A British Columbia appeals court has ruled that a suit claiming that the banks improperly charge interest on credit card balances must be decided by looking at contracts between credit card users and providers.

The case concerns two women, Cheryl Dahl and Donna Lewis, who are suing three of the big banks, Royal Bank of Canada, CIBC and Bank of Montreal. They claim that charging interest on balances for the days between the transaction date (when the credit card is used) and the posting date (when the merchant is paid by the banks, typically two to five days later) of a credit card charge violates the Bank Act, the Interest Act, the Consumer Protection Act, and the Trade Practice Act.

A lower court ruled that the banks had not violated any of the Consumer Protection Act, the Bank Act or the Interest Act. The women appealed the order dismissing their claims under the Consumer Protection Act and the Bank Act. They did not appeal the order dismissing their claim under the Interest Act, and their claim under the Trade Practice Act was dealt with in the lower court ruling.

The appeal court says that the substantive issue in the appeal is whether the charges the banks call interest (applied when credit card holders fail to pay the balance owing in full by the due date) calculated between the transaction date and the posting date is, in law, interest. If the amount charged from the transaction date is interest, the banks are in compliance with the statutes. If it is not interest, the banks have not made proper disclosure under the statutes.

The appeal court found that the substantive issue on this appeal cannot be decided in the absence of evidence comprising at least the contracts governing the legal relationship among the relevant parties, which is what the lower court did.

“It would be premature and unjust to dismiss the appellants’ action without reviewing the contracts applicable to this case,” it said. “The question for determination is, at bottom, the interpretation of a contractual relationship. It neither serves the parties nor the development of the law for this Court to make assumptions about what the contracts contain or do not contain, no matter how reasonable those assumptions may appear to be.”

So, it allowed the appeal and referred the case to the Supreme Court for rehearing on evidence of the contracts.