The decisions of the Supreme Court of Canada, released on Friday September 19, 2014, in the case of Bank of Montreal v. Réal Marcotte, 2014 SCC 55 and its companion cases, Réal Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 56, and Amex Bank of Canada v. Sylvan Adams, 2014 SCC 57, were appeals of decisions on the merits of three class actions. The class actions were launched to seek repayment of the conversion charges imposed by a number of credit card issuing financial institutions on credit card purchases made in foreign currencies primarily on the basis that the conversion charges violated Québec’s Consumer Protection Act (“QCPA”). In unanimous decisions, the Supreme Court concluded that Sections 12 and 272 of the QCPA were applicable. Accordingly, any conversion charge imposed by such financial institutions as issuers of credit cards, without sufficient disclosure to the cardholders, must be repaid

The cases have further clarified the boundaries between the exclusive federal jurisdiction over banks and bills of exchange and the provincial jurisdiction over property and civil rights and local and private matters in a province. This will most certainly require action by banking institutions to review their practices, procedures and documentation relevant to their activities in Québec and elsewhere in Canada, in particular in provinces in which provincial legislation purports to regulate the conduct of banking institutions that is fully or to some extent already regulated under federal laws, including Canadian banking laws and regulations.

Background

The facts are complex and differ in material respects for each of the defendants. In general, in the three cases, credit card network rules and contracts between banking institution credit card issuers and cardholders resulted in cardholders paying a fee each time a credit card was used outside of Canada. The fee is a percentage of the amount of the purchase price or withdrawal and is rolled into the currency conversion rate reported in the statements issued to the cardholders.

At first instance, the Superior Court of Québec decided that the non-disclosure of the conversion fees in the credit card agreements and the subsequent disclosure of such fees on the credit card statements failed to comply with the requirements of the QCPA. The Court awarded the restitution of all fees collected as far back as applicable limitation periods permitted, as well as punitive damages. In addition, the Court found that where the compliance requirements of the QCPA differed from those of the Bank Act (Canada), the credit card issuers had to comply with both regimes.

Subsequently, the Québec Court of Appeal allowed, in part, the appeals of the credit card issuers and reversed the lower court decision with respect to the compliance of the disclosure of the conversion fees with the QCPA as well as the imposition of punitive damages (except in limited circumstances). However, the judgments against the issuers for having failed to disclose the fees for a period of time were maintained, as such failure was found to offend the requirements of both the Bank Act (Canada) and QCPA.

The Court of Appeal found that the conversion fees were not charged to permit the extension or reimbursement of credit and thus were not required to be included in the computation of the credit rate. Rather, it found that such fees were simply subject to a general requirement of disclosure under the QCPA, which was similar to the requirement under the Bank Act. The Court concluded that the disclosure by the credit card issuers met the requirements of both the QCPA and the Bank Act. This interpretation removed any necessity to resort to the consideration of constitutional doctrines.

The Supreme Court of Canada Decision

The Supreme Court found that the representative plaintiffs have standing to sue all of the banking institutions named in the three class action suits. The Court concluded that the relevant QCPA provisions are neither inapplicable nor inoperative under the doctrine of interjurisdictional immunity or federal paramountcy. Rather, the Court concluded that the provisions of the QCPA that deal with disclosure of charges and remedies for breach do not impair the federal banking power. Further, the Court found that the provisions of the QCPA that deal with disclosure of charges and remedies for breach also cannot be said to frustrate the federal purpose of comprehensive and exclusive standards for banks and, in the view of the Court, the accompanying remedies in the QCPA support rather than frustrate the federal scheme.

The Supreme Court agreed with the Court of Appeal that the conversion charges were not credit charges that had to be included in the disclosed credit rate, but rather the charges would need to be disclosed under the general disclosure requirements of the QCPA. The failure to disclose the conversion charges was, in the view of the Court, a violation of the QCPA and the remedy was a reduction of the cardholders’ obligation in the amount of the conversion charges during the period of non-disclosure. In addition, the Court restored the decision of the Superior Court to impose punitive damages.

Initial Comments

The decisions of the Supreme Court have helped to clarify the scope of provincial jurisdiction to establish contractual norms that are applicable to circumstances that are already regulated by federal regulators exercising jurisdiction over banking institutions. In addition, in the short term, the decisions reinforce the importance of ensuring that adequate resources are committed to legislative compliance management within banking institutions that includes taking a broad view of the potential application of provincial laws and regulations that do not expressly exclude banking institutions from their application.

At the same time, these decisions highlight the urgent need for Canadian governments, both federal and provincial, to work cooperatively to eliminate unnecessary regulation. To expose Canada’s federally regulated financial institutions to additional, and sometimes duplicative, provincial regulation of their core business activities does not advance the public interest. One would hope that these unwelcomed decisions will be a clarion call for immediate governmental action in this regard.

Contact Us

If you would like to know more about these decisions or have any questions regarding these decisions and how they may affect your business, please do not hesitate to call or write to any member of the BLG Financial Services Group.

Authors

Kenneth S. Atlas 
KAtlas@blg.com
514.954.2522

Jeffrey S. Graham 
JGraham@blg.com
416.367.6174

Stephen J. Redican 
SRedican@blg.com
416.367.6134

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