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Consumers need more comprehensive protection against late payment penalties

(OTTAWA)— The Public Interest Advocacy Centre (PIAC) today released a 53-page report entitled “A Criminal Rate of Interest: Updating Garland for Consumers” that provides legal updates to the interpretation of usury provisions of the Criminal Code since the Supreme Court of Canada ruled in Garland v. Consumers Gas Co. in 1998 that the definition of “interest” is broad and a late payment penalty could be construed as “interest” on an advancement of credit. Most recently, in De Wolf v. Bell ExpressVu the court refused to extend the definition of “interest” to a $25 administrative fee on late accounts set out in Bell ExpressVu’s standard form contract.

PIAC’s report discusses consumer class actions that challenge the lawfulness of charges and fees levied for late payments by telecommunications, utilities and payday lending companies. These class actions argued that the late payment penalties violate the criminal rate of interest.

“Class actions provide consumers with a useful mechanism to dispute charges related to late payments where they might not otherwise be able to access justice individually,” said Janet Lo, PIAC legal counsel and author of the report. “However, consumer class actions have suffered lengthy delays and are limited in being able to provide direct remedies back to affected consumers.”

Even where class actions reach a settlement, the agreements may provide poor remedies for consumers. For example, some settlements against payday lenders provide vouchers for redemption for future payday lending services, which only serve to perpetuate the spiral of consumer debt. PIAC is also concerned with the recent practice of recovering class action costs by increasing utility rates in Ontario, which has been approved for Enbridge in the Consumers Gas Co. case and is pending approval for Toronto Hydro and other municipal utilities in Ontario.

Payday lenders are now exempt from the application of usury provisions in the Criminal Code where provinces regulate payday lenders and the allowable rate of these loans. Provincial regulation has led to disappointing results for consumers. Several provinces have permitted extra fees that translate to extremely high annual interest rates for consumers.

PIAC’s survey of industry practices found that service providers continue to charge interest rates on late payments. Most service providers charge a fee for payments that bounce due to non-sufficient funds and disclose this fee and the amount charged in standard form contracts.

Combining the disappointing in De Wolf v. Bell ExpressVu, provincial regulation on payday lending that has led to higher interest rates than those allowed by the usury provisions in the Criminal Code and the limitations of consumer class actions against late payment practices, it seems that consumers have even less protection from exploitative credit arrangements today.

Click here for the complete report

 

thumb_pdfExecutive summary in English
Download File: garland_execen.pdf [size: 0.02 mb]

Click here for the French translation of the Executive Summary

PIAC received funding from Industry Canada’s Contributions Program for Non-Profit Consumer and Voluntary Organizations. The views expressed in the report are not necessarily those of Industry Canada or the Government of Canada.

 

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