Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Financial Services, June 2009
On June 16, 2009, the Quebec Minister of Justice and Attorney General, Kathleen Weil, introduced Bill 60 in the National Assembly, An Act to amend the Consumer Protection Act and other legislative provisions. Bill 60 represents Phase II of the Office de la protection du consommateur's (the OPC) reform of the Quebec Consumer Protection Act (the CPA), the first phase of which amended the CPA in 2006 to introduce rules applicable to distance contracts, and the third and last phase of which is expected to amend the portion of the CPA dealing with credit contracts. Bill 60 will likely be submitted for specific consultation and committee review when the National Assembly reconvenes in September 2009, with adoption of the bill expected by the end of the fall term in November or December 2009. It is unclear whether the amended provisions will enter into force upon their adoption or at a later date. It is important to note that while certain proposed amendments will only apply to consumer contracts that are entered into on or following the date of coming into force of Bill 60, other proposed amendments will render certain contractual provisions in contracts entered into prior to the coming into force of Bill 60 without effect from such date.
Press coverage surrounding the presentation of Bill 60 has focused on the impact of the proposed amendments on cell phone, Internet and other service agreements that qualify as "contracts involving sequential performance for a service provided at a distance." However, many of the proposed amendments contained in Bill 60 actually apply to businesses that operate in a variety of sectors, including those involved in financial services. The most significant amendments for financial service providers are those respecting prepaid cards, certain types of contractual clauses, and enforcement. If adopted as currently drafted, Bill 60 will require that a number of financial service providers undertake a significant review and amendment of their current customer documentation and business practices.
Even though the amendments proposed by Bill 60 that apply to the telecommunications industry do not apply to financial service providers, they are nevertheless notable in reflecting the position of the OPC and the Quebec government that the CPA applies to industries that are traditionally within the exclusive federal legislative jurisdiction. Importantly, this position is consistent with the position taken by the Quebec Superior Court in its recent ruling in the class action case Marcotte v. Banque de Montréal et al. (Marcotte), which was coincidentally rendered less than one week before the introduction of Bill 60. In Marcotte, the Superior Court ruled that, despite the exclusive federal legislative jurisdiction over banking, the contested CPA requirements regarding contracts extending variable credit (including credit cards) and the calculation of credit charges nevertheless apply to banks. Federally regulated financial institutions (FRFIs) may therefore wish to seriously consider at this time the possibility that the CPA and other provincial consumer protection legislation may in fact apply to their activities. This would not only affect compliance of customer banking documents, but would also impact documentation used for some business clients since the CPA (and similar legislation in other provinces) extends its protection to certain categories of sole proprietors (including, in Quebec, professionals and those involved in skilled trades).
Although it is expected that the Marcotte decision will be appealed, including its conclusion that the CPA applies to banks (as indicated in the May 2009 Blakes Bulletin on Financial Services: Proposed New Rules Announced for Credit Cards and Other Loans), FRFIs and the affiliates that they control will soon be required to conduct an extensive review of their customer documentation if the proposed federal Credit Business Practices Regulations and proposed amendments to the federal Cost of Borrowing Regulations) (Federal Regulations) are adopted as currently drafted. Given that many of the proposed provisions in the Federal Regulations that would affect applications, disclosure statements, credit agreements, monthly statements, calculation methods and business practices are actually quite similar to the current CPA requirements, FRFIs may wish to use the same opportunity to assess the changes to documentation that would be required to comply with the CPA and its proposed amendments in light of both the Marcotte decision and Bill 60.
This bulletin summarizes and comments upon the proposed amendments of the CPA contained in Bill 60 that are most likely to impact businesses involved in financial services.
Contracts for the Sale of Prepaid Cards
Bill 60 introduces rules regarding contracts for the sale of prepaid cards. These rules will apply to gift certificates, gift cards or similar medium of exchange that are paid in advance and allow the customer to acquire goods or services from one or more businesses. The following requirements will apply to contracts for the sale of prepaid cards if the proposed changes come into effect:
(i) the terms and conditions of use of the prepaid card would have to be disclosed to the consumer prior to entering into such contract (including the manner in which the consumer would check his or her card balance);
(ii) the disclosures required in (i) would have to appear on the prepaid card or be provided to the consumer in writing;
(iii) expiry dates on a prepaid card would be prohibited unless the terms and conditions of use of the prepaid card provide for the unlimited use of a service; and
(iv) fees charged to the consumer for the issuance or use of the prepaid card would be prohibited.
However, we note that Bill 60 does specifically provide for the possibility that regulations may authorize the use of expiry dates and the practice of charging fees for the issuance or use of prepaid cards.
If these proposed changes come into effect as currently drafted, prepaid card agreements that provide an expiry date would be without effect as of the date of the amendments coming into force.
While other provincial regulators have expressed the view that their provincial prepaid card legislation does not apply to bank-issued cards (because banks are federally regulated), it seems unlikely that the Quebec regulator will take this position.
Bill 60 proposes strict rules affecting the enforceability of unilateral amendment clauses in consumer contracts that are drafted in favour of a business. The validity of such clauses under Quebec civil law was already questionable, particularly in light of the provision of the Civil Code of Québec against abusive clauses. The proposed amendments therefore serve to clarify when such stipulations may have effect and provide the manner in which such unilateral rights must be exercised.
Bill 60 distinguishes between a unilateral amendment clause found in a term contract and an indeterminate-term contract; it also distinguishes between unilateral amendments made to an essential element and a non-essential element of a contract. Essential elements of a contract include the nature and the price of the goods or services and the term of the contract. Bill 60 prohibits the use of a unilateral amendment clause in a consumer contract with a term to amend an essential element of the contract. It does allow the use of such a clause in a consumer contract with an indeterminate-term or to amend a non-essential element in a consumer contract, provided certain requirements are met. The unilateral amendment clause must specify which clauses can be amended unilaterally, must specify that the business must provide the consumer with a 60-day prior written notice setting out the amended contractual clauses, and must provide the consumer the opportunity to cancel the contract without cost or penalty within the 60-day notification period if the amendment is to the consumer's detriment. A unilateral amendment that does not comply with the new requirements would not be enforceable against the consumer.
Particular attention has to be paid to loan agreements and other similar agreements with terms that may currently stipulate a general right to amend the terms of the agreement. Such contracts entered into on and after the date of coming into force of Bill 60 would be subject to the new amendments. We note that these changes to the CPA regarding the unilateral amendment of consumer contracts would not apply to contracts extending variable credit (such as credit card agreements and line of credit agreements), which would continue to be subject to their own specific contractual requirements under the CPA.
Bill 60 similarly prohibits contractual clauses according to which a business may unilaterally cancel a fixed-term contract involving sequential performance (for services that are provided and paid for over a period of time, such as a one-year contract for a fitness trainer that requires monthly payments). Bill 60 provides for a 60-day prior written notification process for service contracts involving sequential performance that do not have a fixed term. This proposed amendment is unlikely to significantly affect most financial service providers.
Bill 60 amends section 13 of the CPA to clearly provide that penal clauses (i.e., stipulations requiring consumers to pay costs other than interest accrued upon non-performance of an obligation) are prohibited. The current version of section 13 had been interpreted by Quebec courts to allow the use of penal clauses in consumer contracts. Bill 60 therefore amends section 13 of the CPA to restore the original legislative intent by prohibiting penal clauses. The current and amended versions of section 13 do not apply to credit contracts.
Therefore, if enacted as drafted, except in cases of credit contracts, stipulations that require the consumer, upon non-performance of his or her obligation, to pay a stipulated fixed amount or percentage of charges, or to pay penalties or damages, other than interest accrued, will be clearly prohibited. Again, this proposed amendment is unlikely to significantly affect most financial service providers. However, where applicable, this amendment may apply to NSF (insufficient funds) fees.
Clauses that are inapplicable in Quebec
In the interest of having one set of consumer documentation that can be used across Canada, many contractual clauses are currently drafted in a manner that leaves open the possibility that such clauses may not be applicable in certain provinces or may indicate that the clauses will apply unless prohibited by law. As a result, the OPC found that it often remained unclear to the consumer which clauses actually applied to him or her.
Bill 60 proposes a new remedy to this uncertainty by requiring that clauses not applicable to the Quebec consumer be immediately preceded by a statement to that effect. This proposed amendment would apply to all consumer contracts and would have a significant effect on the consumer contractual documentation currently in use across Canada by financial service providers and, more generally, by other businesses. As a matter of practice, this would mean that every contractual clause not applicable to a Quebec consumer would have to be clearly identified. The impact of this amendment is further strengthened by the widened recourse to injunction that is also proposed by Bill 60 (see below).
We note that only consumer contracts that are entered into on and after the date of coming into force of the amendments proposed by Bill 60 will be subject to this new requirement.
The CPA currently grants the president of the OPC (the President) the power to accept a voluntary undertaking from a business regarding compliance with the CPA. Certain proposed amendments of Bill 60 clearly provide that the failure to comply with such an undertaking would now constitute grounds upon which the President could refuse, suspend or cancel a permit issued by the OPC. This would include the refusal, suspension or cancellation of a money lender permit held by a consumer finance company. This proposed amendment would therefore give the President additional enforcement powers against consumer finance companies.
The CPA currently grants the President limited power to apply for an injunction. The President may currently use this power to request an injunction against a business engaging in a "prohibited practice" to cease using such a practice. Essentially, the prohibited practices for which an injunction can presently be obtained involve advertising practices and various types of false representations.
Bill 60 extends the circumstances under which an injunction can be sought. Interestingly, the President will now be able to seek an injunction to order a business to remove contractual provisions that violate the CPA or to comply with the new requirements applicable to certain provisions (see above). Bill 60 also widens the power to apply for an injunction to consumer advocacy bodies (e.g., Option Consommateurs). Failure to comply with an injunction obtained by the President or a consumer advocacy body may lead to a motion for contempt of court.
The recourse to an injunction will greatly increase the enforcement powers available to the OPC and consumer advocacy bodies. Although this greater power may lead to increased legal action, the availability of such recourse may have the effect of reducing the number of class actions commenced against financial service providers alleging violations under the CPA. That is, recourse to an injunction may provide an effective enforcement mechanism to protect consumers in a proactive manner rather than relying on class actions to retroactively claim for injury and punitive damages.
In any case, the possibility of facing an injunction for failure to comply with the CPA's contractual requirements greatly increases the importance of ensuring compliance of all customer documentation with the requirements of the CPA, as the failure to do so may significantly increase the risk of immediate legal action.
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.