SCC Comes Down Firmly on the Side of Consumer Protection in Financial Services Sector in Bank of Montreal v. Marcotte, Amex Bank of Canada v. Adams and Marcotte v. Fédération des caisses Desjardins du Québec

On September 19, 2014 the Supreme Court of Canada decided that provincial consumer protection legislation applies to banks and credit unions in credit matters. The decisions increase the sphere of provincial legislation that could apply to federally regulated financial institutions, give the provinces greater scope in consumer protection, and send financial institutions a strong message about consumer protection in the context of credit.

Groups of Canadian consumers sued a number of Canadian financial institutions in several class action lawsuits for repayment of the foreign currency conversion charges the institutions imposed on the consumers’ credit card purchases. The consumers said the charges violated Quebec’s Consumer Protection Act. The financial institutions said provincial consumer protection legislation doesn’t apply to them.

In three decisions, the SCC agreed with the consumers and ordered the financial institutions to repay to credit card holders any foreign currency conversion charges they imposed without sufficient disclosure to the cardholders. The decisions are based on Quebec provincial legislation, but each Atlantic Province has provincial consumer protection legislation so the decisions have relevance beyond Quebec:

• Insufficient Disclosure. It wasn’t enough for the financial institutions to disclose the conversion charges on the back of the monthly credit card statements (as one did) because doing so wouldn’t  bring the charges to the consumer’s attention when it and the cardholder entered into the credit card contract (which happened when the consumer first entered into the cardholder agreement with the financial institution).
• No Waiver. Cardholders don’t waive their right of legal action or protection under the consumer protection legislation by paying the conversion charges.
• Provincial Legislation Applies. The Canadian Constitution Act gives the federal Parliament exclusive jurisdiction over banking, but the relevant sections of the provincial consumer protection legislation don’t impair the core federal banking power so the doctrine of interjurisdictional immunity (which prevents laws that one level of government enacts from encroaching on an area over which the second level of government has power) didn’t apply. Similarly, the provincial legislation wasn’t inconsistent with the federal Bank Act and it didn’t frustrate any federal purpose, so the doctrine of federal paramountcy (which says that where valid provincial and federal laws conflict the federal law prevails) didn’t apply.
• Punitive Damages. Most of the financial institutions hadn’t even disclosed the conversion charges on the back of their statements and so were required to pay the consumers punitive damages (money intended to punish them rather than compensate the consumers).

Read the SCC’s decision in Bank of Montreal v. Marcotte, 2014 SCC 55.

Read the SCC’s decision in Amex Bank of Canada v. Adams, 2014 SCC 56.

Read the SCC’s decision in Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 57.

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Banking and Financial Services Team to discuss this topic or any other legal issue.

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