On September 19, 2014, the Supreme Court of Canada (the “SCC”) released its long-awaited decision in Bank of Montreal v Marcotte.1 The SCC held that despite the fact that bank credit card issuers are federally regulated, Quebec provincial consumer protection legislation mandating disclosure of certain foreign currency conversion charges still applied to the banks. The case has major implications not only for banks issuing credit cards but for all federally regulated financial institutions, which may now be subject to the requirements of both federal and provincial consumer protection laws.
The case dates back to 2003, when representative plaintiffs for a group of Quebec credit card holders launched three related class actions against ten federally regulated banks and credit union issuers of credit cards (the “Banks”) for reimbursement of conversion fees charged on purchases made in foreign currencies (which are separate from the conversion rates) on the basis that the Banks failed to disclose such fees as required under certain provisions of Quebec’s Consumer Protection Act (the “CPA”).
In 2009, the Quebec Superior Court held that in failing to disclose the fees or commissions charged on credit card foreign exchange transactions, the federally regulated Banks had breached the relevant provisions of the CPA. The Banks were ordered to pay over $200 million in general and punitive damages. (A summary of
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the implications of the lower court decision can be found in our bulletin here.) The Banks appealed the ruling to the Quebec Court of Appeal, which allowed the appeal in part with respect to compliance with the disclosure requirements of the CPA and some damages but left undisturbed the lower court’s conclusion that the Banks were subject to provincial law. The Banks and the representative plaintiffs further appealed the decision to the SCC.
Legislative and Constitutional Background
Chartered banks are federally regulated pursuant to section 91(15) of the Constitution Act, 1867 (UK)2, which gives Parliament the exclusive authority to legislate with respect to “Banking, Incorporation of Banks, and the Issue of Paper Money.” Relevant federal legislation that applies to banks includes the Bank Act3, the Cost of Borrowing (Banks) Regulations4 under the Bank Act and the Financial Consumer Agency of Canada Act.5 In Quebec, the CPA sets out rules governing consumer contracts, such as section 12, which states that “no costs may be claimed from a consumer unless the amount thereof is precisely indicated in the contract.” Furthermore, section 272 of the CPA sets out certain consumer remedies. The Banks argued that these CPA provisions did not apply to the Banks’ credit card activities based on the constitutional doctrines of interjurisdictional immunity and federal paramountcy.
The SCC’s Decision: Interjurisdictional immunity
Interjurisdictional immunity is a legal doctrine that “operates to prevent laws enacted by one level of government from impermissibly trenching on the ‘unassailable core’ of jurisdiction
reserved for the other level of government...”6 The Banks submitted that applying the relevant CPA provisions to the credit card practices of the Banks impaired the core jurisdiction of federal banking power. The SCC disagreed. Cautioning against “excessive reliance” on the doctrine of jurisdictional immunity, which is “in tension with the modern cooperative approach to federalism”7, the Court set out two questions that must be asked to determine if the doctrine applies: first, whether the power to regulate disclosure of conversion charges lies at the core of the federal jurisdiction over banking; and second, whether the provisions of the CPA significantly trammel or impair the manner in which the federal power can be exercised. (The Court referred to these two questions as the “COPA test”, based on the SCC decision where it was first articulated.) 8
Addressing the second aspect of the COPA test first, the SCC held that neither section 12 nor section 272 of the CPA impairs the federal power to regulate banking. The SCC stated that “while lending, broadly defined, is central to banking and has been recognized as such by this Court in previous decisions, it cannot plausibly be said that a disclosure requirement for certain charges ancillary to one type of consumer credit ‘impairs’ or ‘significantly trammels’ the manner in which Parliament’s legislative jurisdiction over bank lending can be exercised.”9
The SCC further found that to the extent foreign currency conversion is considered as part of the core of federal jurisdiction over banking, “imposing a broad disclosure requirement for charges relating to currency conversion in no way impairs that power.”10 In other words, while the CPA requires banks to disclose conversion fees to consumers, that requirement does not prevent
- Supra note 1 at para 64; COPA test from Quebec (Attorney General) v Canadian Owners and Pilots Association, 2010 SCC 39,  2 SCR 536.
- Supra note 1 at para 66.
banks from lending money or converting currency.11 On this basis, the SCC found that CPA does not impair the federal banking power and therefore the doctrine of interjurisdictional immunity was not engaged.
The doctrine of paramountcy comes into effect when there is a conflict between provincial and federal legislation. The result of such a conflict is that the federal law prevails and the provincial law is rendered inoperative to the extent of the conflict. As analyzed by the SCC, a conflict between two pieces of legislation engaging the doctrine of paramountcy arises either by the impossibility of dual compliance or by the frustration of a federal purpose.
The SCC found that the relevant provisions of the CPA do not frustrate the federal purpose of the Bank Act, which the Banks had contended was to provide for “exclusive national standards applicable to banking products and banking services offered by banks.”12 Instead, the SCC characterized the relevant CPA provisions as a contractual norm in the province of Quebec requiring merchants to disclose all costs to consumers, analogous to the basic rules found in the Civil Code of Quebec. On this basis, the SCC found that the CPA provisions did not frustrate any federal purpose and that the Bank Act and the CPA can therefore both apply to the disclosure of conversion fees.
While the SCC rejected the Banks’ paramountcy argument in this case, the SCC left open the possibility of the application of the paramountcy doctrine in situations where provincial legislation stipulates that conversion charges be calculated or disclosed in a different manner than under federal legislation as such provincial
legislation may be said to result in an operational conflict or undermine a federal purpose of exclusive national standards.13
The SCC found the relevant CPA provisions were duplicative of the relevant federal provisions in that the conversion charges were to be calculated and disclosed in a similar manner under both the provincial and federal schemes. Such duplicative legislation, the SCC found, cannot engage the paramountcy doctrine as no operational conflict arises as a result of complying with both the federal and provincial legislation and application of the provincial law does not displace the legislative intent of Parliament.
In a broader context, a paramountcy argument could still be made by a federally regulated institution to the extent that provincial legislation results in an operational conflict with specific federal legislation or to the extent that the provincial legislation frustrates a federal purpose. This line of reasoning may give some comfort to banks concerned that the decision against the Banks would mandate compliance with the cost of borrowing disclosure regimes under both federal and provincial law, which although harmonized to some extent in recent years are still not entirely consistent.
The SCC has made it clear that in some circumstances provincial consumer protection legislation may apply to federally regulated industries, including the financial services industry. While the decision provides some much needed guidance, the tests for interjurisdictional immunity and paramountcy laid down by the Court are by no means easy to apply to specific cases, and while the Court’s interpretation of those doctrines is fairly narrow, uncertainty over when and to what extent they apply may mean that the bright line between federal and provincial jurisdiction over the activities of banks and other federally regulated enterprises has blurred considerably. As a result, federally regulated enterprises may now need to undertake the difficult task of figuring out
- Ibid at para 80.
whether complying with federal law is enough where there are provincial laws that cover roughly the same ground.