On May 2, 2017, the Quebec Minister of Justice introduced at first reading Bill 134, An Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs1 (the “Bill”).
By way of numerous proposed amendments to the Consumer Protection Act2 (the “CPA”), the Bill aims among other things to implement new rules and obligations on merchants in relation to consumer credit, and provide a new framework for loyalty programs. In parallel, the Bill creates new requirements dealing with business practices and advertizing.
Although seemingly limited in scope, the Bill is likely to impact many Quebec merchants, including those who offer, directly or indirectly, consumer credit and those who participate in loyalty programs.
A. Contracts of Credit
The Bill creates new terms and conditions in relation to credit granting, the scope of which is primarily aimed at sale or service contracts involving credit and revolving credit agreements, which capture for the most part the agreement for the use of a credit card or a line of credit. The major new requirements set forth by the Bill are the following:
a) Credit Rate: Modification and addition of credit charges not to be considered in the calculation of the credit rate.3 These charges could thus be billed to the consumer distinctly from the applicable interest rate as per the agreement.
b) Grounds of Defence Against the Seller May be Set Up Against the Credit Grantor: The consumer’s grounds of defence towards the seller or the service provider can be set-up against the credit grantor in the context of a loan granted in relation to that sale or service.4 This could entail that a consumer could be freed from the money owed as per the credit contract as a result of an issue arising from the related sale or service agreement. Credit grantors should anticipate having to deal with challenges based on the legal warranty of quality or the rules pertaining to leases.
c) Assessment of Consumers’ Capacity to Repay Credit: Any credit contract or increasing an existing credit limit will be incumbent on an assessment of the consumer’s capacity to repay the credit granted.5 Failure to perform this assessment entails losing the right to claim credit charges from the consumer.6
d) Mandatory Content for Credit Card Applications and Agreements: Mandatory disclosure of various information in the application or contract pertaining to the use of a credit card, notably in relation to the applicable rates, the grace period and the credit limit.7
e) Minimum Payment of 5% of the Account Balance: With the exception of a debt being paid in instalments in accordance with specific terms and conditions (which seemingly captures the financing of goods and services), the minimum payment required at the end of a billing period shall not be less than 5% of the outstanding balance at that time.8
f) Prohibited Unilateral Credit Limit Increases: Increasing the credit limit without an express request by the consumer is prohibited, while any such unilateral increase prohibits from claiming the amounts charged to the account beyond the previously granted credit limit.9
The Bill also introduces the concept of « high-cost credit contract »,10 which nature is not fully defined, but to which are associated onerous requirements and could lead to presumptions of abuse in favour of the consumer.
The full scope and extent of these new provisions to be included in the CPA will be defined and supplemented by regulation, as well as the repealing of the Schedules 1 to 11 of the CPA11 suggests that new mandatory content to be included in credit agreement will be imposed on merchants.
Merchants offering credit for the financing of their goods and services, as well as credit issuers should be aware of these new provisions, which may warrant significant changes to their business practices and agreements, and offer novel and extended rights and recourses to consumers.
B. Loyalty Programs
The Bill also encompasses loyalty programs by which “exchange units” are given to consumers upon entering into agreements.12 An exchange unit is any benefit extended to the consumer having an exchange value.
The heart of the Bill in relation to loyalty programs is the prohibition of stipulations under which exchange units expire on a set date or by the lapse of time.13
Again, merchants offering in-house loyalty programs or merchants operating autonomous programs should be reviewing or adapting their practices to take this new framework into account.
The Bill also modifies the Title II of the CPA by adding new provisions in relation to mandatory content for advertisements or messages directed to consumers.
In addition to specific information that will have to be disclosed to the consumer to be determined by regulation, the Bill oversees advertisement over the merchant’s cost price, the costs of instalments to be paid and the total value of goods or services purchased or leased, as well as the benefits of credit.14
Lastly, the Bill includes other provisions dealing with debt settlement by regulating this industry,15 the collection of certain debts16 and the Travel Agents Indemnification Fund.17
Although the Bill could still be amended and reviewed during its enactment process and that the details as to its entry into force are still unknown, Quebec merchants will undoubtedly soon operate in a new legislative and regulatory environment.