This bulletin is the first in a series on consumer law in Québec.
A new federal Financial Consumer Protection Framework, with its associated regulations (together “the Framework or “the federal Framework”), will come into force on June 30, 2022.1 In light of this development, this bulletin discusses some of the Framework’s rules from the perspective of some of Québec’s consumer protection rules governing financial services.
This bulletin also presents some of the federal and Québec regulators, including their different supervisory approaches and powers.
Federal and provincial consumer protection responsibilities with regard to financial services
In Canada, bank products and services are federally regulated.2 When these products and services are offered to consumers, they are governed by the Bank Act,3 which is the legislative source of the Framework. Nonetheless, consumer protection in general remains under the authority of provinces.4 In Québec, the best-known consumer protection statute is probably the Consumer Protection Act5 (CPA). The CPA contains several general consumer protection rules applicable to all consumer contracts, including certain contracts used in the financial services context.6 In fact, the CPA contains rules specifically directed at certain financial services, such as loans of money, credit cards, prepaid cards and debt settlement services.7
The CPA is vast in scope and applies to numerous merchants and financial institutions that do business in Québec. In comparison, the scope of the Framework is more specific, as it exclusively governs banks’ and authorized foreign banks’ activities. In other words, the Framework does not apply to lenders or financial institutions that aren’t banks; many of these fall under provincial jurisdiction.8 Examples include provincially regulated financial services cooperatives, trust companies, car loan providers, credit-card issuers9 and credit assessment agents.10 The Framework applies to banks and thus establishes a body of specific rules within the financial services ecosystem.
Some of the Framework rules from a Québec perspective
The Framework states that banks will need to send automated alerts to customers with deposit accounts, credit cards or lines of credit. These alerts will notify customers that their account balance or credit limit has reached a certain amount, established by default at $100; customers will be able to specify a different threshold if they wish.11 The alerts will also inform customers that they may face fees or penalties because of the transaction that triggered the alert, and will explain how customers can avoid such fees, if applicable. Customers will be allowed to opt out of these alerts at any time. In comparison, Québec does not have any rule requiring such alerts.12 However, the CPA requires that notices be sent to consumers who exceed their credit card or line of credit limits. Unlike the Framework, the CPA requires that these notices be sent in paper or electronic format.13 The CPA also expressly forbids over-limit fees,14 while the Framework is more flexible in this regard. 15
Allocation of payments to credit card balances
In addition to introducing new measures,16 the Framework restates several rules currently in force in various regulations applicable to federal financial institutions.17 One instance of this is the rule governing the way credit card payments are allocated.18 The federal allocation rule requires banks to allocate a consumer’s payment to the balance using one of two permitted methods.19 The purpose of these methods is to protect consumers whose credit card balance bear more than one interest rate. In practice, credit card issuers often charge different annual interest rates depending on whether the transaction is a cash advance, a balance transfer or a regular purchase. For the moment, there is no equivalent obligation in Québec.20
The federal regime includes a specific mechanism protecting consumers who do business with a bank over the phone. It requires the bank to send a written confirmation without delay after a consent is given orally. The confirmation must contain specific information.21 Québec does not have an equivalent mechanism for customers who wish to use the phone to do business with their financial institutions, although the consumer who has agreed by phone to the provision of a product or services can have, in certain circumstances, a termination right within 7 days of receiving the contract.22 Since its original enactment, the CPA has been cautious about agreements or commitments made orally; in fact, it still requires the use of paper in some cases.23 In practice, the formalistic requirements of the CPA sometimes make it difficult 24, or at the very least more complex, to help customers over the phone.
Right to terminate
The Framework will give customers additional termination rights for certain products and services. For example, any person who has opened a personal deposit account will be able to terminate the contract without charge up to 14 days after the account has been opened. The bank is to refund charges related to the operation of the account that were incurred while the account was open.25 A similar termination (resiliation) option does not exist in Québec. However, there is a termination right applicable to credit contracts covered by the CPA, including credit card contracts. The time limit for exercising the right depends on the type of credit contract and varies from 2 to 10 days.26
Credit-card minimum payments
The federal regime does not regulate the minimum payment of credit cards issued by banks. In comparison, Québec requires all credit card issuers, on each account statement, to impose a payment at least equal to 5% of the card balance.27 Québec remains the only jurisdiction in Canada with such a requirement.
Umbrella hypothecs on real property
Quebec has enacted measures to make it less attractive for financial institutions to use umbrella hypothecs on real property in the context of financing offered to consumers. An umbrella hypothec is a hypothec worded so broadly that the lender enjoys a security that automatically becomes applicable to all of the borrower’s current and future debts, up to the amount indicated in the hypothec. In Québec, certain rules apply to the practice of imposing this type of security,28 which make it less attractive for lenders to use umbrella hypothecs with consumers. If a lender were to violate these rules, the CPA would become entirely applicable to the associated credit contracts. Since the CPA forbids various practices such as early repayment charges,29 real property lenders have a strong incentive to comply with the requirements of the Regulation respecting the application of the Consumer Protection Act on umbrella hypothecs.30 The Framework does not specifically govern practices related to this matter.
The federal Framework is more flexible than the Québec regulatory environment with regard to repayment terms on consumer loans. Subject to some exceptions,31 Québec requires that all payments on such loans be equal,32 except the final payment, which can be lower, and includes rules to incentivize lenders to ensure, in certain circumstances, that there are no more than 35 days between payments.33 In practice, an effect of these principles is that the loan amortization period and the term of the credit agreement are the same.
The Framework will continue to require that fees be disclosed to consumers in information boxes containing the elements prescribed by regulation.34 In this regard, the Framework drops the templates currently contained in the Cost of Borrowing (Banks) Regulations, leaving more discretion to banks as to how the information is presented.35 The required information will still need to be prominently presented, in a single information box.
The Québec regime has imposed mandatory information box templates since 2019, notably for money loan and credit card contracts.36 It will continue to require such boxes, albeit in more limited circumstances than under the Framework37 The content that needs to be included in the boxes will also continue to vary slightly depending on the jurisdiction. Whereas Québec will continue to impose wording and templates for information boxes, the Framework will abandon this more prescriptive approach.38
Fees or penalties improperly billed
The Framework will state that if a bank has billed fees or penalties not contemplated in the agreement, it will need to refund them, with interest at the Bank of Canada’s overnight rates from the date the fees or penalties were billed.39 Although it is generally forbidden in Québec to charge fees not expressly indicated in the agreement,40 there are no measures similar to the Framework’s in Québec. Nonetheless, consumers whose agreements are subject to the CPA have access to a wide range of remedies, including potential punitive damages.41
High-cost credit contracts
Unlike the federal Framework, Québec has specific rules applicable to high-cost credit contracts.42 A high-cost credit contract is one whose credit rate is at least 22 percentage points higher than the Bank of Canada’s Bank rate.43 Québec grants consumers the right to withdraw of such contracts within 10 days, in order to allow them time to change their minds.44 The Québec CPA contains a presumption that such contracts constitute an excessive, harsh or unconscionable obligation where the consumer’s debt ratio, computed using a formula prescribed by regulation, is greater than 45%.45
The Framework includes protections applicable to promotional offers. These could notably be applicable to credit cards that offer a promotional period as part of the benefits of enrolment.46 If the promotional period exceeds 30 days, then as the end of that period approaches, the customer is to receive two reminders: the first sent 21 days before the last day of the promotion period, and the second sent 5 days before the last day of the promotion period. These serve to remind the customer of the end of the promotional period and to notify the customer of the costs that will apply from that point forward.47 In Québec, the CPA does not impose equivalent measures with respect to promotional offers. However, when advertising offers of credit that include an interest-free period, institutions subject to the CPA ’s jurisdiction must state the credit rate applicable at the end of that period if the balance has not been completely paid off by that time.48
Disclosures regarding complaints
Under the Framework, disclosures will have to be made to customers and the public regarding the complaints process, and the Financial Consumer Agency of Canada’s contact information must be provided.49 It is worth noting that the impact analysis statement associated with the Framework states that a strengthened complaints system is a key element of the Framework.50 In Québec, strengthened complaints processes for financial institutions under provincial jurisdiction will probably be adopted soon.51 For the time being, the Québec regime establishes certain measures, such as a requirement to have a complaints processing policy.52
Supervisory and regulatory authorities53
The Québec and federal legislatures have each created distinct supervisory and regulatory authorities, with different supervisory approaches and powers.
The Minister responsible for the Bank Act is the federal Minister of Finance.54 In addition, banks operate under the supervision of the Office of the Superintendent of Financial Institutions (OSFI). Among other things, OSFI ensures that banks adopt practices that keep them in good financial condition, that they establish appropriate risk management measures, and more broadly, that they comply with their governing laws and adopt commercial practices in furtherance of such compliance.55 The Financial Consumer Agency of Canada (FCAC), another federal entity, also has a supervisory role over banks. This role includes monitoring the application of the Framework and the complaint-handling process by banks.56
As part of its supervisory activities, the FCAC can impose administrative monetary penalties (AMPs) up to $10 million. In that regard, the FCAC has developed and published a framework detailing the way in which it determines the amounts of these AMPs.57 As for OSFI, it is also given a wide array of means to intervene to carry out its mission, including the ability to impose AMPs on entities that fall under its authority58
The Québec minister currently responsible for the CPA is the Minister of Justice59 and the Office de la protection du consommateur (OPC) is in charge of supervising the activities governed by that Act and other activities governed by consumer protection laws.60 Among other things, the OPC supervises activities related to consumer credit, long-term leasing of personal property (such as automobiles), prepaid cards and reward programs. Its investigative powers are very broad.61 The OPC cannot impose AMPs, but its supervisory activities can lead to penal prosecutions and fines for any person who has committed an offence or even advised, encouraged or incited a person to commit an offence.62 As part of its supervisory activities, the OPC issues notices of offence to merchants when it believes they are not complying with the Act.63
In Québec, the laws and regulations applicable to deposits of money have historically come under the aegis of the Autorité des marchés financiers64 (AMF), though this could soon change in a very specific way if the Act respecting remittance of deposits of money to account co-holders who are spouses or former spouses is adopted.65 That statute would entrust certain supervisory activities regarding deposits to the OPC, though most of the supervisory activities on the subject would remain with the AMF.
The AMF also oversees the activities of financial institutions that fall under provincial jurisdiction, such as financial services cooperatives,66 insurers,67 and several financial intermediaries. The AMF has broad powers to fulfil its mission, including investigative powers,68 the power to issue orders and establish guidelines and written instructions. It also has the power to impose AMPs.69 Interestingly, under Québec’s law, the AMF is entitled to keep half of the AMP amounts it imposes and must remit the other half to the Minister of Finance, whereas under federal law, OSFI and the FCAC must remit all the amounts they collect from AMPs to the Receiver General for Canada.70
It should also be noted that, at the federal level, OSFI and the FCAC publish material that provides information on their expectations and interpretation of the statutes and regulations under their responsibility. For example, they both issue guidelines detailing practices that they expect financial institutions to follow and that set standards applicable to the activities of the entities under their authority71 The OPC, for its part, does not issue guidelines or interpretation bulletins. In practice, some of OPC’s positions can be found by consulting its website and publications.
If you have questions on this bulletin, please reach out to any of our experts listed below. Our team members regularly provide advice to banks and financial institutions, including regarding their products and services and on consumer protection matters.