Banks And Provincial Consumer Protection Laws – The Supreme Court Of Canada Weighs In

On September 19, 2014, the Supreme Court of Canada rendered its long-awaited judgment in Marcotte v. Bank of Montreal et al.1 and clarified the constitutional principles governing the application of provincial consumer protection laws to federally regulated businesses and activities. Given the proliferation of provincial consumer protection legislation, federally regulated businesses will have to pay close attention to this judgment when organizing their contractual relations with Canadian consumers. In addition, the court dealt with a number of other issues relating to standing in class actions and consumer protection that are not addressed in this update.

The issue

At issue in Marcotte was whether the requirements of Quebec's Consumer Protection Act (CPA) respecting the rules governing disclosure and calculation of consumer borrowing costs apply to foreign exchange conversion fees on transactions charged to credit cards issued by the defendant banks. The matter arose as a result of a class action brought on behalf of Quebec consumers who had paid such conversion fees.

Specifically, the court was required to determine whether sections 12 and 272 of the CPA apply to federally regulated banks. Section 12 CPA requires that all contractual charges be precisely indicated in consumer contracts. Section 272 CPA provides for a number of consumer remedies - including punitive damages - for breach of the merchant's obligations under the CPA. In unanimous reasons written by Justices Rothstein and Wagner, the court held that both provisions validly applied to banks.

The constitutional judgment

Two constitutional arguments are addressed in the court's reasons for judgment: (1) that sections 12 and 272 CPA are constitutionally inapplicable to banks pursuant to the doctrine of interjurisdictional immunity; and (2) that these provisions were incompatible with the federal legislative scheme governing banking and constitutionally inoperable under the federal paramountcy doctrine.

With respect to interjurisdictional immunity, the court confirmed that this doctrine ought generally to be limited to situations covered by precedent. The court held that the doctrine did not preclude application of sections 12 and 272 CPA, as these provisions could not be said to impair any activities that were vital or essential to banking. According to the court, the provisions require that conversion fees be disclosed to consumers, but could not be said to prevent banks from...

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