Disclosure of Mortgage Information to Third Party Creditors

February 23, 2011

Introduction

On January 6, 2011, the Ontario Court of Appeal released its decision in Citi Cards Canada Inc. v. Charles Pleasance, The Canada Trust Company and The Toronto-Dominion Bank, 2011 ONCA 3 (“Citi Cards”) confirming that financial institutions are bound by the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 (“PIPEDA”) and cannot disclose personal information (e.g., mortgage statements) about a customer without the customer’s consent, unless an exception in PIPEDA applies.

Background

Citi Cards Canada Inc. (“Citi Cards”) had a judgment against Charles Pleasance in the amount of $11,039.77 and sought to enforce the judgment through a sheriff’s sale of his home. To proceed with the sale, the Sheriff required mortgage discharge statements from the mortgagees (the Canada Trust Company and the Toronto-Dominion Bank) who refused to provide the information. Citi Cards applied to the court for an order requiring them to provide the statements. Their application was denied on the basis that the mortgage discharge statements contain “personal information” of the judgment debtor as defined in PIPEDA and could not be disclosed. The applications judge also noted that Citi Cards could obtain the information by personally examining the wife of the debtor (under the Rules of Civil Procedure of the Province of Ontario) as joint owner of the home. Citi Cards appealed the decision of the applications judge, and the appeal was dismissed for similar reasons. The Ontario Court of Appeal assessed the question of whether mortgage statements contain “personal information” as defined in PIPEDA and then whether exemptions in section 7(3) applied to permit disclosure. PIPEDA has previously been found to apply to financial institutions which collect and use the kind of information contained in a mortgage statement in the course of the commercial activity of mortgage lending. The court in this case also determined that mortgage statements contain “personal information” as defined in section 2(1) of PIPEDA.

The Court of Appeal also upheld the decision of the applications judge that none
of the exemptions in section 7(3) applied to authorize disclosure of mortgage
statements to a third party creditor. Citi Cards attempted to rely on two of the
exceptions in section 7(3): that disclosure was required to comply with an order
of a court (subsection (c)); and disclosure was required by law (subsection (i)). The
order that Citi Cards was attempting to rely upon to fall within the section 7(3)
(c) exemption was the order they were seeking in this case. The Court noted at
paragraph 25 that:

    It is circular to argue that the Banks are required to disclose the mortgage
statements because disclosure is required by an order not yet made. Even a
liberal interpretation of the legislation cannot lead to such a pliant result.

Citi Cards also attempted to argue that, pursuant to section 7(3)(i), the banks in this case were required by law to disclose the mortgage balances because the debtor would be required by law to disclose this information if he were examined in aid of execution. They argued that the consent of the debtor should not be needed for this type of disclosure where the debtor could be required by law to disclose it himself. The Court pointed out that this reasoning was inconsistent with the wording of section 7(3) which allows an organization to disclose personal information without the knowledge or consent of individual if the disclosure is for the purpose of collecting a debt owed by the individual to the organization. Parliament could have created another exemption for this if that was their intention. As well, no order existed in this case to make the debtor “required by
law” to provide the information. The Court also noted that the exemption for information “required by law” must be required by law independently of PIPEDA. The Court went on to conclude that a prohibition exists against disclosure of the information sought by Citi Cards. This confirms the privacy rights of debtors along with the obligation on all financial institutions to protect the financial information of debtors without clear exemptions to permit disclosure without consent.

It is interesting to note that in Echostar Communications Corporation v. Rodgers, Court File No. 06-CL-6575 (PIPEDA Case Summary No. 2006-336), the Ontario Superior Court of Justice ordered the financial institution to disclose the discharge mortgage statement. This decision was prior to the decision by the Court of Appeal in Citi Cards, but contemplated the decision of the Applications Judge in the Citi Cards case and distinguished it on the basis that there were no other remedies available to the judgment creditor. Also, the federal Privacy Commissioner has found that disclosure of mortgage information was required by law under the section 164(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, and collection of information by the trustee was also allowed.

Impact of the Decision in Newfoundland and Labrador

Under the Conveyancing Act, R.S.N.L. 1990, c. C-34, a mortgagee is prohibited from advertising a mortgaged property for sale under its power of sale rights without first providing notice to the mortgagor, guarantor and any registered encumbrancer (e.g., another mortgagee, judgment creditor, or registered lien holders such as the Canada Revenue Agency or the Workplace Health, Safety and Compensation Commission). In addition, section 10 of the Conveyancing Act requires a mortgagee to provide an accounting to the mortgagor, guarantor and any registered encumbrancer within 30 days after completing the sale of the property.

However, the Conveyancing Act does not go so far as to require the disclosure of any additional information. As noted above, financial institutions are bound by the requirements of PIPEDA, including the principle that they disclose the minimum amount of information necessary. The requirements under the Conveyancing Act are limited to registered encumbrancers only. Mortgage statements are often requested from third party lenders, or subsequent mortgagees exercising their power of sale rights or their respective solicitors. In these circumstances there is no exception in PIPEDA which would apply and disclosure is not permitted.

In addition to situations arising under the Conveyancing Act, a judgment creditor attempting to sell the debtor’s real property under Part VII of the Judgment Enforcement Act, S.N.L. 1996, c. J-1.1, or the High Sheriff of Newfoundland and Labrador acting on their instruction, may request information from a mortgagee. In these circumstances, as in Citi Cards, disclosure would not be permitted as the judgment creditor has other avenues of recourse (e.g., a judgment debtor examination) to obtain the information.

Conclusion

Although the decision in Citi Cards confirms the obligation of a financial institution to protect a debtor’s personal information, the impact of the City Cards decision remains to be seen. Financial institutions likely have contractual confidentiality obligations to their customers that would prohibit the disclosure of personal information to third party creditors. However, this decision is an important reminder to financial institutions that they should evaluate each request by third parties for financial information about their
customers and these requests should be refused unless an exception outlined in section 7(3) of PIPEDA applies, the three most relevant being: 1) the third party has a legislative entitlement to the information; 2) the customer has provided express consent to release the information; or 3) the third party has a court order authorizing the release of the information being requested.

This is a joint update of the Financial Services and Privacy groups in Newfoundland and
Labrador.

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