On September 19, 2014 the Supreme Court of Canada decided that
provincial consumer protection legislation applies to banks and
credit unions in credit matters. The decisions increase the sphere
of provincial legislation that could apply to federally regulated
financial institutions, give the provinces greater scope in
consumer protection, and send financial institutions a strong
message about consumer protection in the context of credit.
Groups of Canadian consumers sued a number of Canadian financial
institutions in several class action lawsuits for repayment of the
foreign currency conversion charges the institutions imposed on the
consumers' credit card purchases. The consumers said the
charges violated Quebec's Consumer Protection Act. The
financial institutions said provincial consumer protection
legislation doesn't apply to them.
In three decisions, the SCC agreed with the consumers and
ordered the financial institutions to repay to credit card holders
any foreign currency conversion charges they imposed without
sufficient disclosure to the cardholders. The decisions are based
on Quebec provincial legislation, but each Atlantic Province has
provincial consumer protection legislation so the decisions have
relevance beyond Quebec:
Insufficient Disclosure. It wasn't enough
for the financial institutions to disclose the conversion charges
on the back of the monthly credit card statements (as one did)
because doing so wouldn't bring the charges to the
consumer's attention when it and the cardholder entered into
the credit card contract (which happened when the consumer first
entered into the cardholder agreement with the financial
No Waiver. Cardholders don't waive their
right of legal action or protection under the consumer protection
legislation by paying the conversion charges.
Provincial Legislation Applies. The Canadian
Constitution Act gives the federal Parliament exclusive
jurisdiction over banking, but the relevant sections of the
provincial consumer protection legislation don't impair the
core federal banking power so the doctrine of interjurisdictional
immunity (which prevents laws that one level of government enacts
from encroaching on an area over which the second level of
government has power) didn't apply. Similarly, the
provincial legislation wasn't inconsistent with the federal
Bank Act and it didn't frustrate any federal purpose,
so the doctrine of federal paramountcy (which says that where valid
provincial and federal laws conflict the federal law
prevails) didn't apply.
Punitive Damages. Most of the financial
institutions hadn't even disclosed the conversion charges on
the back of their statements and so were required to pay the
consumers punitive damages (money intended to punish them rather
than compensate the consumers).
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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