Third Interim Report on Cost of Credit Disclosure Act 1994

PROCESS ISSUES

Coordination with CRMS Negotiations: CCDA

The inclusion of ccdl within the ITA has obvious benefits for our project. That the relevant jurisdictions have committed themselves to harmonization cannot hurt the prospects for implementation of the ultimate product of the project. There is nothing in the ITA that commits the jurisdictions to harmonize ccdl according to any particular model, such as CCDA, but it is fair to say that our project is the only game in town at the moment. On the other hand, inclusion of ccdl within the ITA does create some interesting coordination problems. Specifically, it raises the issue of how to coordinate the ULCC's process for adopting a uniform act (or acts) with the process contemplated by the ITA for harmonizing ccdl.

Given the commitment of all jurisdictions to the harmonization of ccdl, by 1997, I think it is worthwhile for the ULCC to coordinate its process with that of the government officials who are responsible for reaching agreement on the contents of harmonized ccdl. In particular, insofar as it is possible to do so, there is much to be said for ensuring that the uniform CCDA adopted by the ULCC is substantially "pre-approved" by the organs of government who must agree on the contents of harmonized ccdl.

As noted earlier, CRMS negotiators were unable to commit themselves to reaching an agreement on "the final elements of cost of credit harmonization" before January 1, 1996. John Gregory informs me that during his June 20 meeting with the CRMS co-chairs they expressed some optimism that it might be possible to reach such an agreement by the spring of 1995, at the earliest. Obviously, that would preclude the use of the ULCC's "February 28" rule to publish the final text of a uniform act in the 1994 proceedings. In light of all this, it seems to me that the Uniform Law Section can choose between one of the following two processes (or some variation of one of them) for adopting the final text of a uniform act.

Option 1

The Uniform Law Section would treat this year's Conference as its final kick at the cat, so to speak. The Uniform Law Section would make final decisions on all outstanding issues in August and adopt a final text of CCDA, subject to the "February 28" rule. The approved text would be published in the 1994 Proceedings as the ULCC's last word on the subject. Essentially, this would end the ULCC's involvement. CCDA, as adopted by the ULCC, would not be pre-approved by the jurisdictions responsible for implementing it. Therefore, I assume that the negotiators would pay attention to CCDA but would proceed on the basis that everything is still subject to negotiations. I also presume that interest groups who are unhappy with particular aspects of CCDA, as adopted by the ULCC, would do their best to persuade negotiators to change those aspects to suit their tastes. I suspect that what the negotiators eventually agreed upon would bear a strong resemblance, but would be far from identical, to the text adopted by the ULCC.

Option 2

At this August's meeting the Uniform Law Section would take the following steps.

(a) Consider the issues raised by this report and make decisions that reflect the Uniform Law Section's current view as to the best approach to those issues.

(b) Appoint a drafting/liaison committee to represent the ULCC in continuing consultations with CRMS negotiators.

If the CRMS negotiators reach agreement on all outstanding issues relating to ccdl by the spring of 1995, the drafting/liaison committee would prepare a final draft of CCDA that reflects that agreement. This draft would be formally adopted at the 1995 Conference.

If the CRMS negotiators fail to reach agreement on all outstanding issues by the spring of 1995, the drafting/liaison committee would prepare a proposed final draft of CCDA for consideration at the 1995 Conference. The draft would reflect the consensus on those issues where a consensus has been achieved. On other issues, the draft would represent the recommended approach of the drafting/liaison committee. The draft CCDA would be adopted, with any changes considered desirable by the Uniform Law Section, at the 1995 Conference.

I recommend Option 2.

Recommendation 1:

Adopt the process (or some variation of the process) described in Option 2, above.

Proposed Interest Act

As mentioned earlier, we have not received as much comment on PIA 1 as on CCDA. I suspect that this is partly attributable to understandable scepticism that the federal government could be persuaded to do anything significant about the Interest Act.. However, because paragraph 9(c) of Annex 807.1 specifically refers to the Interest Act, the federal government seems to have committed itself to at least consider amendment or replacement of the Interest Act. To be sure, that the Interest Act is mentioned in Annex 807.1 does not compel the federal government to do anything in particular, such as enacting legislation based on PIA. Unlike the situation with CCDA, I do not think there is much prospect of the relevant government authorities having committed themselves to PIA by the time it is adopted by the ULCC. But that is not necessarily a great tragedy.

As mentioned on previous occasions, Part 2 of PIA is designed to work in conjunction with CCDA to ensure that consumers receive consistent disclosure of all elements of the cost of credit. The reason for this division of labour is constitutional, rather than logical.[1] The principles intended to be implemented by PIA 2 are ordinary cost of credit disclosure principles. The main task of Part 2 of PIA is to lay down a single balance calculation method for all consumer credit transactions. I have previously stated the case for having such a method for all consumer loans and will not repeat it here. It is important to note that CCDA assumes that there will be a single balance calculation method. However, so far as CCDA is concerned, what is of primary importance is that there be a legislatively prescribed balance calculation method; the actual details of the method are of less importance.[2] Thus, PIA stands on a somewhat different footing than CCDA. Since the latter is intended to be adopted by multiple jurisdictions, uniformity will not be achieved unless all jurisdictions adopt essentially the same text. But since only one jurisdiction will be enacting a replacement for the Interest Act, it is more important that Parliament enact legislation that implements certain principles underlying PIA than that it enact the exact text of PIA, as adopted by ULCC.

My suggestion is that the ULCC adopt a version of PIA at the same time that it adopts CCDA. However, it should be made clear that PIA is put forward by the ULCC as one possible implementation, not the only possible implementation, of certain principles. It is the principles, rather than the actual text of PIA, that need to be implemented as part of the process of harmonizing ccdl. The following are the principles that I think should be implemented by any replacement for the Interest Act.

1. There should be a single basic balance calculation method for all consumer credit transactions, subject to such adjustments or exceptions as may be necessary or desirable to deal with special circumstances. The balance calculation method could either be set out in the act or prescribed by regulation.

2. In general, only one rate of interest should apply at any given time to the balance outstanding on a consumer loan.

3. The interest rate on fixed loans should either be predetermined for the whole term of the loan or indexed.

4. A lender should not unilaterally be able to change the index or the margin between the index and interest rate for an indexed rate loan.

The first two principles are more crucial than the latter two.

Recommendation 2:

Adopt PIA at the same time CCDA is adopted (see Options 1 and 2, above). It should be made clear that PIA is one possible implementation of certain cost of credit disclosure principles that, because of our constitutional arrangements, are most appropriately dealt with by the federal government.

SUBSTANCE

This part of the report focuses on issues that have arisen regarding the text of CCDA 3.2. Most of the issues have been raised by one or more of the individuals or organizations (referred to as "commentators") who provided comments on CCDA 3.2. However, some of the issues arose out of the discussions during the working group meeting in March, a few were raised last year by commentators on CCDA 2, and some are raised by me. I will begin by identifying certain topics that CCDA does not deal with. Next, I will identify and discuss a few "fundamental" issues. Finally, I will discuss, on a section by section basis, a miscellaneous assortment of policy issues raised by commentators.[3]

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