Older Uniform Acts

Commentary on Cost of Credit Disclosure Act 1998



PART 2  - GENERAL DIVISION

1 - DISCLOSURE


This Division sets out general requirements regarding such matters as who is responsible for disclosure, the form of disclosure statements, when they must be delivered and so on. The content of disclosure statements is dealt with in Parts 3-5.

4 Definition

The effect of this section is that the requirements of this Division apply to leases as well as to credit agreements.

5 Requirement to disclose

Many provisions dealing with disclosure say something like, "The disclosure statement must disclose . . . ," without stating who is responsible for ensuring that the disclosure statement meets the requirement. This section serves that purpose by specifying that credit grantors are responsible for making the disclosures required by the Act.


6 Form of disclosure statements

(1) The overriding requirement of paragraph (a) is that the disclosure statement be in a form that will permit the borrower to retain it for future reference. Disclosure "in writing" (on paper) is the default method, but the disclosure can be made through other media with the borrower's consent. Paragraph (a) implements the third paragraph under the heading Plain Language on page 3 of the DHA.

Paragraph (b) sets out a functional specification for the visual appearance and organization of disclosure statements, rather than giving credit grantors detailed instructions on how they must design their disclosure documents. Paragraph (b) implements the second paragraph under the heading Plain Language on page 3 of the DHA.

(2) This does not relate to a specific proposal in the DHA. Although this subsection allows a disclosure statement to be part of another document, the disclosure statement must meet the criteria set out in subsection (1)(b). Obviously, that all of the information required to be included in a disclosure statement is contained somewhere in a credit agreement does not necessarily mean that the credit grantor has provided a statement that complies with subsection (1)(b).


7 Estimates

This section, which implements the second paragraph of Proposal 2.1, is adapted from section 13 of the Cost of Borrowing (Banks) Regulations.See footnote 77 In addition to this general provision for assumptions and estimates, other provisions describe specific assumptions to be used in particular disclosure contexts: see, e.g., sections 4(5) and 5 of the Schedule.


8 Time at which disclosure statement to be delivered


This section implements Proposal 2.2.

(1) Unlike subsection (2), this subsection does not require any interval between delivery of the disclosure statement and the earlier of the events mentioned in paragraphs (a) and (b).

(2) The second paragraph of Proposal 2.2 refers to the lender delivering the disclosure statement "at least two days before the first or only advance under the loan," while section 11(2) of the drafting template proposal says, "at least two business days before the borrower enters into the credit agreement or makes any payment, excluding disbursement charges." This subsection interprets the Committee's intention as being to ensure that the borrower receives the disclosure statement at least two business days before the borrower makes any payments or incurs any obligations to the credit grantor in connection with the mortgage loan. The exception is for obligations or payments relating to what the Committee refers to as "disbursement charges."

Care should be taken in interpreting the term "at least" in this provision and other provisions in which it appears. Reference should be made to the Interpretation Act of the relevant jurisdiction. Under some of these acts, where a provision states that X must occur at least a certain number of days before Y, the days upon which X and Y occur are not counted when reckoning time.See footnote 8 8

(3) This provision authorizes regulations that would allow the borrower to waive the requirement for advance delivery of the mortgage disclosure statement under prescribed conditions. Although Proposal 2.2 does not refer to waiver of the requirement for advance disclosure, section 13(3) of the drafting template proposal refers to the requirement being waived "if the borrower obtains independent legal advice." Presumably, the provider of legal advice would have to sign some sort of certificate, but the Committee does not indicate exactly what aspects of the transaction the advice would have to cover.

9 Delivery of disclosure statements

This section does not reflect a specific proposal in the DHA, which does not address the issues addressed by this section.

(1) This is intended to clarify the disclosure requirements where there is more than one borrower. The rule that only one borrower need be given the disclosure statement reflects the approach of U.S. Regulation Z.See footnote 99

(2) This provision would be redundant in jurisdictions that deal with this issue in their Interpretation Act or other general-purpose legislation.

10 Disclosure in Advertisements

This implements the paragraph of Proposal 10.1 that follows section 33 of the drafting template proposal. Proposal 10.1 deals with fixed credit. Proposal 10.2, which deals with advertising for open credit, does not contain a requirement corresponding to the paragraph of Proposal 10.1. It is assumed, however, that the proposal regarding the prominence of the APR and conspicuousness of other required disclosures was meant to apply to both fixed credit and open credit.

11 Additional requirements

The last paragraph of Proposal 10.1 contemplates regulations specifying "minimum print sizes or proportional sizes" in advertisements. Regulations authorized by this section could do that and could also deal with other details of the form of disclosure.

2  - CREDIT ARRANGED BY BROKERS

Proposal 7 proposes harmonized disclosure requirements for loans arranged by brokers but contemplates that individual jurisdictions may impose additional requirements on brokers "to meet legitimate consumer protection objectives beyond those of cost of credit disclosure." This division only deals with the disclosure issues directly addressed by the DHA.

12  Non-business credit grantors

This section corresponds to the portion of Proposal 7 (second point of the fourth paragraph) that applies where a "broker obtains a loan from a lender not regulated as such under federal or provincial statute." Since this Act regulates credit grantors who extend credit in the course of carrying on a business, the only credit grantors who are not regulated "as such" are those who do not extend credit in the course of carrying on a business. The credit grantor's disclosure responsibilities are transferred to the broker on the assumption that the broker will be in a better position to carry out those responsibilities than the credit grantor.

13 Business credit grantors


(1) This section applies where the credit grantor would have disclosure obligations under the Act even if a broker had not been involved in arranging the credit agreement.

(2) This subsection implements the third paragraph of Proposal 7, which says that the credit grantor must account for the brokerage fee in its disclosure statement only if the fee is deducted by the credit grantor directly from the amount advanced to the borrower.

(3) In accordance with the presumed intent of Proposal 7, this subsection only requires the broker to provide a disclosure statement if the broker takes a credit application. A broker who simply refers the borrower to a credit grantor would not have to provide a disclosure statement, even if the broker charges a fee for performing this limited service.

(4) This subsection represents an interpretation of the parenthetical material in the first item of the fourth paragraph of Proposal 7. The credit grantor is not to be "relieved of the responsibility . . . for ensuring that the borrower receives an accurate disclosure statement." Given that the credit grantor remains responsible, it seems reasonable to allow the credit grantor to discharge this responsibility by providing its own disclosure statement, rather than relying on the disclosure statement provided by the broker.

One less than ideal consequence of subsection (4), when read with subsections (2) and (3), is that a borrower might get two disclosure statements with slightly different information. This would occur if the broker's disclosure statement discloses an APR that includes a brokerage fee while the credit grantor's disclosure statement does not include the brokerage fee because it was paid directly by the borrower to the broker.

3  - FEES, CHARGES AND OPTIONAL SERVICES

14 Required insurance


This section implements item (xv) of Proposal 2.1.1 and item (xiii) of Proposal 2.1.2.The proposals are presented as disclosure requirements but clearly contemplate that the borrower will be given a substantive right to choose the insurer. Thus, subsection (1) provides the borrower with the right to choose the insurer and subsection (2) requires the credit grantor to disclose this right.


15 Cancellation of optional services

(1)(2) These subsections implement Proposal 10, except that subsection (1) provides a cancellation right where the service is provided by the credit grantor or an associate of the credit grantor. As mentioned in footnote 5 of the DHA, Proposal 10 leaves the treatment of optional services provided by associates to individual jurisdictions. There seems little point in providing a cancellation right for optional services if it does not extend at least to services provided by an associate of the credit grantor. Even where optional services are promoted to borrowers by the credit grantor, the services are much more likely to be provided by an associated entity than by the credit grantor itself.

(3) This addresses an issue that is not specifically addressed by the DHA. Regulations could be made under this provision if it appeared that refunds for cancelled optional services were not being calculated in a fair and reasonable manner.

16 Prepayment of non-mortgage credit

This section implements Proposal 4. Subsection (3) corresponds to the first sentence of the third paragraph of Proposal 4. The latter refers to a refund of "non-interest charges other than disbursement charges." The exclusion of "disbursement charges" is built into the Act's definition of "non-interest finance charge," which excludes charges for expenses referred to in section 2(3)(e) or (f) (which mostly apply to mortgage loans in any event) or designated by regulations under section 2(3)(g).

17 Default charges

This section, which is adapted from section 11(1) of the Cost of Borrowing (Banks) Regulation,See footnote 10 10 implements Proposal 5. Since the definition of "default charge" in section 1 excludes interest on overdue payments, this section does not restrict interest on overdue payments.

Although this section restricts the default charges that may be provided for by a credit agreement, it does not restrict the costs that may be awarded by a court under its general powers respecting costs.

18 Invitation to defer payment

(1) This reflects the second paragraph of Proposal 4.2 and the last paragraph of Proposal 4.3 (which follows drafting template proposal section 18).

(2)  This attaches certain consequences to a credit grantor's failure to comply with subsection (1). There is no corresponding proposal in the DHA, since the latter does not deal with compliance issues.

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