Consumer Protection in the Banking Industry
The decision rendered by the Supreme Court of Canada in the case of Bank of Montreal v Marcotte, 2014 SCC 55 (“Marcotte”), on September 19, 2014, has significant implications with respect to consumer protection requirements in the banking industry. The Marcotte decision highlights the important role that compliance with both provincial and federal consumer protection legislation has within the banking industry. The Marcotte decision may have also led to the federal government’s recent proposed amendments to the Bank Act, SC 1991, c 46 (the “Bank Act”), which were included in the Economic Action Plan 2015 (Budget 2015).
In Marcotte, the Supreme Court of Canada considered the applicability of certain disclosure requirements and civil remedies that are provided for under the Quebec Consumer Protection Act, RSQ, c P-40 1 (the “Act”), with regards to bank-issued credit cards. In 2003, the plaintiff’s class action suit against multiple banks and the Fédération des caisse Desjardins du Québec (the “Banks”) was launched. The plaintiffs alleged that the fees being charged for the conversion of Canadian currency into foreign currency were in violation of the disclosure requirements under the Act and sought for the class to be reimbursed for the balance of the conversion charges that had been incurred.
The Banks argued that the plaintiff’s action should be dismissed, claiming that the doctrine of interjurisdictional immunity applied and rendered the Act inapplicable. The doctrine of interjurisdictional immunity stipulates that there is a core to each federal subject matter that cannot be reached by provincial laws. Interjurisdictional immunity, when applicable, operates to prevent laws that are enacted by one level of government from impairing the core of the jurisdiction reserved for the other level of government. In Marcotte, the Banks argued that the applicability of the relevant provisions of the Act would impair the core of the federal government banking power. The Quebec Superior Court and Court of Appeal dismissed this argument, holding that credit card contracts are not at the core of banking activities, and, therefore, the Act did not interfere with the federal banking regime.
Additionally, the Banks argued that the relevant sections of the Act were inoperative due to the doctrine of federal paramountcy. The doctrine of federal paramountcy establishes that where there is a conflict between valid provincial and federal laws, the federal law will prevail and the provincial law will be deemed inoperative to the extent that it conflicts with the federal law. This argument was also dismissed by both the Quebec Superior Court and Court of Appeal.
The Supreme Court of Canada Decision
The decision was appealed to the Supreme Court of Canada. The Supreme Court of Canada dismissed the defendants’ appeal against the plaintiffs in a unanimous decision. The Supreme Court of Canada upheld the Court of Appeal’s findings on all issues and held that the doctrines of interjurisdictional immunity and federal paramountcy did not apply. The Supreme Court of Canada held that the imposition of disclosure requirements and civil remedies through provincial legislation does not go to the core of the federal bank power. In addition, it rejected the proposition that the provisions of the Act at issue significantly impaired the federal bank power. While the provisions of the Act imposed certain disclosure requirements and provided for civil remedies, they were not found to impair activities that were essential to banking in such a way that would require Parliament to specifically legislate to override the provincial legislation.
The Supreme Court of Canada did note that paramountcy may be operative in instances where the civil remedy provided by the provincial statute nullified the contract, instead of simply reducing how much the parties paid, as was the case in Marcotte. However, the Court refused to rule on this issue. Similarly, with respect to the interjurisdictional immunity issue, the Court did not rule on what the core of the federal jurisdiction over banking was, nor did it provide any general guidance on this issue.
One of the more relevant issues for banks that arises out of the decision in Marcotte is the application of provincial regulation to the banking industry. While the decision in Marcotte was limited in scope, it has certainly opened up the possibility that provincial legislation could regulate matters that have traditionally been seen as falling solely under the federal power to regulate banking. From the perspective of banks, this decision has had the effect of adding the requirement for further due diligence, because, in addition to federal law, banks must now also ensure that they are in compliance with provincial legislation.
More recently, the federal government has addressed the issue of consumer protection in the banking industry with several proposed amendments that were included in the Economic Action Plan 2015 (Budget 2015), tabled in the House of Commons on April 21, 2015. The Economic Action Plan 2015 proposes to amend the Bank Act, in order to strengthen and modernize Canada’s financial consumer protection framework and to provide an exclusive set of rules to govern consumer protection for banks. The proposed amendments are intended to result in a financial consumer framework that provides:
- broadened general requirements for clear and simple disclosure of information, and expanded use of summary information boxes for banking products and services;
- improved access to basic banking services by allowing a broader range of personal identification to open an account;
- expanded prohibitions on certain business practices, including high pressure sales situations, and cooling-off periods for a greater range of products;
- expanded corporate governance requirements so that boards of directors’ duties relate to all consumer protection measures;
- improved transparency and accountability, for example through enhanced public reporting on complaints and on measures taken to address the challenges faced by vulnerable Canadians; and
- a requirement that advertising be clear and accurate.
It will be important for banks to monitor the progress of these proposed amendments to the Bank Act in the coming months and, in the meantime, to ensure that the proper due diligence is being conducted and that they are in compliance with both federal and provincial consumer protection legislation.