On February 26, 2019, Bill 7 – Business Practices and Consumer Protection Amendment Act, 2019 (Bill) was introduced as part of British Columbia’s Consumer Financial Protection Action Plan. If passed, the Bill will amend the Business Practices and Consumer Protection Act (BPCPA) to provide for a new high-cost credit regime and add new prohibitions that will apply to payday lenders, among other things. B.C. is the fourth province to propose or enact legislation that specifically regulates lenders who offer high-cost credit, continuing the trend of increasing the regulatory burden on lenders who serve the sub-prime space. Currently, Alberta and Manitoba have high-cost credit regimes in force, while Quebec’s high-cost credit regime will come into force on August 1, 2019.
HIGH-COST CREDIT REGIME
The Bill proposes to add a new Part 6.3 to the BPCPA, which will set out a high-cost credit regime. Part 6.3 indicates high-cost credit grantors will need to be licensed, sets out cancellation rights and disclosure requirements that apply to the form of high-cost credit agreement, and provides for various rights and remedies, the highlights of which are discussed below. Banks, credit unions, and certain trust and loan companies are currently exempted from the application of Part 6.3. Other classes of entities may also be exempted by regulation.
High-cost credit products will include fixed credit, open credit, leases and other prescribed consumer products with an APR or interest rate that exceeds the rate to be set out in the regulations. As a potential indicator of what that rate may be, the rate in Alberta is 32 per cent or more, the rate in Manitoba is over 32 per cent, and the rate is Quebec is over 22 per cent, plus Bank Rate set by the Bank of Canada. We expect B.C. would follow the path set by the other Western provinces when setting the rate, suggesting a likely rate of 32 per cent or more.
However, B.C. has already shown that it is willing to take a different approach to some matters. For example, the Bill raises the possibility that the government may impose a rate cap that is lower than the rate set under section 347 of the Criminal Code (60 per cent per annum, including interest and many non-interest finance charges). No other province or territory has proposed or enacted a similar provision.
The proposed cancellation rights also go further than similar rights in other provinces; not only is there a one business day cooling-off period, but there are other cancellation rights that are not time-limited and that may be exercised by the borrower if:
- The lender does not advise the borrower of the cooling-off period
- The high-cost credit agreement does not properly include any of the 28 requirements set out in the proposed section 112.21(2), plus any additional requirements that may be prescribed
- The lender does not review certain prescribed matters with the borrower before the borrower signs the high-cost credit agreement
- The lender does not provide a copy of the agreement, along with the required cancellation notice, at the time the agreement is signed by the borrower.
In contrast, in Manitoba, a similar unlimited cancellation right limited only applies if the borrower was not advised of the applicable cooling-off period; in Alberta, there are no express cancellation rights under the high-cost credit regime.
There are other examples of cancellation rights extending beyond a cooling-off period that apply to different types of consumer contracts, notably direct seller agreements. Even there, the cancellation right is typically time-limited to a period of one year (see, for example, the direct seller regimes in Alberta, B.C., Manitoba, and Ontario). One area under consumer protection laws that provides for an unlimited cancellation right is unfair or unconscionable practices. This means that Bill 7 would extend the same remedy for an unfair or unconscionable practice to a minor technical infraction.
It is unclear whether the government intends to restrict online lending in the sub prime space. As noted above, the lender must review certain matters with the borrower before the borrower signs the agreement. This requirement may be more difficult to meet in an online environment. In addition, the Bill includes a new regulation making power that would allow for the regulation or prohibition against offering, arranging or providing high-cost credit agreements other than in a face-to-face environment.
The Bill sets out other restrictions which are commonly found in the payday world, such as:
- A prohibition against wage assignments
- A prohibition against offering prizes or rewards as an incentive to enter into a high-cost credit agreement
- Restrictions on payment procedures.
On the last point, high-cost credit lenders will not be able to pull collect payment before the due date, meaning that payments due on holidays or other non-business days must be pulled after, not before the due date. In addition, a pre-authorized debit, cheque or other negotiable instrument for a regularly scheduled payment cannot be re-presented if it fails to clear; in contrast, the Payments Canada rules permit one re-presentment of a declined pre-authorized debit. There is also a prohibition against providing direct access to the borrower’s bank account, other than for the purpose of direct debits, so lenders who use screen scraping or other services that provide direct access to banking information would not be able to use such tools as part of their underwriting process.
Finally, lenders should watch closely for the regulations, as there is a long list of additional regulation-making powers that could mean additional restrictions on the fees that may be charged both on the primary product, as well as any optional products and services, additional cancellation rights, the inclusion of statutory statements in the contract forms, and restrictions on the terms that apply to cash cards, among other things.
Most payday lending provinces have dramatically reduced the maximum cost per C$100 borrowed in recent years, with the result that many payday lenders either exited the space entirely or branched out to high-cost credit products. Some of the proposed changes in the Bill specifically target lenders who operate both payday and high-cost credit businesses, such as:
- A prohibition against issuing a new payday loan or high-cost credit product to a borrower who already has a payday loan or high-cost credit product issued by the payday lender
- A prohibition against issuing a new payday loan or a high-cost credit product to a borrower before a prescribed period of time has elapsed since a prior payday loan or high-cost credit product was repaid
- A prohibition against requiring, requesting or accepting consent from a borrower to use or disclose the borrower’s personal information for a purpose other than offering, arranging, providing or otherwise facilitating a payday loan.
Another key change is a new prohibition against selling optional insurance to a borrower, in addition to the current prohibition against requiring that the borrower obtain insurance.
The Bill will need to pass, receive royal assent, and the regulations enacted, in order for many sections of the Bill to become operative. However, that may happen quickly, as the majority of B.C. government bills passed and received royal assent within a few weeks in the last parliamentary session.