Third Interim Report on Cost of Credit Disclosure Act 1994

Part 4 -- Open Credit

General Issues Regarding Part 4

Application to overdraft facilities: Discussion Notes, Part A.5 (p. 15)

The Discussion Notes discuss the issue of whether CCDA's disclosure requirements for open credit should apply to the sort of prearranged overdraft facilities that are often associated with deposit accounts. CCDA does not specifically refer to overdraft facilities, but they would fall within the definition of "open credit". The question is whether such facilities should be excluded from CCDA or whether they should attract less rigorous disclosure requirements than other forms of open credit. It was noted that under some existing ccdl the disclosure requirements for overdraft facilities are less rigorous than for other forms of open credit. Section 8(1)(a) of the Cost of Borrowing (Banks) Regulations, for example, provide that disclosure must be made

in the case of an overdraft, by means of a written statement or by a notice that is displayed in each branch of the bank.

The Discussion Notes questioned the efficacy of "posting in the branch" disclosure, when the proliferation of automatic banking machines makes it unnecessary for most consumers to set foot in their branch in order to attend to most of their banking business. The Discussion Notes conceded that one reason for excluding overdraft facilities from CCDA would be if it were considered more appropriate to deal with all aspects of financial institution deposit accounts in one place.

One commentator on CCDA 3.2 took issue with the proposition that overdraft facilities should be put on the same footing as other forms of open credit:

Our members object to this comparison [with open credit]. Overdraft facilities do not have the same characteristics as other forms of open credit. Such facilities are not intended or marketed as a regular form of credit. They are intended for emergencies or when the customer inadvertently does not deposit sufficient funds to cover a payment. The high interest rate associated with overdraft facilities reflect the fact that the customer is not encouraged to use them.

Customers who use overdraft facilities must monitor their financial affairs very closely and are thus encouraged to have regular contacts with the personnel within their branch.

The commentator went on to express support for the CBBR's approach to overdraft disclosure requirements. This view was not shared by all commentators, several of whom expressed support for the proposition that consumers should get the same sort of disclosure for overdraft facilities as for other forms of open credit. One commentator noted that "[m]any consumers balance their monthly budgets using overdraft!" I would also reiterate the assertion made in the Discussion Notes that CCDA's disclosure requirements for open credit do not seem unduly onerous when applied to an overdraft facility. In any event, if it is considered appropriate to exclude overdraft facilities from CCDA, this could be done through a regulation under section 3(5)(b).

Recommendation 20:

No special provision should be made for overdraft facilities in CCDA: they would be treated as a form of open credit. But overdraft facilities might be excluded by regulation if it were considered more appropriate to deal with them in legislation or regulations regarding deposit accounts.

Section 34 Application of this Part

There is a significant omission here regarding open credit agreements to which section 35 applies. It should be made clear that the rest of this Part does not apply to open credit agreements to which section 35 applies; all requirements for such agreements are contained in section 35 itself.

Recommendation 21:

A subsection (2) should be added to section 35:

(2) Sections 36 through 46 do not apply to an open credit agreement to which section 35 applies.

Section 43 Early disclosure of cost information

The point marked "N.B." in the "across the page" Discussion Notes was quite controversial at the working group meeting. I am satisfied with the approach of section 43, but others might not be.

Section 44 No unsolicited credit cards

The "across the page" discussion note for section 44 refers to the controversy over whether consumers should be able to apply for credit cards over the phone, or whether all applications for credit cards should be required to be in writing. I know that there are strong views on either side of this issue (although none were expressed in the most recent round of consultation). I lean towards allowing "over the phone" applications for credit cards. Even if the card is applied for over the phone, the customer must be given a written disclosure statement before receiving any advances under the credit card agreement. And customers will not be liable for any non-interest charges if they cancel the card (without using it) within 30 days of receiving the disclosure statement. But this argument certainly did not convince all members of the working group that it is appropriate to allow "over the phone" applications for credit cards.

Recommendation 22:

The Uniform Law Section should consider and adopt a position on the "written application" issue.

Section 46 Limitation of liability on loss of credit card

There is still some disagreement as to the wording of clause (3)(b). Several commentators (either on CCDA 2 or CCDA 3.2) were unhappy with the reference to a "reasonable" time, arguing that it was too vague. One commentator suggested the word "immediately" as a replacement and another suggested that a fixed time frame be substituted. The working group thought that the term "within a reasonable time" is a reasonable compromise between the different positions. It was noted that even if the wording says "immediately", its practical effect would be the same as if it said "within a reasonable time". This wording is based on Alberta's Act and the Alberta representative on the working group said that this wording does not seem to have created problems or excessive uncertainty in Alberta.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018