Until recently, banks and credit unions have maintained that provincial legislation does not apply to their businesses, which are federally regulated. But three decisions from the Supreme Court of Canada (SCC) make it clear that that thinking is incorrect.
“The SCC [rulings] indicate that Canadian banks are subject to provincial consumer- protection laws,” says Kevin Kiley, lawyer in the Charlottetown and St. John’s, Nfld., offices of McInnes Cooper, “as well as the cost of borrowing disclosure regulations under the Bank Act. This may prompt banks to review their consumer lending documentation from a consumer protection act perspective to ensure that it meets provincial as well as federal cost of borrowing disclosure requirements.”
The cases before the SCC were class-action lawsuits charging that several financial services institutions – including Bank of Montreal, National Bank of Canada, and the Fédération des caisses Desjardins du Québec – had violated Quebec’s Consumer Protection Act by imposing foreign-currency conversion charges on clients’ credit card purchases without properly disclosing those charges. The SCC found that the conversion charges are “fees” under the Bank Act and thus need to be disclosed in credit card contracts separately from the annual percentage rate.
Disclosure was a key issue. Simply including information about the conversion charges on the back of monthly credit card statements is not sufficient, according to the SCC.
“The decisions reflect the growing demand for transparency,” notes Kiley. “The [SCC] ruled that the objectives of the consumer protection legislation are to restore the balance between consumers and companies. Transparency is key to that.”
In Bank of Montreal v. Marcotte, the SCC reaffirmed that consumer protection legislation both restores the balance between merchants and consumers in their contractual relationships and helps to eliminate misleading practices that may distort the information available to consumers.
As SCC justices Marshall Rothstein and Richard Wagner wrote in their 77-page decision: “Both of these objectives are important in this context, where consumers are often powerless in the face of changes to their credit card contracts, particularly when refusing payment can result in additional costs in the form of interest.”
In addition to requiring the financial services institutions to refund the foreign-currency conversion fees charged to their credit cardholders, the SCC also restored punitive damages imposed by the trial judge against those banks that had not disclosed the conversion charges on their client statements. This included $2.5 million in punitive damages levied against Amex Bank of Canada for what the trial judge determined was the bank’s “rather blunt disregard of its obligations” and its inability to provide a “legitimate excuse” for its behaviour.
Many of the financial services institutions named in the class actions had moved to enhance disclosure and provide more information to clients about currency-conversion charges. Fighting their cases all the way to the SCC, however, was probably more about precedent and principle.
“I expect [the banks] wanted to limit the scope provincial legislation could have on their operations,” says Kiley. “[Banks] don’t want to increase the scope of government on their business unnecessarily. [These decisions] definitely do that.”
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