Memorandum on the Disclosure of Cost of Consumer Credit 1995

APPENDIX 1
CCDA 4.1 COMPARED TO
CMC CONSULTATION PAPER

This Appendix briefly summarizes the similarities and major differences between CCDA 4.1 and the proposals in the CMC's draft Consultation Paper. As mentioned in the main body of this memorandum, the steering committee decided that CCDA 4.1 should continue the existing AIR approach, which does not require lenders to calculate and disclose an APR for their loans. This is the one area in which it was consciously decided that CCDA 4.1 should not implement the proposals of the CMC Consultation Paper. This decision affects a number of provisions throughout CCDA 4.1 In addition to APR-related differences, there are a few other subjects upon which no attempt was made to bring CCDA 4.1 into conformity with the working group's proposals. In most cases this was because the working group had not reached a firm position on the relevant issue by the time CCDA 4.1 was completed.

The following analysis proceeds on a section-by-section basis through CCDA 4.1, but is not a detailed analysis. It simply indicates in general terms the extent to which each section is consistent or inconsistent with the proposals in the Consultation Document.

In many cases there is a statement that the section implements a specific proposal of the working group. It should be kept in mind that the provisions of the CCDA are almost invariably more detailed than the proposals that they implement. So even where a section of CCDA 4.1 "implements a specific proposal" of the Consultation Paper, the former is likely to deal with certain details that the latter does not address.

Unfortunately, the draft Consultation Paper does not number its proposals, so I have been unable to provide cross-references to these proposals. I have not even included page number references to the proposals, because I suspect that the page numbers in the draft Consultation Paper will not be the same as the page numbers in the final version.

Part 1 - Application

Section 1 - Definitions

*The definitions in CCDA 4.1 are not directly affected by the proposals in the Consultation Paper.

Section 2Persons considered to be associates of each other

*The Consultation Paper uses the term "associate of a lender" but does not purport to define it. Presumably, this definition is along the lines of what the Consultation Paper has in mind.

Section 3 - Application

*This section is consistent with but more detailed than the Consultation Paper. All the latter says regarding application is that harmonized legislation will deal with loans to individuals for non-business purposes.

Section 4 - Loans arranged by broker

*This section is consistent with the Consultation Paper, but the subject of the section is not specifically addressed by the Consultation Paper.

Part 2 - General

Section 5 - Cancellation of optional services

*This section implements a specific proposal of the Consultation Paper.

Section 6 - Restriction of non-interest charges

*This section limits non-interest charges to the categories it identifies, and would be eliminated under the approach proposed in the Consultation Paper. The Consultation Paper's approach would substitute implicit limitations for explicit limitations.

Section 7 - Permitted disbursement charges

*The Consultation Paper uses the concept of disbursement charges, although not in quite the same way as CCDA 4.1. Although all non-interest charges, including disbursement charges would have to be included in the APR for a loan under the working group's proposals, disbursement charges would enjoy a special status in the context of prepayments. Unlike other non-interest charges, disbursement charges are not refundable or rebateable on a prepayment.

Section 8 - Permitted flat charges

*The Consultation Paper does not use the concept of a flat charge, so this section would be eliminated under the approach proposed in the Consultation Paper.

Section 9 - Permitted prepayment charges

*This section is consistent with the approach proposed in the Consultation Paper, which is that non-mortgage loans should be prepayable without penalty, and that mortgage loans should be governed by the Interest Act.

Section 10 - Prepayment of non-mortgage loans

*This section is consistent with the proposals of the working group regarding prepayment of non-mortgage loans. However, an additional provision would be required to deal with the following aspects of the working group's proposals:

*Exactly what non-interest charges are partially refundable when a loan is prepaid?

*How is the refundable portion of a non-interest charge calculated?

Section 11 - Permitted default charges

*This section, with the possible exception of subsection (1)(c) implements a specific proposal of the working group.

*The Consultation Paper makes no mention of charges for dishonoured payments (an "NSF Charge"), but I believe this could be an oversight, rather than a conscious decision by the working group that such charges should not be allowed.

Section 12 - Brokerage fees

*This section is intended to implement the working group's proposals regarding brokerage fees. However, the draft Consultation Paper does not appear to address the issue addressed by the last part of section 12(2): the circumstances in which a brokerage fee may be imposed. This issue was discussed by the working group, and I believe that section 12(2) represents the decision of the working group, even if the decision is not recorded in the Consultation Paper.

Section 13 - Determination of outstanding balance

*This section deals with some technical issues that are not specifically addressed by the Consultation Paper. It is consistent with the approach proposed by the CMC working group.

Section 14 - Definitions

*These definitions are not affected by the Consultation Paper.

Section 15 - Rebates and discounts

*This section is not consistent with the approach proposed by the working group. To accommodate the Consultation Paper's proposals, this section would have to be rewritten to require that any rebate not taken by the credit customer be included in the APR.

Section 16 - Disclosure where payment waived

*This section implements a specific proposal of the working group.

Section 17 - Form of disclosure

*This section implements a specific proposals of the working group, except that the point addressed by subsection (3) is not addressed by the Consultation Paper.

Section 18 - Estimates in disclosure statements

*This section implements a specific proposal of the working group.

Section 19 - Disclosure of timing of payments and advances

Section 20 - Delivery of disclosure statements

Section 21 - Multiple borrowers

*These sections deal with technical issues that are not addressed by the Consultation Paper.

Section 22 - Disclosure of brokerage fee

*This section is not consistent with the Consultation Paper's approach to disclosure by brokers. This is partly because the working group had not reached a firm position on disclosure by brokers by the time CCDA 4.1 was completed. However, even if the Consultation Paper had been finalized before CCDA 4.1 was completed, the former's position on disclosure by brokers might have been too uncertain to implement in the draft act.

Part 3 - Fixed Credit

Division 1 - Disclosure Relating to Interest Rate

Section 23 - Application of this Part

*This section is not affected by the Consultation Paper

Section 24 - Interest rate information

*This section deals with the interest rate information that must be provided for a constant-rate loan (the easy case) and for loans in which the interest rate may vary during the term of the loan. This section is consistent with the Consultation Paper but deals with the subject in more detail.

Section 25 - Payment disclosure where interest rate is variable

*This section is consistent with the Consultation Paper.

Division 2 - Advertisements

Sections 26 - 29

*These sections are inconsistent with the Consultation Paper to the extent that the latter requires disclosure of the APR whenever an advertisement mentions any specific information about the cost of borrowing. As well, references in these provisions to disclosing the amount of flat charges are not consistent with the APR approach advocated by the Consultation Paper.

*Apart from the fact that they do not require disclosure of an APR, these sections are generally consistent with the Consultation Paper's proposals.

*Unlike the Consultation Paper, this Division does not set out special (less onerous) disclosure requirements for radio and television advertisements. The disclosures required by this Division are not so onerous as to be inappropriate for radio or television advertising.

Division 3 - Supplier Loans

Section 30 - Simplified disclosure for certain supplier loans

*This implements a specific proposal of the working group.

Section 31 - Supplier Loans Generally

*For the most part, this section implements specific proposals of the Consultation Paper. Where it does not implement specific proposals, it is consistent with the working group proposals except, except as noted below.

*This section does not require disclosure of the APR.

*CCDA 4.1 does not have a specific requirement to disclose the date from which interest begins to accrue, as was provided by CCDA 3.2 and proposed by the working group. This provision should have been included in CCDA 4.1.

*CCDA 4.1 omits a few disclosure items that are mentioned in the consultation paper but which seem unnecessary. For example, the Consultation Paper requires disclosure of "the method of calculating any rebate on the cost of borrowing if the borrower makes a prepayment". Since the Consultation Paper proposes a statutory formula for calculating the amount of such a rebate, it seems pointless to set it out in a disclosure statement.

Division 4 - Cash Loans

Section 32Timing of disclosure for non-mortgage loans

*This section implements a specific proposal of the Consultation Paper.

Section 33 - Timing of disclosure for mortgage loans

*This section implements a specific proposal of the Consultation Paper but is more detailed.

*There is one point upon which this section and the draft Consultation Paper are inconsistent, but I think it is because of an error in the latter. Section 33(2) gives the borrower two business days after receiving the during which to decide whether to accept the loan or not. If the borrower declines the mortgage during that period, the borrower is not liable for non-interest charges other than disbursement charges relating to expenses already incurred by the lender. The draft Consultation Paper takes a similar approach, but it does not attach any specific consequences to delivery of the disclosure statement. It does not purport to give the borrower a short period after receiving the disclosure statement during which the borrower can decline the loan and avoid certain non-interest charges. The Consultation Paper makes the time at which the borrower signs "the agreement" (presumably, the mortgage), the critical time. Given that the borrower might well sign the mortgage before getting the disclosure statement, the draft Consultation Paperseems to miss the point of providing the disclosure statement 14 days before the loan is advanced.

Section 34 - Timing of disclosure in special cases

*This implements a specific proposal of the Consultation Paper.

Section 35 - Contents of initial disclosure statement for cash loan

*The preceding comments regarding section 31 apply to this section, as well. For example, this section does not implement the working group proposal to require disclosure of the APR for all fixed loans.

*The disclosure requirements for "readvanceable loans" in section 35(3) implement a specific proposal of the Consultation Paper.

*Section 35(5) provides special disclosure requirements for fixed loans that do not provide a schedule of payments (e.g. a demand loan). The Consultation Paper does not address the possibility that fixed loans will not necessarily have a predetermined schedule of payments.

Division 5 - Subsequent Disclosure

Section 36 - Variable-rate loans

*This section implements a specific proposal of the Consultation Paper.

Section 37 - Supplementary disclosure statement

*This section implements specific proposals of the Consultation Paper, although the draft Consultation Paper seems to contain a substantial drafting error, which I presume will be rectified in the final version.(17)

*Section 37(4) takes a different approach than the Consultation Paper on the issue of what sort of inaccuracies trigger the disclosure requirement. The latter requires a supplementary disclosure statement where the corrected information results in an increase in the APR of at least 1/8 of one percent. That particular trigger is not appropriate under CCDA 4.1, which is not based on APR disclosure. So section 37(4) requires the lender to deliver a supplementary disclosure statement except where the inaccuracy consists of an overestimate of the amount of a disbursement charge.

Section 38 - Renewal agreements

*This section implements a specific proposal of the working group, except that it does not require disclosure of the APR for the renewed loan, as contemplated by the working group.

Part 4 - Open Credit

Section 39 - Application of this Part

*This section is not affected by the Consultation Paper

Section 40 - Simplified disclosure in certain cases

*This section implements a specific proposal of the Consultation Paper.

Division 1 - Open Credit Generally

Section 41 - Advertising for open credit

*Terminology aside ("flat charge"), this section implements a specific proposal of the Consultation Paper.

Section 42 - Initial disclosure statement

*This section implements a specific proposal of the Consultation Paper.

Section 43 - Contents of initial disclosure statement

*This section implements a specific proposal of the Consultation Paper.

Section 44 - Statement of account

*This section implements a specific proposal of the Consultation Paper.

Section 45 - Contents of statement of account

*This section implements a specific proposal of the Consultation Paper.

Section 46 - Notice of changes

*This section implements specific proposals of the Consultation Paper.

Division 2 - Credit Cards

Section 47 - Early disclosure of cost information

*This section implements specific proposals of the Consultation Paper.

Section 48 - No unsolicited cards

*This section implements a specific proposal of the Consultation Paper.

Section 49 - Contents of initial disclosure statement for credit card

*Subsection (1) implements a specific proposal of the Consultation Paper. Subsection (2) does not relate to a specific proposal, but is consistent with the Consultation Paper.

Section 50 - Limitation of liability on loss of credit card

*This section is not full consistent with relevant proposal ofthe Consultation Paper. This section limits the borrower's liability to $50 if the borrower reports the loss or theft of the credit card within a reasonable time of discovering it. The Consultation Paper proposes an absolute limit of $50 on the cardholder's liability for unauthorized use of a lost or stolen card. I prefer the approach of section 50.

Part 5 - Leases of Goods

Section 51 - Definitions

*These definitions are not affected by the Consultation Paper.

Section 52 - Application of this Part

*Clause (d) implements a specific proposal of the Consultation Paper, and the rest of the section is consistent with the Consultation Paper.

Section 53 - Advertisements

*This section implements a specific proposal of the Consultation Paper.

Section 54 - Disclosure statement for lease

*This section implements a specific proposal of the Consultation Paper.

Section 55 - Implicit annual interest rate

*This subject of this section is not specifically covered by the Consultation Paper. I assume that if the Consultation Paper had addressed this issue it would have been inconsistent with this section in one respect. The effect of subclause (1)(a)(ii) is to exclude "non-interest" charges from the implicit annual interest rate. I presume that, to be consistent with the APR approach for other forms of credit, the Consultation Paper would have required such charges to be included in the APR for the lease.

Section 56 - Lessee's prepayment right

*This section implements a specific proposal of the Consultation Paper. However, since the Consultation Paper does not employ the concept of a permitted flat charge, some adjustments would be necessary to make the section and the proposals fully consistent.

Section 57 - Guaranteed residual value leases

*This section implements a specific proposal of the Consultation Paper, but the reference in subsection (1) to "realizable value" would have to read "anticipated wholesale value" to make the section fully consistent with the proposal.

Section 58 - Penalties for early termination

*This section implements a specific proposal of the Consultation Paper.

Part 6 - Compliance

Section 59 - Definitions

*Clause (b) defines a compliance procedure. The Consultation Paper uses this concept without defining it.

Section 60 - Recovery of payments and compensation

*This section implements a specific proposal of the Consultation Paper.

Section 61 - Inconsistency between disclosure statement and contract

*This section implements a specific proposal of the Consultation Paper.

Section 62 - Excusable error

*This section implements a specific proposal of the Consultation Paper.

Section 63 - Other contraventions

*This section implements as specific proposal of the Consultation Paper.

Section 64 - Assignee

*This section is to implements a specific proposal of the Consultation Paper.

Section 65 - Offences

Section 66 - Compliance orders

Section 67 - Investigations

*The subjects addressed by these sections are not addressed by the Consultation Paper.

Part 7 - Regulations and Transitional Provisions

*The subjects dealt with in this Part are not addressed by the Consultation Paper.

Next Annual Meeting

2017 Conference

Hotel Saskatchewan

Regina, SK

August 13 - 17, 2017
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