A Guide to Disclosure Requirements under the Ontario Consumer Protection Act

The Ontario Consumer Protection Act, SO 2002, c 30, Sched A (the "CPA") specifies the financial disclosure obligations imposed on lenders in order to provide consumers with clear, transparent information about the details of their often complex credit agreement. While the CPA's regulations are extensive, there is comparatively little guidance or case law interpreting these provisions or providing a comprehensive set of parameters within which a lender may achieve compliance. This article is therefore intended to provide a detailed review of these disclosure obligations as well as an overview of the consequences of non-compliance.

It should be noted at the outset that the CPA applies only to transactions involving a "consumer," which is defined as an individual acting for personal, family or household purposes. This does not include a person who is acting for business purposes. Accordingly, where a lender provides services to a corporation, or an individual purchaser is acting solely in a professional or business capacity at the time the transaction is entered into, the CPA will not apply. As well, for the CPA to apply either the consumer, or the person engaging in the transaction with the consumer, must be located in Ontario when the transaction takes place.

There are two main types of credit agreements that are subject to different, yet largely overlapping, disclosure requirements: open credit agreements and fixed credit agreements. An open credit agreement allows the borrower to determine how much he or she will borrow, subject to a prescribed limit. In contrast, a fixed credit agreement is a loan for a fixed amount, usually made as a one-time advance, and where the borrower is unable to make multiple draws at will.

Both fixed credit and open credit agreements are subject to three main types of disclosure: initial disclosure, subsequent disclosure and supplementary disclosure. Primary initial disclosure must be delivered to the borrower at or before the time that the borrower enters into the agreement, which allows the borrower to make an informed decision. Lenders may make disclosure in separate documents or parts, and they may also base disclosure in estimate or assumption where the information is not ascertainable at the time the disclosure is made. Regardless of the type of credit agreement, the CPA expressly requires that any disclosure to the consumer be "clear, comprehensible and prominent." All disclosure mandated by the CPA must be delivered in writing, and in a form that can be retained by the consumer. In addition, where the agreement has fine print or any term that is difficult to comprehend, it will be construed in favour of the consumer.

Fixed Credit Disclosure:

The initial disclosure statement for fixed credit agreements must be provided directly from lender to borrower. It must contain information on the initial amount of loan or credit being advanced to the borrower, distinct from interest or other charges; the nature, timing and amount of any subsequent advances to the borrower; the length of the credit agreement term; the charges due in the event of borrower defaults under the credit agreement; and what constitutes an event of default. The initial disclosure statement must also contain information on the cost of borrowing, including the additional money that the borrower will have to pay over and above the principal of the transaction as a condition of entering into the agreement (e.g. payment processing fees, PPSA search and registration costs, security expenses, costs of insurance and other fees).

With respect to interest, the CPA requires a lender to disclose the interest rate fixed through the term of the credit agreement. Where the interest rate is variable, the initial rate and the manner of determining the annual interest rate at any time during the term of the credit agreement must be identified. Where applicable, a lender must also disclose to the borrower when their payments are inadequate to cover accruing interest charges alone. This is required so that the principal of the debt would not be increasing, despite the consumer's belief that regular payments are paying it down. Other required details related to interest include the date when interest starts to operate, increasing the debt owing; the circumstances under which interest is compounded under the credit agreement; a detailed description of any period during which certain charges otherwise payable under the credit agreement are forgiven; and the annual percentage rate, which must be stated clearly in order to be enforced.

Even after initial disclosure has been made, the CPA requires that lenders provide additional, periodic disclosure where there has been a change in circumstances (subsequent disclosure), or a change to the agreement (supplementary disclosure). If at any time the parties amend a credit agreement for fixed credit such that it alters any of the information required under the initial disclosure statement, then the lender shall be required to deliver a supplementary disclosure statement in writing, within 30 days after the amendment or change in circumstances.

Open Credit Disclosure:

Open credit is an agreement where the amount of the credit or loan advanced is at the will of the borrower, subject to a credit limit. In an open credit agreement, the amount being borrowed may change multiple times throughout its term and consequently, the CPA imposes more stringent disclosure requirements to ensure transparency for the benefit of the borrower. Perhaps the most significant distinction between open and fixed credit agreement, is the requirement that a lender in an open credit agreement provide the borrower with monthly statements of account.  The disclosure required in these monthly statements will be reviewed in detail below.

The initial disclosure statement for an open credit agreement must be provided directly from lender to borrower, in writing, and must contain the maximum amount of loan or credit available to the borrower; the annual interest rate fixed through the term of the credit agreement; the date that interest starts to operate; the amount of any non-interest costs of borrowing; the period for which a statement of account will be delivered to the borrower; the minimum payment due with each statement of account; charges due in the event of borrower default; and a toll-free telephone number at which the borrower can make inquiries about the borrower's account during ordinary business hours.

The CPA also requires a lender in an open credit agreement to deliver regular statements of account to the borrower at least once per month.  That said, no statement is required at the end of any period where there has been no activity (ex. no advances and payments) since the last statement and either the outstanding balance payable is zero, or the borrower is in default and has been notified of such.

Every statement of account must be delivered to the borrower, in writing, and must disclose the period covered by the statement of account; the outstanding balances at the beginning and end of the period covered by the statement of account; the posting date, amount and description of each consumer transaction charged to the account during the period, and the total amount charged during the period; the posting date and amount of each payment made or credit granted to the account during the period, and the total amount so credited during the period; the annual interest rate in effect during the period covered by the statement of account; the total amount of interest charged to the borrower; the credit limit; the minimum payment due by the borrower, and its due date; the rights and obligations of the borrower with respect to the correction of billing errors; and a toll-free contact telephone number at which the borrower can make inquiries about their account during ordinary business hours.

If the parties amend a credit agreement for open credit such that it alters any of the information required under the initial disclosure statement, then the lender must deliver to the borrower a written disclosure statement setting out the changes within 30 days of the amendment. This is particularly important where the lender purports to change the interest rate of a credit agreement for open credit. In such circumstances, the lender must deliver written notice of the change in rate at least 30 days before any change takes place, unless the rate of interest is decreasing in which case disclosure may be made in the next statement of account. Again, the intention is always to provide the borrower with clear and advance notice of any increase or decrease in interest rates, so that they are kept apprised of the amount owing.

While these requirements are extensive, it is incumbent upon lenders to be cognizant of all disclosure obligations pursuant to the CPA. A lender's failure to comply with its disclosure obligations may result in serious consequences. Consumers are given a wide range of remedies and options beyond the entitlement to rescission of a consumer agreement, which may be triggered by contacting the lender directly to advise of a breach, initiating a court action or launching a complaint with the Ministry of Government and Consumer and Services. Considering the broad remedies available to consumers and the sanctions which may be levied for non-compliance, lenders are encouraged to make all reasonable efforts to comply with the disclosure obligations under the CPA to the greatest extent possible.

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.