”) is a furniture and appliance retailer offering various financing options to buyers of its products, such as “no payments, no interest until later” or “equal payments for a certain number of months with no interest”. In certain circumstances, however, an annual fee was charged, or the applicable taxes were front-loaded upon purchase, without any mention of these charges in the advertisements.
After a class action was filed in 2009, the Superior Court2 found that Leon’s advertisements were misleading because they did not disclose the annual fees or taxes payable in certain circumstances. In addition, the court concluded that Leon’s advertisements contravened the requirements of the Consumer Protection Act3 (the “CPA”) in relation to the advertisement of credit (s. 244 CPA) and the mandatory disclosure of the terms and conditions of credit (s. 245 CPA).
As a result, Leon’s was ordered to pay $896,718 in damages to the customers who purchased products under one of the financing plans offered in certain advertisements, as well as $1,000,000 in punitive damages and $495,000 to pay for the Plaintiff’s legal fees.
The Court of Appeal upheld the conclusions of the Superior Court regarding Leon’s breaches of the CPA with respect to credit advertising. However, considering a release from another litigation capturing the class members and the insufficient proof of the damages allegedly sustained, Leon’s condemnation was reduced to $162,918, plus an amount of $85 as punitive damages for a specific client.
Indeed, the Court of Appeal emphasized that although the CPA allows for the claiming of compensatory damages, such a remedy is incumbent on their sufficient demonstration and quantification at trial. In that regard, the court reminded that the frustration that may arise from a breach of the law does not necessarily meet the threshold for damages to be awarded at law. Leon’s condemnation was thus lowered as a result with the lack of a demonstrated that its clients had actually been harmed.
In addition, the Court of Appeal restated that a mere violation of the CPA is not sufficient in and of itself to grant punitive damages, which condemnation was also removed given the circumstances in dispute.
Lastly, in the absence of an established violation of the Competition Act and the lack of a clear legal basis also led the Court of Appeal to set aside the condemnation to compensate the Plaintiff’s for its legal fees.
II. Advertising credit: a new framework?
The rules pertaining to credit advertising are set out in ss. 244 CPA et seq. and ss. 80 et seq. of the Regulation respecting the application of the Consumer Protection Act4 (the “Regulation”).
These provisions capture the following types of credit advertising:
a) An advertisement concerning a product or service which informs the consumer of the availability of credit (CPA, s. 244);
i. Such advertising can only disclose the availability of credit by indicating the name, trademark or corporate symbol of a merchant who enters into credit contracts, by using the expressions “credit offered”, “credit accepted” or “credit available”, or by illustrating a credit card (Regulation, s. 80);
b) Advertising concerning credit (CPA, s. 245) and advertising concerning the terms and conditions of credit (CPA, s. 247);
i. Such advertising must include mandatory information regarding the credit terms, including the credit rate, applicable fees, payment periods, and other strict requirements (Regulation, ss. 81 to 86).
According to the Court of Appeal, these types of advertising and their corresponding requirements are mutually exclusive, i.e., one type of credit-related advertising cannot include references to other types of advertising and vice versa.
Indeed, the court found that Leon’s advertisements for its products and disclosing the availability of credit also contained various mentions pertaining to credit beyond was is permitted by the CPA and thus illegal, also having the effect of attracting clients to its stores by promising them the postponement or spreading of their payments.
In practice, the Court of Appeal’s decision means that an advertisement for a product or service can only disclose the availability of credit by strictly abiding by the requirements of s. 80 of the Regulation, above, without including any other information regarding the terms and conditions of the credit. Conversely, an advertisement concerning credit or its terms and conditions must include the mandatory content set out in the Regulation, without illustrating the product or service that may be acquired or financed with the said credit.
The decision in Meubles Léon may bring significant changes to the way credit is advertised and to the content of such advertisements, given that the usual advertising practices of various merchants may not fully abide by the strict framework being imposed by the Court of Appeal.
Of course, the advertising requirements of the CPA apply regardless of medium and include all types of advertising, whether print, television, radio, digital or other. As such, the rationale of the Court of Appeal may apply in many circumstances regardless of how the advertising is disseminated.
An application for leave to appeal the decision has been filed to the Supreme Court of Canada, such that further novel development in relation to the advertisement of credit may ensue.