On June 8, 2011, the Government of Québec tabled Bill 24, the Act mainly to combat consumer debt overload and modernize consumer credit rules ("Bill 24"). Bill 24 follows the Québec Consumer Protection Bureau's consultations with financial institutions and other parties affected by the accompanying changes. Further consultations are expected, as Bill 24 was passed by the National Assembly of Québec on June 8, 2011 with a promise from the Minister of Justice to hold general consultations on the Bill in order to collect input from a large number of participants. The form of such consultations that will take place will be determined at a later time. Persons who would like their voice to be heard regarding the proposed amendments will thus have the opportunity to do so during the coming months. All signs point to Bill 24 being passed by the National Assembly during the next legislative session.
In this bulletin, we will examine Bill 24's impact on merchants by outlining the changes that it makes to the Consumer Protection Act ("C.P.A."). The Bill makes major reforms to the C.P.A. provisions respecting credit contracts and long-term leasing contracts and their related provisions. Bill 24 aims primarily to reduce Québec's consumer debt levels by implementing protective measures on behalf of the most vulnerable consumers.
Given the number of changes stemming from Bill 24, we will not cover all the proposed amendments in this bulletin, but will focus on those that we consider to be the most significant.
Compulsory disclosure of certain information to consumers
Bill 24 aims to require merchants to disclose a maximum amount of information in order for consumers to have access to all the information that would be useful to fully understand their obligations.
Bill 24 expressly sets forth all the information that must be included in the various contracts and forms used by merchants, in even greater detail than before. Such documents include, inter alia: (1) contracts for the loan of money; (2) application forms for open credit; (3) open credit contracts; (4) instalment sale contracts; (5) contracts involving credit; and (6) long-term leasing contracts. Concerned merchants will therefore have to review the contracts and forms that they currently use and ensure that all information set forth in the law is included when it comes into force. They will have to pay particular attention to credit contracts with a variable credit rate, as Bill 24 provides new disclosure obligations regarding such contracts.
In addition, merchants will not only have to provide the consumer with a duplicate of the contract (which was already required under the C.P.A.), but must now also provide a copy of any other document signed by the consumer, as well as any rider amending a contract.
If the issuer of an open credit contract has a website, an up-to-date version of any open credit contract offered to consumers must be posted on that website.
It will henceforth also be prohibited to withhold an amount on the credit card, unless the merchant discloses, before the transaction, the amount to be withheld and why and for how long it is to be withheld.
Statements of account for contracts with a variable credit rate
In order to strengthen disclosure obligations, Bill 24 contains several provisions relating to the statement of account that has to be issued and sent to the consumer with respect to contracts with a variable credit rate.
Bill 24 contains an even more exhaustive list of the information that must be specified in the statement of account to be sent to the consumer. The new requirements include, among others, the estimated number of months or years required to repay the entire outstanding balance if only the required minimum payment is made each period, as well as the consumer's rights and obligations regarding billing errors.
The merchant is not, however, required to send a statement of account to the consumer at the end of any period during which there have been no advances or payment, and: (1) where the outstanding balance at the end of the period is zero; or (2) the merchant has already invoked the forfeiture of benefit of the term clause included in the contract.
While the current C.P.A. does not include any specific deadline for doing so, Bill 24 gives consumers who detect a billing error on the statement of account 60 days from the date the statement of account was received to inform the merchant of this fact. Within this same 60-day period, the consumer may also demand that the merchant send, without charge, a copy of the vouchers for each of the transactions charged to the account during the period covered by the statement. The difficulty for merchants who wish to oppose such demands from a consumer will consist in determining the actual date of the consumer's receipt of the statement of account.
Finally, Bill 24 imposes clearer limits on sending the statement of account by electronic means. The statement can be sent to a technological address, but only if expressly authorized by the consumer. The consumer may at any time withdraw this authorization.
Credit rate and credit charges
Bill 24 limits the amounts that may be taken into account in calculating the credit rate, prohibiting inclusion of:
- a premium for insurance not required as a condition for the contract; and
- the fee for registration in the Register of personal and moveable real rights (RDPRM).
In calculating the credit rate for an open credit contract, the following items will no longer be taken into account:
- the membership or renewal fee;
- the value of the rebate or discount to which consumers are entitled if they pay cash;
- the fee for an additional copy of statements of account;
- the fee for customizing a credit card; and
- the replacement fee for a lost or stolen credit card.
Other exclusions that apply to the calculation of the credit rate are also stipulated for credit contracts secured by an immovable hypothec.
These provisions are aimed at enabling consumers to better compare the credit rates actually being offered by a merchant. The fact that no loan broker may claim or receive any payment whatsoever from a consumer for services rendered should also be mentioned. Broker fees must now be included in the credit charges and wholly assumed by the financial institution. Again, the new legislation is designed to enable better comparison between the credit rates offered by different financial institutions. For credit contracts with a variable credit rate, Bill 24 provides that a merchant must, at least once a year, send the consumer a statement containing: (1) the credit rate at the beginning and at the end of the period covered by the statement; (2) the outstanding balance owed by the consumer at the beginning and at the end of the period; and (3) if the contract provides for scheduled payments, the amount and timing of all remaining payments at the end of the period, and the date on which each of the payment is due. Note that if the credit rate increases, the new rates will apply only from the beginning of the period subsequent to the notice.
In addition to credit charges, the only default charges the merchant may claim from the consumer are: (1) legal costs incurred in collecting a payment; (2) costs incurred in enforcing and realizing the security guaranteeing the performance of the consumer's obligations or in protecting the secured property; and (3) costs incurred because a cheque or other payment instrument given by the customer was not accepted.
Amendment of credit contracts
It will now only be possible to amend a credit contract with the agreement of the parties and all changes must be evidenced in a new contract or in a rider to the original contract.
If an amendment to the contract causes the credit rate or credit charges to increase, the new contract or the rider must be signed by the parties and must contain the particulars identifying the original contract and the amount payable by the consumer for discharging the obligation under the original contract before it is due. It must also contain, inter alia, the net capital, the credit charges, the credit rate, the new amount of the consumer's total obligation and the terms and conditions of payment.
Thus, in situations like the first one, where the credit charges do not rise, it will be easier for the merchant to amend the credit contract, as they would have to obtain the consumer's consent in the way they deem appropriate. However, if the credit rate or the credit charges do rise the consumer's signature will be required. It should be noted, however, that the merchant may still amend a variable credit contract to increase membership fees, renewal fees or the credit rate, by notifying the consumer pursuant to the C.P.A.
Measures to combat debt overload
The most significant changes made by Bill 24 surround the introduction of various interventional measures aimed at protecting consumers against debt that they are unable to take on.
As a result, Bill 24 introduces a whole new section to the C.P.A., called "Verification of Consumer's Capacity to Repay the Credit Requested". Thus, before entering into a credit contract with a consumer or increasing the amount of credit extended to a consumer, the merchant must verify the consumer's capacity to repay the credit requested. A regulation may be made to determine the information that the merchant must take into account when making the verification, and to prescribe conditions to govern the application of this obligation. Heavy sanctions apply to merchants who fail to comply with this obligation: they lose the right to the credit charges and, where applicable, must refund any credit charges already paid by the consumer.
Similarly, Bill 24 adds that before entering into a long-term leasing contract with a consumer, the merchant must verify the consumer's capacity to perform the obligations under the contract. Merchants who fail to do so lose the right to the implied credit charges and must refund any implied credit charges already paid by the consumer.
It goes without saying that such provisions impose a heavy burden on financial institutions and affected merchants, as well as heavy potential liability. It would therefore be preferable, that the government clarify their role in exercising this obligation.
Accordingly, if purchasing insurance is required as a condition for the credit contract, consumers may use an existing insurance policy or purchase insurance from the insurer or insurance representatives of their choice. The merchant may only disapprove the insurer selected by the consumer on reasonable grounds. The merchant may not, however, disapprove an insurer if the insurer holds a license issued by the Autorité des marchés financiers and if the coverage meets the requirements of the credit contract. This proposal imposes a heavy burden on financial institutions, which, without being insurance experts, will need to be able to evaluate the coverage and conditions proposed to them by the consumer.
Another significant change applicable to credit card contracts pertains to the minimum payment required for a period, which may not be less than 5% of the outstanding balance at the end of the period. No minimum payment threshold is required by the current legislation.
In addition, the Bill grants consumers a grace period of at least 21 days after the last day of the period covered by the statement of account to pay all outstanding amounts without having to pay credit charges. This grace period does not apply to cash advances, for which the merchant may claim credit charges from the date of the advance.
Bill 24 also stipulates that any payment made for a period must be allocated first to the debt with the highest credit rate, then to other debts in decreasing order of credit rate or, if the credit rate is the same, to each of the amounts due in the proportion they represent in relation to the outstanding balance of the account.
Finally, Bill 24 reiterates that a merchant may not increase the credit limit granted except on the express request of the consumer. At the same time, the Bill specifies that if a consumer makes a transaction resulting in the credit limit granted being exceeded, such transaction does not constitute an express request. In addition, a merchant may not increase the credit limit beyond the level requested by the consumer. It is not necessary to record a modified credit limit in a new contract, but the first statement of account sent after the modification must state the new credit limit.
Long-term leasing contracts
Bill 24 also adds a range of provisions that complement Section III.1 C.P.A. with respect to long-term leasing. It contains provisions specifying, inter alia, how to determine the retail value of leased goods, down payments, residual value, net obligation, implied credit charges, the implied credit rate, and calculation of the implied credit rate.
In order to combat practices that could be onerous for consumers, Bill 24 specifies that no long-term leasing contract may include a stipulation allowing the merchant to impose: (1) charges on the ground that the nature or quality of a part or component installed during normal maintenance service is unsatisfactory to the merchant, unless the contract expressly provides for this; and (2) in the event that a part or component shows abnormal wear, charges that exceed the fair market value of a part or component showing normal wear and tear. The objective is thus to eliminate the practice of demanding that only parts manufactured by the original manufacturer be used in maintenance, or that only new parts be used despite normal wear and tear on the leased item.
In addition, like credit contracts, long-term leasing contracts may only be amended with the agreement of the parties. However, if the implied credit rate or the implied credit charges are increased as a result of such amendment, a new contract or rider must be signed by the parties and must contain the information provided by Bill 24.
Thus, the consumer may sublease leased goods or transfer a long-term leasing contract. The merchant may not refuse to consent to such sublease or transfer without a serious reason and may not require payment other than the reimbursement of any reasonable expenses resulting from the sublease or transfer. The transfer of the long-term leasing contract releases the consumer from all obligations under the contract.
The Bill contains several other provisions complementing the section on long-term leasing contracts, but we will not cover these in this bulletin.
Liability in the event of fraud, theft, loss or fraudulent use of a credit card
While the C.P.A. currently limits the liability of the consumer whose credit card is lost or stolen to $50, the law is silent with respect to loss or theft of debit cards. Bill 24 breaks this silence and broadens the protection provided to debit and credit card holders.
First, if a third person uses the consumer's debit or credit card after the card issuer is given notice of the loss, theft or fraudulent use of the card, the consumer is not liable for losses. As mentioned above, the current protection applicable to credit cards does not apply if the credit card is lost or stolen. Bill 24 thus increases the protection offered to consumers. Even if no such notice is given, consumer liability for the unauthorized use of a debit card is limited to $50.
Within two days after receiving notice, the card issuer must reimburse to the consumer any amount debited from the consumer's account (or, if no notice was given, any amount over the first $50). However, this provision is subject to one reservation: the consumer may be held liable for the losses incurred if the card issuer proves that the consumer authorized the use of the debit card.
Advertisements, representations and promotions
Bill 24 strictly delimits advertising, especially with respect to credit. In this regard, it will now be prohibited for an advertisement to:
- fail to present all the information concerning goods or services in a clear, legible and understandable manner; 
- falsely or misleadingly represent to consumers that credit may improve their financial situation or solve their debt problems;
- in an advertisement concerning specific goods and disclosing their price, show a picture of the goods that is not an accurate description of them;
- refer to a preferential implied credit rate without disclosing that rate, or to disclose a rate relating to implied credit unless the implied credit rate is also disclosed with equal emphasis;
- 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;
- refer to a preferential credit rate without disclosing that rate; and
- disclose a rate relating to credit unless the credit rate is also disclosed with equal emphasis; however, if an advertisement offers consumers the choice between receiving a rebate or discount on the purchase of goods in cash and paying for the goods by way of a credit contract, the credit rate disclosed must include the value of the rebate or discount to which the consumer is entitled on paying cash.
Other than advertising itself, Bill 24 also limits certain other practices aimed at inciting clients to get credit cards. First, Bill 24 specifies that no person may offer a premium to incite consumers to apply for a credit card. The Bill also stipulates that if a credit card is issued at a promotional credit rate, that rate may not be increased before the expiry of a period of six months. Minors, who constitute more vulnerable consumers, are not neglected by the Bill, as no merchant may enter into an open-credit contract with a minor who is an unemancipated minor without the written authorization of a person having parental authority.
End of the contract and court intervention
Bill 24 introduces several provisions concerning rescission and cancellation of contracts.
The cancellation period for distance contracts, where the consumer paid with a credit card or another payment instrument, begins as of the receipt of the statement of account if the consumer, at that time, observes that the merchant has not disclosed all the information described in section 54.4 C.P.A. The cancellation period for contracts for the loan of money, contracts involving credit and long-term leasing contracts will rise from two days (under the current C.P.A.) to seven days, depending on the date on which each of the parties is in possession of a duplicate of the contract.
Bill 24 adds that the consumer may, at any time and at the consumer's discretion, cancel an accessory contract to a credit contract provided that such accessory contract was not required as a condition for the credit contract. In order to cancel, the consumer must give a 30-day notice (or less if the accessory contract so provides). The consumer is then entitled to a refund of any amount paid for any portion of the service that has not yet been provided.
The merchant has several obligations once the consumer's obligation is fully discharged. A 30-day period is given to the merchant to deliver a discharge to the consumer and return any object or document received as an acknowledgement of or security for that obligation, and to cancel the registration of any right relating to this obligation. All discharge, delivery and cancellation costs are borne by the merchant. This will allow consumers to avoid taking additional measures to have the financial institution cancel any security following reimbursement of a debt.
Consumers should also take note of the fact that a consumer who is party to a credit card contract with another person, and who cancels the credit card, is released from the obligations resulting from any transaction charged to the credit card account after advising the merchant or financial institution of his or her decision to cancel the card, which will accompany such notice. A consumer who has entered into a preauthorized payment agreement for the benefit of a third person under which payments are made out of credit obtained under an open credit contract may end it at any time by sending a written notice to the merchant or financial institution and the third person. Upon receipt of the notice, the merchant or financial institution must cease debiting the consumer's account to make payments to the third person beneficiary.
Bill 24 also defines the judge's role in the event of legal proceedings between a consumer and a merchant who is a vendor, lessor, contractor or service provider. The court may, until final judgment is rendered, order the suspension of the repayment on the outstanding balance or the portion of the outstanding balance used to pay the purchase or lease of the goods or the provisions of the services, or order the suspension of instalments.
If a superior force prevents the consumer from meeting the terms and conditions of payment set out in a credit contract, Bill 24 grants the court discretion to modify the terms and conditions of payment as it considers reasonable.
Certain limitations still apply when consumer privacy is at risk. Bills 24 limits the disclosure of information to a personal information agent. Accordingly, no person may inform a personal information agent of the exercise by a consumer of the right to cancel or rescind a contract, or send such agent unfavourable information concerning amounts that are no longer payable following the exercise of that right.
Finally, Bill 24 does not only amend the C.P.A., but also makes additions to other laws such as the Travel Agents Act and the Act Respecting the Collection of Certain Debts. Hence, section 49 will enable a person who suffers a prejudice due to failure to adhere to the law to claim punitive damages.
It will be important for the financial institutions concerned, for other merchants providing credit contracts and for merchants providing long-term leasing contracts to stay informed and up to date on the developments concerning Bill 24 and the regulations that the government may pass to complement it.
It goes without saying that, in the aim of protecting the consumer, a heavy burden is imposed on financial institutions and other merchants. The changes will require significant amendments to the contracts that they currently use, as well as to their current practices. Significant compliance and training costs will be incurred. However, for some financial institutions conducting business outside of Québec, or who are already subject to other legislation, the changes may be easier to adopt, as Bill 24 adopts many of the measures set forth in the Agreement for Harmonization of Costs of Credit Disclosure Laws in Canada, or in current federal regulations or legislation.
We will be closely monitoring developments related to Bill 24 and will keep you informed of any noteworthy news.