Canadian credit card issuers typically charge a “conversion fee” on all transactions completed outside the country. “Fees” of this nature generally range between 1.5 to 2.5 percent of the transaction value and are blended into the exchange rate reported to credit card users in monthly statements. The practice of charging a “conversion fee” was initially concealed from credit card users. However, beginning in the early-2000s, credit card issuers took steps toward transparency by modifying their credit card contracts to disclose the existence of these “fees” and their method of calculation.
The “conversion fees” have generated a long history of litigation throughout North America. One such case originated in the Province of Québec. In 2004, a class of Québec-credit card holders commenced an action seeking, inter alia, a declaration that the “conversion fees” contravened their province’s Consumer Protection Act (the “QCPA”). Restitution and damages were also claimed.
The Superior Court of Québec found in favour of the class: see Marcotte c. Banque de Montréal, 2009 CarswellQue 6515. It held that “conversion fees” are charges related to the extension of credit and therefore contravened the QCPA which required all credit-related charges to be disclosed as a fixed annual rate. The more general disclosure requirements under the QCPA were also found to have been breached. Based on these two findings, the Court directed the credit card issuers at issue to make restitution of all “conversion fees” collected to that date (to the extent permitted by limitations legislation) and it awarded punitive damages for a global award approximating $200 million.
The lower court decision was appealed to the Québec Court of Appeal, which rendered its decision on August 2, 2012. The reasons for decision, indexed as 2012 QCCA 1396, are summarized in a recent article prepared by Marc Lemieux and Laurent Nahmiash of FMC Law and will not be repeated in full. Suffice for present purposes to note that the Court found the “conversion fees” were not charges related to the extension of credit and had been properly disclosed as of the early-2000s. Accordingly, only those “conversion fees” that had been levied prior to the early-2000s were eligible for restitution (and only to the extent permitted by applicable limitations legislation). The award of punitive damages was also reversed.
In addition to the foregoing analysis, which was largely determinative of the issue, the Québec Court of Appeal also addressed a constitutional argument that the banks enjoyed interjurisdictional immunity from the QCPA and, in the alternative, that the federal Bank Act was paramount to the extent of an inconsistency.
The claim of interjurisdictional immunity was squarely rejected. The history of credit cards proved to be decisive in this regard. Dalphond J.C.A., writing for the Court, found that credit cards originated as charge cards in department stores, not as banking instruments. It was not until considerably later that the banks began issuing credit cards, and even then the product was not exclusive to them. Far to the contrary, near banks and finance companies have also provided credit cards for years, and Desjardins is the largest credit card issuer in Québec.
In light of these facts, it could not be said that credit cards are anything more than accessory services (<<services accessoires>>) offered by banks to their customers. This characterisation was important for constitutional purposes. Rather than constituting part of the original “core” of banking, which is subject to protection under the interjurisdictional immunity doctrine, credit cards fell within the category described in Canadian Western Bank v. Alberta, 2007 SCC 22 as “innovative forms for financing”. This, Dalphond J.A. noted, was not a matter of exclusive federal authority so as to render inoperative the QCPA, or any portion thereof.
Paramountcy was also dismissed. In light of the Court’s determination that the “conversion fees” were not charges related to credit, it could not be said that there was an inconsistency with applicable federal legislation, including the federal Bank Act which had been interpreted in the same manner by the Financial Consumer Agency of Canada in 2002. Moreover, the broader objectives underlying disclosure requirements in the QCPA and federal legislation (consumer protection) were found to align, thus precluding a finding that the legislative purposes conflicted.
However, Dalphond J.C.A. noted in obiter that the paramountcy doctrine would likely have applied had the trial judge’s characterisation of the “converstion fees” as charges related to the extension of credit prevailed. Had that been the case, he surmised, there would have been an express contradiction and inconsistent legislative purposes as between QCPA and federal legislation.