Canada: The New Face of Consumer Protection Law in Ontario: Consolidate, Update and Escalate

On July 30, 2005, Ontario’s existing Consumer Protection Act and Regulations (the "Old CPA") will be replaced by the Consumer Protection Act, 2002 and its associated Regulations (the "New CPA"). As its title indicates, Ontario’s new consumer protection statute was passed in 2002 but could not be proclaimed into force until the regulations under it had been finalized. This will be the first substantial overhaul to Ontario’s consumer protection laws in nearly three decades. The motivation for change can be summarized in three words: consolidate, update and escalate.

Consolidate - with six core consumer protection statutes being rolled into one (the Business Practices Act, Consumer Protection Act, Consumer Protection Bureau Act, Loan Brokers Act, Motor Vehicles Repair Act and Prepaid Services Act);

Update - particularly in light of the proliferation of e-commerce, and the need to keep pace with other provinces in respect of cost of credit disclosure rules (an updated law is in force in Alberta, will soon be in force in British Columbia and Saskatchewan, and is awaiting release of Regulations in New Brunswick and Nova Scotia); and

Escalate - providing expanded rights and remedies for consumers, and increased obligations and exposure to penalties for suppliers of goods and services.

The New CPA will apply any time an individual enters a transaction for personal, family or household purposes, where at least one of the parties involved is located in Ontario when the transaction takes place. Thus, even if a business does not have a physical presence in Ontario, the New CPA will govern its relationship with Ontario consumers.

The New CPA introduces rights and requirements regarding agreements that are entered into online, over the phone, by mail or outside of the supplier’s place of business, as well as agreements that involve future performance, delivery or payment. There are also new rules for advertisers, and new requirements for agreements regarding specific products and services, such as personal development services (e.g., health clubs, talent and modeling agencies, sports and dance studios), time share properties, automotive repair, credit, credit repair, leasing and loan brokering.

Although the New CPA casts an extremely wide net, certain transactions and specific individuals have been carved out where other legislation already provides protection for consumers. For example, the New CPA does not cover various transactions with respect to securities, real estate (other than with respect to time share properties), funeral services, or financial products and services, to name a few. In addition, some professional service providers are already governed by or subject to other job-specific legislation. Professionals such as architects, chartered accountants, lawyers, teachers, health professionals and veterinarians are therefore exempt from the New CPA.

Consumers will now be able to cancel or rescind agreements and demand repayment of money under various scenarios. This is arguably the most significant development brought about by the New CPA, and businesses will need to adjust the way they contract with consumers in order to avoid running into trouble.

The first thing to consider is the types of agreements that your business enters into with consumers. The definitions of the various types of agreements are not consolidated in one place in the New CPA, and some agreements will satisfy the criteria of more than one type. The New CPA establishes specific requirements with respect to the following:

• Internet Agreements, which are agreements formed by text-based Internet communications. The fact that Internet Agreements must be "text-based" is a significant qualifier. For example, where Voice over Internet Protocol (VoIP) technology is being used to have a phone conversation via the Internet, the communication is not text-based, so the Internet Agreement rules will not apply; rather, the Remote Agreement rules will apply.

• Remote Agreements, which are agreements other than Internet Agreements where the parties are not present together at the time the agreement is entered into. For example, an agreement entered into by phone, fax or mail.

• Direct Agreements, which are agreements negotiated or concluded in person at a place other than the supplier’s place of business or a market place, auction, fair or exhibition. For example, an agreement struck with a door-to-door salesperson.

• Future Performance Agreements, which are agreements other than Direct, Internet or Remote Agreements, in respect of which delivery, performance or payment in full is not made when the parties enter into the agreement.

For each of these agreements, and any Personal Development Services Agreement, the consumer’s total potential payment obligation must be over $50.00 for the New CPA to apply. So, while a single online purchase for $19.99 will not give rise to an Internet Agreement, an ongoing monthly subscription in that amount will.

The New CPA also sets out detailed requirements for agreements regarding specific products and services. The general rule established by the new legislation is that consumer agreements which meet the criteria of more than one type of agreement must comply with the provisions relating to each type of agreement. However, a complex web of overlap rules combine with definitions to carve out some exceptions where only one set of requirements needs to be satisfied. Agreements will therefore need to be assessed on a case-by-case basis to determine the specific requirements that apply.

The New CPA establishes detailed disclosure obligations in respect of the various types of consumer agreements. With respect to Internet and Remote Agreements, certain pre-contractual disclosure is required (including specific information about the goods, the supplier, the price and payment(s) and various other details). In addition, a supplier must provide a consumer with an express opportunity to accept or decline an Internet or Remote Agreement and to correct any errors. In the case of Internet Agreements, the New CPA stipulates that such opportunity must be provided "immediately" before entering into the agreement. If the pre-contractual obligations are not satisfied in full, a consumer may cancel the agreement up to 7 days after receipt of the final agreement. Internet retailers should consider the implications of the new law for their online stores and checkout procedures. Companies who use telemarketing should revisit their scripts and ensure the disclosure obligations are properly addressed.

The pre-closing disclosure obligations for Internet and Remote Agreements are in addition to the general requirement, which applies to all consumer agreements, that suppliers provide consumers with a copy of the final agreement, and that it include specific information depending on the type of agreement. If a consumer does not receive a copy of the final agreement in full compliance with the New CPA, the consumer may cancel the agreement anytime up to a full year after the date it was entered into (or within 30 days for Internet Agreements).

The New CPA also provides a "cooling-off" period for certain consumer agreements. A consumer can cancel a Personal Development Services Agreement, Direct Agreement, or Credit Repair, Loan Brokering or Time Share Agreement anytime up to 10 days after receiving a written copy. What is particularly striking here is that unlike the other cancellation rights, which are borne out of a misstep by the supplier, the cooling-off period for these transactions is available to consumers even where a supplier has fully complied with every aspect of the New CPA. In addition, the agreement itself must contain specific statements to ensure that the consumer is fully informed of this right.

To address concerns regarding high-pressure sales tactics, the cooling-off period is a get-out-of-jail-free card for consumers who sign on the dotted line but subsequently change their minds. For businesses like health clubs, dance studios, modelling agencies and martial arts clinics, in addition to time share operators, it is an unavoidable variable. Companies that are not in the time share business and that do not offer personal development services, but who do market their products or services via door-to-door sales or other such efforts, may wish to consider the viability of restructuring the actual negotiation and entering into of agreements with consumers.

The New CPA contains substantially revised cost of credit advertising and disclosure rules. Advertisers must disclose interest rates according to new detailed formulas, which effectively take into account all costs associated with the extension of credit. These "Annual Percentage Rate" (APR) calculations combine the actual interest rate with all other costs of the credit, such as an annual or administration fee, or any discount or rebate offered to cash purchasers that is not offered to finance or lease customers. When such fees or foregone rebates are factored into the calculation, the APR increases accordingly.

Consider this in light of the requirement under the New CPA that all disclosures with respect to the cost of borrowing must be of equal prominence. It seems likely that the days of "0% financing" advertising are over given that virtually all such offers present the consumer with a choice between a lower cash price or a higher, "interest-free" credit price. The difference between those prices is effectively a cost of credit, and must be identified as such under the APR calculations imposed by the New CPA.

An advertisement for financing that includes any representation regarding interest or payment amounts must also include the APR and the length of the financing term. Where a supplier is offering financing with respect to a specific good or service, the ad must also include the cash price and the cost of borrowing. Where a range of goods or services is being advertised, a single good or service must be used to illustrate a representative agreement. However, the cost of borrowing need not be included where there is no cost other than interest (i.e., there are no additional fees, forgone rebates, etc.) or where such an ad is broadcast on television or radio, or contained on a billboard or bus board, or subject to other similar time or space limitations.

Where an advertisement is in regards to a lease, the ad must include specific details regarding payments to be made before and during the term of the lease, the length of the lease term, the APR, and the excess kilometre charge for automobile leases with an allowance of less than 20,000 kilometres per year. Again, where a range of goods or services is being advertised, a single good or service must be used to illustrate a representative agreement. Where the ad is broadcast on television or radio or otherwise subject to time or space limitations, the disclosure obligations are somewhat lessened. In particular, instead of disclosing the length of the term and the APR, the ad may simply reference a toll-free number or local publication where such information can be obtained.

In addition, the New CPA requires lenders and lessors to disclose a wide array of details regarding the credit being offered. To name just a few, the consumer must be made aware of: the total amount of all payments required; the timing and amount of each payment, including any down payment, balloon payment and final payment; the method of calculating the refund due if the consumer prepays the outstanding balance; and details regarding the consumer’s ability to choose his or her own insurer if insurance is required under the agreement.

There are also new rules and detailed disclosure obligations for companies who offer credit cards to their customers, and cardholders’ liability for unauthorized use of a lost or stolen card is capped at $50. Certain limitations are also established with respect to the types, amounts and ability of card issuers to impose noninterest charges. An advertisement that offers credit and discloses any element of the cost of borrowing must also disclose the APR, and all elements regarding the cost of borrowing must be disclosed with equal prominence.

A supplier cannot demand payment for unsolicited goods or services provided to a consumer, and the consumer has no legal obligation with respect to the use or disposal of such goods or services. If a consumer has paid for unsolicited goods, they have a full year within which to demand a refund. A material change in the ongoing provision of goods or services will result in the goods or services being deemed "unsolicited" from the time of the material change unless the supplier can establish that the consumer consented to such change. The New CPA states that a change or a series of changes will be material if "it is of such nature or quality that it could reasonably be expected to influence a reasonable person’s decision as to whether to enter into the agreement for the supply of the goods or services".

Under the New CPA, a supplier’s ability to amend, renew or extend a consumer agreement will depend on the terms of the agreement itself. If the agreement does not contemplate amendments, renewals or extensions, such changes can only be made if both parties explicitly agree (implied agreement is not enough). Businesses should take note that this requirement overrides existing Ontario caselaw which had recognized the validity of unilateral amendment clauses requiring consumers to check a company’s website for changes to an agreement.

If a consumer agreement does contemplate amendments, renewals or extensions, the supplier must nevertheless take certain steps to effect such a change. The supplier must notify the consumer of a proposed amendment, renewal or extension, including an update of all information required to be set out when an agreement is first entered into. The notice must be provided in a way that is "likely to come to the attention" of consumers, and must show proposed changes as compared to existing text (e.g., a blackline of all proposed changes). An amendment, renewal or extension will not be effective unless the detailed requirements are all satisfied. Direct Agreements may not be amended, renewed or extended without explicit consent, regardless of what the Agreement itself says.

Other new and important areas of the New CPA include provisions relating to:

• Court Actions – Regardless of any contract terms to the contrary, a business will not be able to prevent a consumer from starting or joining a class action lawsuit, and an arbitration clause will not prevent a consumer from commencing a court action.

• General and Specific Warranties – While the Old CPA covered only the provision of goods, the New CPA introduces general warranties regarding the provision of services as well.

• Delivery – Suppliers, particularly those who use third-party carriers, may need to pay special attention to new disclosure obligations regarding delivery.

• Estimates – A supplier cannot charge more than 10% above any estimate provided in a consumer agreement, and, if they try, the consumer can require that the goods or services be provided at the estimated price.

• Recoveries – If a supplier fails to refund a consumer’s money in accordance with the New CPA, the consumer may be entitled to recover the funds directly from the credit card company on whose card the purchase was made.

Sanctions for individuals have doubled under the New CPA, with the new maximum penalty upon conviction rising to $50,000 and/or imprisonment for up to two years less a day. The fine for corporations who contravene the New CPA has increased to a maximum of $250,000, up from the previous maximum of $100,000. Of particular note, directors and officers are liable to be fined, and may face imprisonment if they fail to take reasonable care to prevent the company from committing certain enumerated offences under the legislation. Under the New CPA, a court can also order a business to pay compensation or make restitution to an affected consumer, and may award punitive or exemplary damages for certain conduct. A public record will be maintained, providing Internet, telephone and print access to details regarding voluntary and ordered compliance.

Ontario’s marketplace has changed dramatically in the last 30 years, and the New CPA seeks to address some resulting gaps in consumer protection legislation. As in several other provinces, the motivation for change was clearly to consolidate, update and escalate. Businesses must now determine whether and how the significantly altered consumer protection landscape will affect their dealings with consumers, and will need to revise their business documents and corporate compliance programs accordingly.

To assist businesses identify those parts of the New CPA that are most relevant to their activities, the Canadian Marketing Association has published an on-line guide to the New CPA. The Ontario Ministry of Government Services has also just announced plans to roll out a public education program in support of the new CPA which will include consumer brochures and an enhanced section on the Ministry’s website. Like this bulletin, while such guides and campaigns are very helpful first steps, businesses should still get specific legal advice where they have particular questions concerning their new legal obligations under the new CPA.

© Copyright 2005 McMillan Binch Mendelsohn LLP