On June 7th, 2011, An act to combat consumer debt overload and modernize consumer credit rules (Bill 24) was tabled in the National Assembly of Québec.
If enacted in its current form, Bill 24 will affect a broad scope of businesses, but predominantly those which provide consumers with contracts of credit such as contracts for: money loans, open credit, instalment sales, and debit cards. Mainly, Bill 24 proposes to introduce:
- general measures to counteract consumer debt overload;
- rules contained in the Agreement for Harmonization of Cost for Credit Disclosure Laws in Canada;
- rules regarding the credit rate and charges and a liability in the event of an unauthorized use of a credit and/or debit card; and
- a new framework of regulations as regards certain business practices, such as advertising.
General Measures Counteracting Consumer Debt Overload
Bill 24 introduces a new obligation for merchants to provide a consumer not only with a copy of the contract that is executed by the consumer but also with a duplicate of any other documents signed by the consumer.
According to Bill 24, a consumer will have seven days following the day on which the consumer is in possession of a duplicate of a contract of credit to cancel it and 30 days to cancel any accessory contract not required as a condition to obtain a contract of credit (unless shorter notice is provided in the accessory contract). In the later case, the consumer will be entitled to a refund of any amount paid for any portion of the services that has not been provided at the time of the cancellation.
If Bill 24 is enacted, merchants will have:
- the obligation to deliver a discharge and to return any object or document received as an acknowledgement of, or security for, the said discharged obligation; and
- if applicable, to request the cancellation of the registration of any right or hypothec securing the performance of the consumer’s obligation.
- Court Intervention
According to Bill 24, as long as a consumer is not in default, such consumer will have the right i) to ask the court to modify the terms and conditions of payment under a contract of credit if such consumer cannot meet those terms and conditions by reason of a superior force and ii) to request the court to order suspension of repayment of outstanding balance until final judgement is rendered.
- Verification of Consumer’s Capacity to Repay
If Bill 24 is adopted, merchants will have the obligation to verify a consumer’s capacity to repay the credit requested or any increase of credit requested before entering into a contract of credit or extension of credit. A merchant who fails to fulfill that obligation will lose its right to the credit charges and will have to refund all credit charges already paid by the consumer.
Bill 24, as it is written now, does not provide merchants with any insight on how the obligation to verify consumer’s capacity can be fulfilled.
- Open Credit Contract
If Bill 24 is enacted, merchants will be prohibited from:
- granting a consumer with a higher credit limit than what he or she requested or increase the credit limit already granted except if requested by the consumer; and
- increasing the credit rate of a credit card issued at a promotional rate before the expiry of a period of six months.
Furthermore, merchants will be required to increase the minimum payment required progressively from 2% until it reaches 5%, with an increase of 1% per year following the adoption of Bill 24.
Merchant’s Disclosure Obligations
In order to comply with the Agreement for Harmonization of Cost for Credit Disclosure Laws in Canada, Bill 24 lists all the information that merchants will have to disclose in various types of contracts including contract with a variable credit rate, contract for the loan of money, open credit contract and its application form or the accompanying documents, instalment sale contract and any other contract involving credit.
Credit Rates and Charges
Bill 24 if enacted will have the effect of limiting credit charge components. Merchants will be prohibited, among other things, to take into account in calculating the credit rate (i) a premium for insurance not required by the merchant as a condition for the contract and (ii) the fee for registration in the register of personal and movable real rights.
With regard to default charges, the merchant will have the right only to claim from the consumer reasonable charges in respect of certain costs only.
Liability in the Event of an Unauthorized use of a Credit and/or Debit Card
Pursuant to Bill 24, debit card contracts will be regulated by the CPA. Consumers will be liable for losses resulting from the use of their credit/debit card by a third person before the card issuer is given notice of the loss, theft and fraudulent or unauthorized use of the card. However, in any case such liability will be limited to $50.
If Bill 24 is enacted, new prohibitions will be established in relation to common business practices. Among others, it will be prohibited (i) for any person and by any mean, to represent to consumers that credit may improve their financial situation; or (ii) to state or imply that “no credit charges are payable during a certain period following a transaction, unless the applicable credit rate at the end of that period, if the net capital has not been completely repaid, is clearly specified”. It will also be prohibited to offer a premium to incite consumers to apply for a credit card or to enter into an open credit contract with a non emancipated minor without the written authorization of a person having parental authority.