Canada: Marcotte: Can The Provinces Regulate Banking In Canada?

On September 19, 2014, the Supreme Court of Canada released its decision in Bank of Montreal v. Marcotte (Marcotte) and two companion cases Marcotte v. Fédération des caisses Desjardins du Québec and Amex Bank of Canada v. Adams.

THE ISSUE

One of the central issues in Marcotte concerned the applicability of certain provisions of the Quebec Consumer Protection Act (CPA) to bank-issued credit cards. In particular, do sections 12 and 272 of the CPA – which deal with the disclosure of charges requirement and the remedies for breach of this requirement – apply to conversion charges imposed by banks on credit card purchases made in foreign currencies?

SUPREME COURT OF CANADA DECISION

In dismissing the appeal from the Québec Court of Appeal, the Supreme Court rejected the appellant banks' (Banks) constitutional arguments that the CPA was either constitutionally inapplicable to regulate bank-issued credit cards (the doctrine of interjurisdictional immunity) or was constitutionally inoperative in respect of banks governed by the federal Bank Act (the doctrine of federal paramountcy).

In respect of the interjurisdictional immunity argument, the Supreme Court stated that this doctrine operates to prevent laws enacted by one level of government from impermissibly "trenching" (encroaching) on the "unassailable core" of jurisdiction reserved for the other level of government. The Supreme Court rejected the Banks' argument that the applicability of the relevant provisions of the CPA to banks would impair the core of Parliament's banking power, stating "[b]anks cannot avoid the application of all provincial statutes that in any way touch on their operations, including lending and currency conversion."

As for the paramountcy argument, the Supreme Court noted that paramountcy is engaged where there is a conflict between federal and provincial law. Conflict can be established by demonstrating either that it is impossible to simultaneously comply with both laws or by showing that compliance with provincial law would frustrate the purpose of the federal law. In this case, the Court held that the doctrine of paramountcy was not engaged. Even assuming that the purpose of the Bank Act is to provide for exclusive national standards, the Supreme Court held that the notice and penalty provisions of the CPA at issue did not frustrate or undermine that purpose.

IMPLICATIONS

The Supreme Court decision does not go so far as to foreclose the paramountcy argument being raised in future cases in respect of other provincial consumer protection provisions. The Supreme Court noted that where a provincial requirement conflicts with a Bank Act provision, the result may be operational conflict or an undermining of the purpose underlying the Bank Act. Examples given by the Supreme Court of where the paramountcy doctrine might come into play are if a province provided for a different grace period or a different method of interest computation or disclosure from that provided under the Bank Act.

Time is required to fully assess the impact of the Supreme Court's decision on the way banks and other federally regulated entities must conduct business across the country. Based on this decision, however, going forward the challenge will be to identify with certainty when compliance with provincial law by a federally regulated entity is not required.

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