In June 2011, the Québec government introduced Bill 24 entitled "An Act mainly to combat consumer debt overload and modernize consumer credit rules." The bill was adopted in principle on November 8, 2011 and is now being studied in parliamentary committee. With this bill, the government aims to modernize the provisions of the Consumer Protection Act, mainly in respect of consumer credit. To do so, the government is proposing a series of measures – some of which are presented below – imposing certain obligations on merchants and aiming to protect consumers from high debt levels. It is interesting to note that the bill also aims to add new rules concerning long-term leasing agreements, contracts made with itinerant merchants, distance contracts, debit cards and other subjects.
COMPULSORY MERCHANT DISCLOSURE
In order to address the problem of consumer debt overload, Bill 24 sets out a policy of increased transparency via compulsory disclosure of information to consumers so they can make an informed decision when applying for credit or selecting payment terms for previously obtained credit. The legislator thus intends to adopt a series of provisions aimed at better informing consumers about applicable credit rates and the obligations that apply until credit obtained through a loan agreement or a variable credit agreement (credit cards, credit accounts, lines of credit, etc.) is paid in full.
CREDIT GRANTING
Verification of consumer's capacity to repay credit
The bill requires a merchant granting credit to a consumer or increasing a previously granted credit limit to verify the consumer's capacity to repay the loan. Such verification shall be based on information provided for this purpose under the applicable regulation. Failure to perform such verification will result in the merchant losing the right to claim associated credit-granting fees from the consumer, and will have to reimburse such fees if paid by the consumer.
Maximum credit limit
In order to limit excessive access to variable credit, the legislator will require the credit application to specify the different credit terms and the credit amount required by the consumer. The merchant will also be required to respect the amount indicated by the consumer and will not be permitted to grant a higher credit amount.
Misleading advertising and false representations
The legislator is also addressing consumers' perception of credit and its impact on their financial situation. To do so, the legislator is proposing to prohibit merchants from misrepresenting to consumers that credit may "improve their financial situation or solve their debt problems." It also prohibits offering premiums to "incite consumers to apply for a credit card."
CREDIT RATES
Variable credit rates
Bill 24 also requires compulsory disclosure by merchants with respect to consumer credit agreements (loan agreements, variable credit agreements, other credit agreements) whereby the applicable credit rate will change during the agreement term. In this type of situation, the merchant must disclose to the consumer the applicable credit rate and the balance payable by the consumer at the start and end of the period covered by the statement. A merchant who imposes a credit rate increase that is more than one percentage point higher than the previous applicable rate must inform the consumer of the new rate, the date on which it becomes applicable, and the impact such increase will have on the payment amount and date of the consumer's instalments.
Credit rate applicable after an exemption period
Another provision of the bill requires the merchant to inform the consumer of the credit rate that will be applied after a no-interest/no credit charges period expires (e.g., a purchase with no interest or credit charges imposed during a certain period). An advertisement indicating that no credit charges will be applied during a specific period must also indicate the rate that will be charged after such period.
CREDIT REPAYMENT
Minimum payment increase
In order to reduce consumer debt overload and help ensure that consumers do not remain in debt ad infinitum, the legislator proposes raising the minimum payment a consumer has to make on a credit card account, thus helping to ensure the outstanding balance is paid back sooner. In turn, the legislator proposes in Bill 24 that the minimum payment required by a merchant for a period be at least 5% of the outstanding balance on the credit card account.
Estimated time required to repay the outstanding balance
In addition to implementing measures to ensure consumer credit card debts are paid off faster, the legislator also aims at ensuring that consumers are made aware of the extent of their debts and the risk they would incur if they decide to make only the minimum payment on their accounts. To do so, the legislator plans to require merchants to indicate on each account statement sent to consumers an estimate of the time it would take to repay the balance in full if only the required minimum payment is made each period.
MINORS
Lastly, the legislator proposes protecting minors from debt overload by prohibiting merchants from entering into a credit agreement with a non-emancipated minor without written permission from a person having parental authority.
As indicated at the beginning of this bulletin Bill 24 introduces a number of rules applicable to consumer credit that have not been specifically addressed in this bulletin.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
