Originally published in Blakes Bulletin on Financial Services, June 2007
On April 1, 2007, Manitoba became the fifth province to bring into force new harmonized cost of credit disclosure rules, joining Alberta, Ontario, British Columbia and Saskatchewan. About a year ago, the prognosis of Manitoba introducing cost of credit disclosure rules for conditional sale agreements (which are a form of fixed credit agreements) and leases that were uniform with the other harmonized provinces was extremely poor. The differences between the proposed Manitoba rules and the rules that existed in the other harmonized provinces were so significant that the Canadian Finance and Leasing Association ("CFLA") was warning its members that if changes were not made to the draft regulations that separate forms would have to be developed for Manitoba customers and that their computer systems would have to be re-programmed for use in Manitoba. Moreover, there was a real fear by many in the industry that not all of the differences had been identified, because of the approach that the Manitoba Government had taken in bringing in its new rules. Instead of introducing a new standalone cost of credit disclosure legislation, Manitoba had decided to amend The Consumer Protection Act (the "Manitoba CPA").
After making a number of written submissions to the Manitoba Government, which were followed up with numerous telephone conversations with governmental officials, CFLA was successful in eliminating most of the more serious differences between the Manitoba rules and the rules in the other harmonized provinces for conditional sale agreements and leases. There remain, however, a number of differences between the Manitoba rules and the rules in the other harmonized provinces. These differences are no longer so significant that a separate form of lease or conditional sale agreement is absolutely required, but differences do exist that may require some minor modifications to the existing "national" conditional sale agreement or lease before it can be used in Manitoba. In addition, because of the restrictions contained in the Manitoba CPA, a credit grantor/lessor’s enforcement and collection practices and procedures will need to be reviewed and, if necessary, revised to ensure compliance with such restrictions.
This bulletin will describe some of the more significant differences under the Manitoba CPA that would arise in connection with a typical conditional sale or lease transaction. These differences can be classified into the following three categories: (i) consumer substantive requirements; (ii) cost of credit disclosure; and (iii) restrictions on enforcement of a credit grantor’s rights and remedies.
- Consumer Substantive Rights
- Cost of Credit Disclosure
- Additional Initial Disclosure Requirements for Leases.
- As mentioned above, lessees have the right to cancel optional services of a continuing nature that are provided by the lessor or an associate of the lessor. Only Manitoba, however, requires the initial disclosure statement for a lease to include a statement of the lessee’s right to cancel such optional services. Although a similar right has been given to lessees under the laws of Alberta and Saskatchewan, such right does not have to be disclosed in an initial disclosure statement. Accordingly, if a leasing company wishes to use a single lease in all of the harmonized provinces but does not want to offer such a right in every such province, some creative drafting will be required in order to achieve that objective.
- Manitoba is the only province whose consumer protection legislation still includes the concept of a "retail hire-purchase" of goods. Subject to certain exceptions, a "retail hire-purchase" of goods is defined as being "any hiring of goods from a person in the course of his business in which (a) the hirer is given an option to purchase the goods or (b) it is agreed that upon compliance with the terms of the contract the hirer will either become the owner of the goods or will be entitled to keep them indefinitely without any further payment." A typical equipment or motor vehicle lease with a purchase option will fall within the definition of "retail hire-purchase" of goods. As a result, the provisions of the Manitoba CPA relating to internet and direct sale agreements, including the initial disclosure requirements for such agreements, will apply to such leases. This is different from the approach taken in Ontario (in which the rules pertaining to direct agreements, remote agreements and internet agreements in Part IV of the Ontario Consumer Protection Act, 2002 do not generally apply to leases), but is consistent with the approach taken, for example, in Alberta.
- Additional Initial Disclosure Requirements for Conditional Sale Agreements. The language used in the Manitoba CPA to describe what needs to be disclosed in the initial disclosure statement for fixed credit agreements is very similar, but not identical, to the disclosure elements in the other harmonized provinces. In some cases, the Manitoba language is to be preferred, because it eliminates an ambiguity that existed in the other harmonized provinces’ legislation. In other cases, however, the differences will require additional information to be disclosed, which information may not be found in your existing contract. Two examples of this problem are (i) the requirement to disclose how interest is to be calculated and (ii) disclosing the outstanding balance at the end of the term, assuming that all scheduled payments are made when due.
- Subsequent Disclosure Statement Requirements for Leases. Unlike the other harmonized provinces (except for Saskatchewan), the Manitoba CPA requires a lessor to provide a supplementary disclosure statement to a lessee where the information disclosed in an earlier disclosure statement is no longer correct as a result of an amendment to the lease. A lessor is not required to provide a supplementary disclosure statement if the amendment does not result in an increase to the implicit finance charge or the APR. This exception is expressed differently in Saskatchewan and, for amendments to fixed credit agreements, in the other harmonized provinces.
- Restrictions on Enforcement of Credit Grantor’s Rights and Remedies
- Restrictions on Charges in respect of Non-Monetary Defaults. There are some interesting restrictions on default charges in the Manitoba CPA, which are quite different from the corresponding provisions in effect in the other harmonized provinces. The Manitoba CPA separates defaults into two categories: (i) payment defaults; and (ii) defaults on non-monetary obligations under a credit agreement. In addition, the Manitoba CPA provides that if a borrower defaults on a non-monetary obligation under a credit agreement, the credit grantor may recover from the borrower, as damages for the default, no more than the reasonable expenses incurred and the amount of any loss suffered by the credit grantor because of the default, except that the amount recoverable cannot be more than any monetary penalty established for the default in the agreement.
- Limitations on Acceleration Clauses. The limitations imposed by the Manitoba CPA on a credit grantor’s enforcement of an acceleration clause is substantially different from the corresponding provisions found in the other harmonized provinces. For example, the Alberta legislation only requires that a notice be provided to a borrower before an acceleration clause can be enforced. The Manitoba CPA provides that if the debt arises out of a sale of goods and/or services or a retail hire-purchase of goods (which would include a lease with a purchase option), (i) the buyer may remedy the default up to the point in time before the seller seizes the goods or commences an action to recover the balance of the debt, and that, if the buyer remedies the default, payment of the balance may not be accelerated and (ii) if the seller is entitled to and has seized the goods, the seller must provide a notice of seizure (as required under the Manitoba CPA) and, if the buyer redeems the goods in accordance with the Manitoba CPA, payment of the balance may not be accelerated by reason of the default that has been remedied. The Manitoba CPA also restricts the amount that a credit grantor may recover when a debt is accelerated.
The harmonized rules have provided borrowers under fixed credit agreements with a number of new or enhanced consumer substantive rights. Examples include liberal prepayment rights, right to receive a refund of non-interest finance charges after a prepayment in full, a right to cancel certain optional services and limitations on permitted default charges. Neither the harmonization agreement between the federal, provincial and territorial governments nor the Uniform Cost of Credit Disclosure Act prepared by the Uniform Law Conference of Canada appears to expressly extend these substantive rights to lessees. Manitoba has extended some of the borrower substantive rights to lessees. Like Saskatchewan and Alberta, the substantive right to cancel an optional service of a continuing nature will be available to borrowers and lessees. No such right of cancellation is provided to lessees under the laws of British Columbia and Ontario.
The Manitoba CPA also sets out a formula for calculating the amount of the refund that must be provided to a borrower/lessee who cancels an optional service, whether provided in connection with a credit agreement or a lease. No other harmonized province includes such a formula in its legislation for calculating the amount of the refund.
In summary, there are a number of significant differences between the Manitoba CPA and the applicable legislation in the other harmonized provinces. This bulletin provides only a sampling of such differences. As a result of these and other differences, lessors and credit grantors under conditional sale agreements may not be able to use their existing "national" forms without making some minor modifications so that they comply with the disclosure requirements of the Manitoba CPA. In addition, lessors and credit grantors should conduct a careful review of their enforcement procedures to ensure that they also comply with the Manitoba CPA.
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.