Older Uniform Acts

Commentary on Cost of Credit Disclosure Act 1998



PART 6 - COMPLIANCE

The DHA does not deal with compliance issues. Nevertheless, the ULCC considers that harmonization of compliance provisions _ especially those dealing with the civil consequences of non-compliance _ is desirable. In any event, the ULCC has decided that the CCDA should contain provisions dealing with the civil consequences of non-compliance with the Act. The ULCC believes that Part 6 represents a balanced approach to the civil consequences of non-compliance and merits serious consideration by jurisdictions.

The provisions of this part are based on three main premises. The first premise is that borrowers should be able to rely on the information in disclosure statements, even if the disclosure statement is not formally part of their contract with the credit grantor. Secondly, borrowers who suffer actual damage as a result of a credit grantor's failure to comply with the Act's requirements should be compensated by the credit grantor. Thirdly, in addition to their compensatory purposes, the civil remedies should be designed to promote a high level of compliance with the Act's requirements.

43 Definitions

(2) The concept of a compliance procedure plays a central role in section 46, dealing with statutory damages. Although this Part does not deal with offences or administrative proceedings, provisions that create offences or administrative sanctions could also employ this concept.

The object of a compliance procedure is to "ensure" that the Act is complied with. However, it is assumed that even a well designed and well implemented compliance procedure may occasionally spring a leak. Indeed, the issue of whether a credit grantor has a compliance procedure will only arise when there has been a leak.

While the definition of a compliance procedure does not contemplate that the procedure will be totally effective, it does require that the procedure will not exist only on paper. Paragraph (a)(ii) of the definition requires that the credit grantor actively monitor the effectiveness of its procedure and revise it where deficiencies are discovered.

44 Recovery of payments and compensation

Examples of payments to which subsection (1) could apply are prepayment charges or default charges that are not permitted under sections 16 and 17. While such payments might in any event be recoverable on restitutionary principles, this subsection is intended to put the right to recover such payments beyond doubt and to make it clear that the claim can be set off against amounts otherwise owing under the agreement or recovered in an action.

45 Inconsistency between disclosure statement and contract

This section can be thought of as creating a statutory estoppel in which the borrower is presumed, in the absence of evidence to the contrary, to have relied on the most favourable information in a disclosure statement or credit agreement.

46 Statutory damages

This section gives borrowers the right to recover statutory damages in certain circumstances. Its purpose is not to compensate borrowers but to encourage credit grantors to take the requirements of the Act more seriously than they might if the only sanction for non-compliance was the remote possibility of administrative action or prosecution for an offence. Most existing cost of credit disclosure legislation contains provisions that are intended to serve a similar purpose. However, the following characteristics distinguish this section from similarly-motivated provisions in existing Canadian legislation.

Firstly, this section's remedy is defined statutory damages. Existing legislation takes the approach of depriving the credit grantor of the entire cost of borrowing.

Secondly, in existing legislation the statutory penalty is automatically triggered by a contravention, regardless of whether the credit grantor took reasonable steps to prevent the contravention or not. The saving provisions of existing legislation focus not on the conduct of the credit grantor but on whether the borrower is likely to have been misled or prejudiced by the contravention. In contrast, because the intended purpose of statutory damages is to influence the conduct of credit grantors, rather than to compensate borrowers, this section focuses on the credit grantor's conduct rather than the effect of the contravention on the borrower. In particular, it focuses on whether the contravention occurred in spite of diligent efforts by the credit grantor to comply with the Act.

(1)(2) If the credit grantor can bring itself within subsection (1) _ and it should be noted that the criteria set out in subsection (1) are conjunctive _ it is not liable for statutory damages.

(3)(4) The statutory damages set out here are fairly modest when compared to the possible forfeiture of the entire cost of borrowing under existing legislation. Even though the statutory damages are relatively modest, it is considered that the possibility of having to pay them, perhaps in class action proceedings, will have the desired effect of encouraging credit grantors to implement effective compliance procedures.

(5) This would give the Court a discretion to reduce the statutory damages that would otherwise be payable in a particular case. It is considered that the existence of such a discretion will not detract from the deterrent value of the statutory damages, because credit grantors' conduct will be influenced by the possibility of statutory damages being awarded more than the possibility that the Court might be persuaded to reduce the damages in a particular case.

47 Exemplary damages

Section 46 is concerned with contraventions that arise because the credit grantor has not been as diligent as it ought to be in ensuring that it complies with the Act. This section is concerned with deliberate contraventions or other flagrant misconduct. It seems appropriate, and consistent with the objective of encouraging compliance with the Act, to give Courts the discretion to award exemplary damages in such cases.

48  Assignee

This section makes an assignee liable, to a certain extent, for contraventions of this Act by the original credit grantor. Like sections 46 and 47, this section is intended to encourage compliance with the Act. It assumes that in many cases, assignees will be able to exercise considerable influence over the practices of credit grantors with whom they have an ongoing relationship. On the other hand, it does not assume that an assignee will have complete knowledge of and control over the activities of such credit grantors.

The definition of "credit grantor" in section 1(1) includes an assignee after the borrower is given notice of the assignment. Therefore, once notice of the assignment has been given to the borrower, the assignee has the responsibilities of a creditor and will be directly liable for the consequences of failing to carry them out.

(1) This subsection does not refer to section 47 because it is not considered appropriate to make an assignee vicariously liable for exemplary damages.

(2) The effect of this subsection is that the assignee's maximum liability is the amount assigned to it.

(3)(4) These subsections are loosely based on provisions of the U.S. Truth in Lending Act.See footnote 1616 Essentially, the assignee's liability is limited to contraventions of which the assignee had knowledge before notice of assignment was given to the borrower or that the assignee could have discovered by exercising reasonable diligence in reviewing the relevant documentation.

49 Other remedies

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Cost of Credit Disclosure Act


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