Canada: Avoid Banking Class Actions

Last Updated: August 19 2010
Article by James D. McAuley

Managing banking industry exposure to class action lawsuits

KPMG's Research Results for Bank Class Actions

KPMG recently (between March 15 and April 30, 2010) conducted research on bank class actions. Here is what we found:

  • Number of Canadian banks identified as currently defending class actions – 12
  • Identified class actions currently being defended – 81
  • Number of provinces in which class actions started – 5
  • Claims where stated in filings – $4.9 billion
  • Estimated claims extrapolated to include actions with no stated claimed damages – $8.8 billion to $12.4 billion
  • Subjects of bank class actions:
    • Credit cards – 41 percent
    • Mortgages and loans – 28 percent
    • Fraud – 7 percent
    • Overtime wages – 5 percent
    • Securities – 5 percent
    • Other – 14 percent.

It is not surprising that Canadian banks continue to be popular targets for class action lawsuits. Not only are Canadian banks among the world's largest and most profitable corporations, but they also provide most of the population with a set of essential and complex services.

In the absence of readily available statistics to measure industry exposure to class actions in Canada, KPMG embarked on a research project of its own. Our investigation, mentioned in the sidebar at left, found that Canadian banks currently face at least 81 class actions.1 The amounts claimed, where reported, amount to almost $4.9 billion. When this known amount is extrapolated to include actions with no reported financial claim,2 the total estimated claims swell to between $8.8 billion and $12.4 billion.3 More specific research findings are published in the sidebar article (at left).

It is important to remember that the ultimate liability of banks to class actions will most likely be significantly less than the aggregate amounts claimed. However, the costs of settlement are substantial, and significant operating costs are also incurred to defend class actions. Perhaps one of the greatest concerns in the process is damage to the bank's reputation. It is common for the announcement, progress, and settlement of class actions to be reported in the media, with plaintiffs portrayed as David and defendant banks portrayed as Goliath.

Class action litigation can also raise public policy or regulatory issues that create uncertainty and can have major operational consequences. For example, one highly contentious class action involving nine banks has raised constitutional arguments over the role of provincial legislation in governing aspects of a bank's operations.4

A Proactive Approach to Class Action Risk

Given the costs and other potential ramifications of class actions, are there real and practical steps that banks can take to reduce their risk? There is no question that with increased risk will come increased litigation.

An emerging concept called class action avoidance is a proactive approach designed to identify the major risk areas for class action, and to take deliberate steps toward remediating known issues.

Identifying Risk Areas

The obvious starting point for a class action avoidance program is discovering where the biggest class action risks lie. The first step can be as simple as an environmental scan:

  • What actions are competitors facing?
  • What actions are banks facing in the US?
  • Are there regulatory issues or actions that could attract the attention of class action litigators?

Regulatory actions or compliance issues have been known to spawn class actions. Also, if litigators experience any success with one bank in a class action that deals with an industry-wide issue (Canada and/or the US), many other banks may be served in turn before the process is complete.

It is also worthwhile to consider whether specific class action issues apply to other bank products or services. For example, several bank class actions have been related to foreign exchange policies and fees, making the area a particular hot spot. Are the policies that govern foreign exchange also applied to any other products or services offered by the bank?

Finally, it is worthwhile examining the issues involved in current class actions to determine what products and services of the bank—or even human resources policies—may be particularly vulnerable to a class action. As noted above, credit cards and loan products are especially popular targets for class actions. Other than the matters already targeted by class actions, are there other "ticking time bombs" built into the design of such products?

Examining Risk Areas

The goal of reviewing identified risk areas is to:

  1. Assess the merit of the concern
  2. Estimate the size of a potential exposure
  3. Develop approaches to remediation, where required.

For effective class action risk management, the bank should develop an approach for reviewing each risk and allocate sufficient resources that can ultimately render the review effective. On one hand, the approach will be tailored to each risk, but, on the other hand, it will also need to be consistent with the overall scope of the desired review.

As an example, if one identified risk issue is the charging of fees in specific situations,5 the fees and products that fall within the scope of the review will need to be determined. The testing parameters will need to be defined, which involves determining what constitutes an acceptable fee. In this example, the benchmarks for testing will likely be found within customer disclosure agreements, as well as regulatory and legislative documents.

The skill sets required will usually be available from appropriate legal, information technology, and operations staff. The involvement of external expertise is also a valid consideration if independence and objectivity is desired, or where demonstrated and special expertise and experience is required.

In many situations, a thorough approach will involve the development of test models that will be applied to large data sets extracted from the bank's IT systems. This approach can to ensure that a full range of variations in relevant transactions is considered by the testing regime.

Dealing with Identified and Examined Risks

In KPMG's experience, a class action avoidance program will expose some very tangible issues. In some cases, the identified matters are marginal and may be an issue of interpretation; but in others, a fairly obvious and material risk can be defused before it is discovered by, or brought to the attention of, a class action litigator. Depending on the nature and size of identified problems, various responses or combinations of responses are required to address concerns:

  • Change disclosure documents
  • Revise a formula or calculation in the bank's systems
  • Provide voluntary restitution to parties who may have been harmed by a specific error or policy.

The Final Word

Regardless of the required action, a successful class action avoidance program does more than reduce the likelihood of a class action and, with it, a lower financial liability due to litigation. It will strengthen the compliance and risk profile of the bank, and project the image of a corporate citizen that values fairness for its customers and other stakeholders.

Consider Tax Consequences

If a claim is made, it is important to consider the Canadian income tax implications of payments made under class action lawsuits or settlements. Are the amounts paid with respect to a class action suit or settlement deductible for tax purposes?

There are no specific rules dealing with the tax treatment of damages, settlements, and class action judgments. However, general tax principles can be applied to the facts of the particular circumstances. The payments must be considered from the point of view of whether they relate to the operation of the business or to capital property used in the business. For example, settlements or class actions related to employee wages or lost profits may be deductible, as the payment should be considered to be incurred to earn income. On the other hand, payments related to capital or intangible property may be considered to have been paid to acquire such property, and may therefore form part of the cost of the particular asset.

In addition to the actual class action settlement amounts, the tax treatment of costs, such as legal costs incurred to defend class action suits, should also be considered. The tax treatment will depend on the underlying nature of the matter being litigated. For example, costs related to an employee compensation matter should generally be deductible, whereas costs related to the purchase of a capital asset may have to be added to the cost of the asset.


1 We have included as multiple class actions, cases where more than one bank has been sued under a single statement of claim.

2 Many class actions do not indicate the amount being claimed from the defendants.

3 Our high estimate of claims eliminated the highest and lowest known claims as potential outliers. Our low estimate of claims excludes all known claims that are greater than $100 million.

4 Marcotte and Laparé v. Bank of Montreal et. al., Superior Court of Quebec. This class action was decided against the defendants and is under appeal.

5 Bank fees have been a popular topic for class actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions