Major amendments to the Québec Consumer Protection Act (“CPA”) were adopted on November 15, 2017 by the Québec Legislature. We outline here certain of the changes that affect credit contracts. The amendments will come into force on the date or dates to be set by the Québec government and, in many cases, they provide for standards or requirements to be determined by regulations. Draft regulations are expected to be published in 2018.
- Credits secured by real estate
At present, a credit (loan or line of credit) secured by a first-ranking hypothec on immovable property is exempt from the CPA provisions governing credit contracts. Subject to certain conditions being met, credits secured by non-first-ranking hypothecs are also exempt from most of these provisions. The recent amendments imply that these exemptions will be repealed or replaced by more limited exemptions.
- Minimum Payment on a Credit Card
For newly issued credit cards, the minimum monthly payment will be 5% of the outstanding balance. For cards already issued when this requirement comes into effect, the minimum payment (if less than 5%) will be gradually increased to 5% over a six-year transitional period.
- High-Cost Credit Contracts
The government may determine by regulation the criteria under which a credit contract is considered to be at “high-cost”. Several consequences entail from that characterization, including that if the consumer’s debt ratio exceeds the ratio determined by regulation, the obligations of the consumer under the contract will be presumed to be excessive, harsh, or unconscionable. In that case, consumers may ask the court to annul the contract or reduce their obligations, including the interest rate.
- Assessment of Consumer’s Capacity to Repay a Credit
Before entering into a credit contract with a consumer, or before increasing a credit limit for a line of credit or a credit card, a lender or merchant must assess the consumer’s capacity to repay the requested credit. Failure to carry out this assessment releases the consumer from the obligation to pay interest or other credit charges. A regulation will determine the steps which, if taken, will result in the lender or merchant being deemed to have carried out the required assessment. Are also deemed to comply with this assessment obligations financial institutions, such as banks, insurance companies, and caisses Desjardins, who are required by their governing law to adhere to sound and prudent management practices in consumer credit matters.
- Variable Interest Rate
Subject to certain conditions, the amendments permit that any credit contract provide for a “variable credit rate”. A contract providing for a variable rate must include a description of the “reference index” used to determine the rate. The amendments do not define “reference index” but the expression should be interpreted to include, for example, a bank’s prime rate. The current CPA is more restrictive on the possibility of using a variable rate in a credit contract.
- Increase of Credit Limit in an Open Credit
At present, under the CPA, a credit limit on a credit card or a line of credit cannot be increased without an express request from the consumer. The amendments establish that if a credit provider unilaterally increases the credit limit, it will not be entitled to payment of any amounts charged to the account that exceed the previous credit limit.
- Exceeding a Credit Limit for an Open Credit
The current CPA is silent as to the legal consequence of consumers exceeding their credit limit for a credit card or a line of credit, without that limit having been formally increased. Under the amendments, a credit provider may permit an occasional excess, but only if the following conditions are met: (a) the credit provider must immediately notify the consumer that the credit limit has been exceeded, and (b) the credit provider may not impose any charges on the consumer for exceeding the credit limit.
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Unfortunately, the amendments do not contain clarifications on important issues like the concept of “consumer” or the scope of application of the CPA. For example, based on court decisions, it is unclear whether a professional who borrows money to purchase office equipment is considered a “consumer” under the CPA and, accordingly, whether the CPA applies to that loan. It would also have been useful to clearly circumscribe the scope of application of the CPA, for example by stating that the CPA applies to consumer contracts which are subject to Québec law under the rules of the Civil Code of Québec that determine the jurisdiction whose law governs a contract.