Difference between pages "Direct Sales, Future Performance, and Time Share Contracts (11:V)" and "Conditional Sales Contracts and Security Agreements (11:VI)"

From Clicklaw Wikibooks
(Difference between pages)
Jump to navigation Jump to search
 
 
Line 2: Line 2:
{{LSLAP Manual TOC|expanded = consumer}}
{{LSLAP Manual TOC|expanded = consumer}}


The ''BPCPA'' has replaced the ''Consumer Protection Act'', and the ''BPCPA'' now also covers door-to-door sales, payday loans, gym memberships, unsolicited goods and services, and a number of other contracts (note that this is a non-exhaustive list of things the ''BPCPA'' covers). The primary remedy for consumers in the ''BPCPA'' regarding these types of activities is the right to avoid or cease contracts for direct sale or for future services, after giving '''notice''' in the manner required by the statute. A single contract may fall under more than one category, and in that case, will attract the requirements and cancellation provisions of each applicable section.
The ''Personal Property Security Act'', RSBC 1996, c 359 [PPSA] governs conditional sales agreements (e.g. the contract is subject to some condition to be fulfilled later) and security contracts. The ''PPSA'' established a new unified system for the registration, priority, and enforcement of transactions where collateral is given to secure payment or the performance of an obligation. The main purpose of the ''PPSA'' is to offer lenders or creditors a system of priority vis-à-vis other creditors where it is necessary for the lender or seller to take an interest in personal property to ensure the obligations of the borrower or purchaser are met. The legislation effectively creates a system for the registration and enforcement of a security interest against personal property.


:'''NOTE:''' When exercising cancellation rights under the ''BPCPA'' consumers should be apprised of ss 27 and 28. In most cases, the contract is effectively rescinded by the cancellation; goods must be returned undamaged and payment must be refunded in full. Furthermore, if a supplier will not provide a refund as required under Division 2 of the ''BPCPA'', s 55 stipulates that a consumer may be entitled to recover the refund as a debt due.
Under s 2, the ''PPSA'' governs every transaction that creates a security interest, regardless of the form of the agreement, even in agreements that do not appear to be security agreements, so long as it is creating a security interest in substance. A “'''security interest'''” is defined in s 1(1) as an interest in goods that secures payment or the performance of an obligation.


== A. Direct Sales ==
:'''NOTE:''' For the purposes of this section, goods is used to define security interests. However, the actual definition is broader than that. For more information, see ss 1(a) and ss 1(b) “security interest”.  


When a consumer is approached by a salesperson, instead of making a conscious decision to seek out a product or service, they may be taken unaware and can be vulnerable to being taken advantage of. The ''BPCPA'' recognizes this risk by imposing disclosure requirements and allowing a consumer to cancel the contract in ways the common law does not permit.
[[Introduction to Creditors%27 Remedies (10:I) | Chapter 10: Creditors’ Remedies and Debtors’ Assistance]] has a discussion on the protection offered to a consumer by the ''PPSA'', including the requirements of enforceable security. The ''PPSA'' has some special considerations applicable if the goods in which the collateral was taken were consumer goods. '''Consumer goods''' are defined in s 1(1) as goods that are acquired primarily for personal, family, or household purposes.


A '''direct sales contract''' is defined in s 17 as:
== A. Creditor’s Remedies Against the Debtor ==


...a contract between a supplier and a consumer for the supply of goods or services that is entered into in person at a place other than the supplier's permanent place of business, but does '''not''' include any of the following:
=== 1. Control by the Creditor ===
* A funeral contract, interment right contract or preneed cemetery or funeral services contract (see ''Cremation, Interment and Funeral Services Act'' and its associated regulations which, like the ''BPCPA'' and its regulations, are enforced by Consumer Protection BC);
* A contract for which the total price payable by the consumer, not including the total cost of credit, is less than a prescribed amount of $50 (''Consumer Contracts Regulation'' B.C. Reg 272/2004 s 4 [''CCR'']); and
* A prepaid purchase card.


The ''BPCPA'' sets out a lengthy list of requirements under ss 19 and 20 for the content of direct sales contracts, such as the name, address, and telephone number of the seller, the name (in a readable form) of the individual who signs the contract on behalf of the supplier, a detailed description of the goods or services to identify them with certainty, the price, and a detailed statement of the terms of payment. When credit is extended (meaning any sort of arrangement where the individual/buyer can pay at a later date), there also needs to be a description of the subject matter of any security interest (such as collateral that the seller may hold in the buyer’s property). This is '''not''' an exhaustive list; please consult the ''BPCPA''.
Under s 58, the ''PPSA'' provides that, where the debtor defaults on a security agreement, the creditor can take control of the collateral item through any method authorised by law with a few select exceptions (s 56). Where, however, the collateral is a consumer good and the debtor has paid two-thirds of the total amount secured, the creditor may '''not''' seize the goods without an application to the court (s 58(3))


Under s 5 of the ''CCR'', there are several exemptions to the applicability of the ''BPCPA'' to direct sales contract. Such exemptions include certain classes of direct sellers who are selling goods or services for which they are licensed, registered, or incorporated (s 5(4)), and direct sales contracts that are entered into in certain places, such as agricultural shows or fairs, trade shows, and craft fairs. Direct sellers are also exempt if the seller attends the place following a request that was made at least 24 hours in advance by the consumer or a friend or relative of the consumer who is not an associate of the direct seller. For a full list of exemptions, please consult the ''CCR''.
=== 2. Action by the Creditor ===


=== 1. Right of Cancellation - Direct Sales ===
A creditor (lender) can sue the debtor (borrower) for breach of contract and seek repayment of the monies owed. Additionally, the creditor can enforce their interest in the collateral by seizure (s 58) or possession (s 61). Generally, the secured party (lender) can seize '''and''' sue for any deficiency. However, when consumer goods form all or merely a portion of the collateral, the secured party must elect to '''seize or sue''', subject to s 58(3).


Under s 21 of the ''BPCPA'',
=== 3. Acceleration Clauses ===
* (a) The purchaser may cancel the contract within '''10 days''' after receiving a copy of the contract. The purchaser need not offer explanations for their decision. The vendor then has 15 days after the date of cancellation to refund all money without deduction;
* (b) If a delivery date is specified in the contract and not all of the goods/services are delivered/performed within 30 days of this date, the purchaser may cancel the contract within one year after the date a copy of the contract was received, provided that the purchaser has not accepted or used the goods/services; and
* (c) If the contract does not contain information required under s 19 and 20(1) of the Act, the buyer may cancel within one year of the date of the contract.  


A direct sale is unenforceable by the seller if the buyer is required to make a down payment in excess of a prescribed amount (''BPCPA'' s 20(3)(b)). In the ''CCR'', s 4(2) sets the amount of down payment prescribed under s 20(3)(b) as the lesser of $100 or 10% of the total price.  
A security agreement provides that a creditor may accelerate payment (or performance) by the debtor if the creditor, in good faith, believes and has commercially reasonable grounds to believe that the prospect of payment or performance is about to be impaired or that the collateral is or is about to be placed in jeopardy (s 16).  


:'''NOTE:''' Whether the purchaser has '''accepted''' goods is determined by the definition in the ''Sale of Goods Act'' (s 39).
== B. Restrictions on the Creditor’s Right to Dispose ==


The ''BPCPA'' does not make oral executory contracts unenforceable. However, s 20(3) requires that the seller gives a written copy of the contract to the buyer at the time of signing. Otherwise, the contract is not binding on the buyer.
Under s 59 of the ''PPSA'', a creditor cannot sell the seized goods before the expiration of the '''20-day''' notice period, as every party entitled to notice under ss 59(6) or ss 59(10) via approved methods outlined in s 72 may '''redeem''' the collateral by fulfilling the obligations secured in the security agreement (s 62). Where the collateral is a consumer good, the redeeming party need only pay the amount in arrears (i.e. debt owing to date) plus reasonable seizure fees (s 62(1)(b)). This is known as the '''right of reinstatement'''. It cannot be used more than twice in a 12-month period (s 62(2)).


Under s 54, the ''BPCPA'' requires that the buyer provide notice of cancellation to the seller and declares that it may be delivered by any method that permits the cancelling party to produce evidence that the contract was cancelled. Notice by registered mail, electronic mail, personal delivery, and fax are explicitly permitted. Nowhere does the ''BPCPA'' explicitly state that a notice of cancellation shall be in writing, but a buyer should be cautious and deliver '''written notice'''. The section explicitly permits that the notice can be given to the seller directly, or to the postal, fax, or electronic mail address of the seller shown in the contract. When a buyer rescinds a contract under s 21, that section also provides that the goods may be retained until all of the money paid is refunded.
== C. Disqualification from “Seize or Sue” Provisions ==


In [https://www.canlii.org/en/bc/bcca/doc/1991/1991canlii1408/1991canlii1408.html?autocompleteStr=Woodward%20v%20International%20&autocompletePos=1 ''Woodward v International Exteriors (British Columbia) Ltd'', (1991), 53 BCLR (2d) 397, 1 BLR 254 (CA)] at para 10, verbal notice of termination of an agreement was sufficient for the consumer to terminate this form of contract. Note that verbal notice may not be sufficient in all instances and <u>written notice remains advisable</u>.
A party with a security interest in consumer goods may avoid the “seize or sue” restriction where:
* a) The debtor (borrower) is a company, a partnership of corporations, or a joint venture of corporations (s 55(4)(a));
* b) The debtor has engaged in wilful or reckless acts or neglect which have caused substantial damage or deterioration to the goods, and the secured party may seek a court order pursuant to s 67(9) disqualifying the debtor from the rights and remedies ordinarily available under
ss 67(1) – (7); or
* c) The secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests; a claim may be advanced against the debtor for the value of the accession (s 67(8)).  


== B. Future Performance Contracts ==
:'''NOTE:''' Accession means goods that are installed in or affixed to other goods. For example, a shovel attached to a truck. See ss 38 and 1(1) for more information about accessions.  


A '''future performance contract''' is defined in s 17 as:
The seizure of consumer goods generally extinguishes the debt in relation to the security agreement. However, there are exceptions under s 67:
* If the creditor (lender) returns the consumer goods within 20 days after the seizure, that will revive the debt;
* If the security agreement is a mortgage or an agreement for sale and the consumer goods are part of this security, in the case that the lender exercises their rights under the mortgage or agreement of sale but does not seize the goods, the debt is '''not''' extinguished; or
* If the creditor (lender) has a purchase money security interest in the seized consumer goods and other consumer goods, the debt is extinguished to the extent identified in the security instrument as relating to the seized consumer goods.


...a contract between a supplier and a consumer for the supply of goods or services for which the supply or payment in full of the total price payable is not made at the time the contract is made or partly executed, but does '''not''' include:
These qualifications also apply in the event of a voluntary foreclosure and a voluntary surrender of consumer goods rather than a seizure.
* A contract for which the total price payable by the consumer, not including the total cost of credit (amount to be paid later), is less than a prescribed amount of $50 (''CCR'' s 6);
* A contract for the supply of goods or services under a “credit agreement”, as defined in s 57 (definitions), if the goods or services have been supplied;
* A time share contract; or
* A prepaid purchase card.


Future services contracts are subject to some important statutory requirements under Part 4, Division 2 of the ''BPCPA''.
For consumer goods only, if the creditor (lender) chooses not to enforce their interest in the collateral and chooses to seek judgement instead, the security interest in the collateral is also extinguished (s 67(10)(a)).


The ''BPCPA'' sets out a long list of requirements under ss 19 and 23 for the content of future services contracts, such as the name, address, and telephone number of the seller, a detailed description of the goods or services to identify them with certainty, the price, supply date, and a detailed statement of the terms of payment. When credit is extended (meaning that the supplier allows the individual/ buyer to pay all or part of the purchase price at a later date), there also needs to be a description of the subject matter of any security interest (e.g. collateral). This is '''not''' an exhaustive list; please consult the Act.
== D. Third Party Purchaser’s Rights ==


Under s 23(4), a future performance contract is not enforceable by the seller if a rebate or discount is given on the condition of some event occurring after the time the buyer agrees to buy (usually a referral selling scheme whereby the purchaser aids the seller in making a further sale).
Under ss 30(3) and 30(4), where a third party purchases collateral in the form of consumer goods worth less than $1,000, and the third party does not have knowledge of the security agreement between the vendor and the creditor, the third party takes the item free of the creditor’s interest, even if registered. This is known as the “garage sale” defence. The purchaser is known more commonly as a ''bona fide'' purchaser for value without notice.  


If the future performance contract does not contain the required information (ss 19 and 23), then a consumer may cancel the contract by giving notice of cancellation to the supplier within '''one year''' of the date that the consumer receives a copy of the contract (s 23(5)). The required form and procedure for giving notice is set out in s 54.
The third party’s priority over the creditor ends if there is knowledge of the pre-existing security interest. Under s 1(2), “knowledge” is judged objectively rather than subjectively (i.e. would a reasonable person know?).  


== C. Continuing Services Contracts: Gym Memberships, Travel or Vacation Clubs==
:'''NOTE:''' If the creditor’s interest in the collateral does not continue because the third-party purchaser takes title free of that interest, the creditor’s interest will continue in the proceeds of the sale by the debtor to the purchaser if it is continuously perfected under ss 28(2) or perfected within 15 days under ss 28(3).


These contracts are called continuing services contracts because, while you may pay now, the contract extends into the future. This type of contract is often used when one joins a karate club or a dance studio, or buys a membership in a vacation club.
== E. Application of PPSA to Leases ==


Continuing services contracts must not exceed 24 months in duration, including all options to extend or renew the contract (s 24(3)), but may allow the consumer to renew the contract in writing within one month of the expiry of the contract (s 24(4)). If a contract does not comply with s 24(3) or is not validly renewed pursuant to s 24(4), alternative remedies are available under s 24(6):
Many consumers lease cars instead of buying on credit under a financing agreement. A lease can qualify as a security agreement: see ''[https://www.canlii.org/en/bc/bcca/doc/2007/2007bcca144/2007bcca144.html?autocompleteStr=Daimler%20chr&autocompletePos=3 DaimlerChrsyler Services Canada Inc. v Cameron]'', 2007 BCCA 144 for factors and ''[https://www.canlii.org/en/bc/bcsc/doc/1995/1995canlii3263/1995canlii3263.html?resultIndex=3 Re Bronson]'', (1995), 34 CBR (3d) 255 (BCSC). Therefore, if they default and the car is repossessed, the “seize or sue” restriction may apply, but the situation is not always clear-cut. LSLAP clients should be referred to a lawyer.
* a) The contract is not binding on the consumer for the period beyond 2 years;
* b) Within 15 days of the consumer’s request, the supplier must refund to the consumer all money paid for the period beyond 2 years; and
* c) If the supplier does not comply with part (b), the consumer may recover that money as a debt due.


=== 1. Right of Cancellation ===
== F. Bills of Exchange Act ==


Because they are often sold at high-pressure presentations, these contracts are subject to a '''10 day''' right of cancellation from the date the consumer receives a copy of the contract (s 25(6)). A 10 day right of cancellation also applies to time-share interests that are not covered by the ''Real Estate Development Marketing Act'', SBC 2004, c 41, such as resorts or condominiums (s 26(3)).
Under Part V of the ''Bills of Exchange Act'' [''BEA''], a bill of exchange or promissory note given for a consumer purchase must be clearly marked “Consumer Purchase” (s 190(1)), and where it is marked, the rights of an assignee of the bill or note are subject to any defence the purchaser would have against the vendor (s 191). Where it is not marked, it is void except in the hands of a holder in due course without notice (s 190(2)). The purpose of Part V is to codify the rule in ''[https://www.canlii.org/en/on/onca/doc/1962/1962canlii124/1962canlii124.html?resultIndex=1 Federal Discount Corp v St Pierre]'', (1962), 32 DLR (2d) 86.  


Contracts for continuing services can also be cancelled if there is a '''material change''' in circumstances of the buyer or the seller, and where the buyer or seller gives notice of cancellation (s 25). When alleging a material change in circumstances as the basis for cancelling, the reason must be specified in the notice (s 25(2)).
Part V does not cover private sales (where the seller is not engaged in the business of selling the goods in question), or sales to small businesses or corporations of items to be used in their business. Nor does it cover a purchaser’s loan, i.e. a loan from a lender to a person to enable that  person to buy goods and/or services from a seller (subject to s 189(3) below).  


Material changes in circumstances include, but are not limited to:
Section 189(1) defines a consumer bill and s 189(2) defines a  consumer note. Under s 189(3), a consumer bill or note is conclusively presumed if:  
* The buyer’s death; and  
#the consideration for its issue was the lending of money, etc. by a person other than a seller, to enable the purchaser to make a consumer purchase; and  
* Permanent disability or permanent relocation further than 30 km further from when the consumer entered into the contract.  
#the seller and the person who lent the money, etc. were, at the time the bill or note was issued, not dealing with each other at arm’s length within the meaning of the ''Income Tax Act''.  


Material changes in circumstances of the seller include:
If an instrument meets the definition of a consumer note, any defence that consumer would have for an action against them by the seller would also be available as against subsequent note holders.  
* Through the partial or entire fault of the seller, the services are not completed, or at any time the seller appears to be unable to reasonably complete the services in the time frame set out in the contract for the completion of services;
* The services are no longer available because of the seller’s discontinued operation or substantial change in operation; and
* The relocation of the business of the seller 30 km further from the buyer without provision of equivalent service within 30 km.


The required form and procedure for giving notice are set out in s 54.
Therefore, if the consumer does not get what they have paid for, that person may not be required to pay the loan back when pressed for payment by the assignee. Also, if the seller does not fulfil obligations under a warranty, the consumer will be able to resist payment. (See ''Canadian Imperial Bank of Commerce v Geldart'', [1985] BCJ No 1973 and ''Canadian Imperial Bank of Commerce v Kabatoff'', [1986] BCJ No 942)
 
== D. Unsolicited Goods or Services ==
 
Under s 11, unsolicited goods or services means goods or services that are supplied to a consumer who did not request them, other than:
* Goods or services supplied to a consumer who knew or ought to have known they were intended for delivery to another person;
* Goods or services for which the supplier does not require payment; or
* A prescribed supply of goods or services.
 
Under s 12, a recipient of unsolicited goods has no legal obligation to the sender unless the recipient gives notice of an intention to accept them, or unless the recipient knew or ought to have known that the goods were intended for delivery to another person.
 
However, if a consumer does pay for unsolicited goods or services, under s 14 the consumer may give to the supplier a demand, in writing, for a refund from the supplier within 2 years after the consumer first received the goods or services if the consumer did not expressly acknowledge to the supplier in writing their intention to accept the goods or services.
 
:'''NOTE:''' If a consumer is being supplied with goods or services on a continuing basis and there is a material change in the goods or services or in the supply of them, the goods or services are deemed to be unsolicited goods or services from the time of the material change '''unless''' the supplier can establish that the consumer consented to the material change.
 
== E. Distance Sales ==
 
Under s 17, a “distance sales contract” means “a contract for the supply of goods or services between a supplier and a consumer that is not entered into in person and, with respect to goods, for which the consumer does not have the opportunity to inspect the goods that are the subject of the contract before the contract is entered into but does not include a prepaid purchase card”. This definition encompasses all forms of commerce where the parties are not face-to-face, such as catalogue sales, sales over the internet, or sales over the telephone. A supplier must give a consumer a copy of the contract within 15 days after the contract is entered into, as per s 48, which also sets out a list of requirements for distance sales contracts. The information that must be disclosed to the consumer prior to the consumer entering into the distance sales contract is set out in s 46. For example, the supplier must disclose a detailed description of the goods, the currency, delivery arrangements and the cancellation policy, if any. This is not an exhaustive list; please see the Act.
 
Additional requirements for contracts that are in electronic form are in s 47. Specifically, the supplier must make the information from s 46 available in a manner that the consumer can access, retain, and print. The supplier must also give the consumer the opportunity to correct errors and accept or decline the contract.
 
Consumer rights concerning cancellation of distance sales contracts are in s 49. Note that there are different time restrictions on cancellation rights for distance sales depending on which provisions the supplier does not comply with. Once a consumer gives notice to the supplier of the cancellation, the supplier has 15 days to refund to the customer all monies paid in respect of the contract and any related consumer transactions (s 50). If the supplier fails to do this, the consumer may have recourse under s 52 if the consumer charged to a credit card all or any part of the total price under the contract, and the consumer may also be entitled to recover the refund as a debt due (s 55).
 
== F. Credit Transactions ==
 
Part 5 of the ''BPCPA'' deals with the disclosure of the cost of consumer credit.
 
The Acts set out disclosure requirements, as well as advertising requirements for both fixed and open credit. The basic distinction between fixed and open credit is that '''open credit''' involves multiple advances and does not establish the total amount advanced under the agreement. However, open credit can be subject to an overall credit limit. '''Fixed credit''' is a credit arrangement that is normally based on a fixed initial advance and a predetermined payment schedule. Under s 105 of the ''BPCPA'', the creditor (lender) is obliged to compensate borrowers for contraventions of the Act.
 
The rules for credit transactions under the ''BPCPA'' are:
* Under s 66, lenders are required to furnish debtors (borrowers) with a written statement of disclosure. Consult ss 66 – 93 for the specific requirements pertaining to your client’s situation.
* Under ss 59 – 64, certain requirements flow from the advertising of certain aspects of credit, such as interest-free periods, interest rates, and cost of credit.
* Under Division 4 of Part 5, a borrower has certain rights, such as being able to choose an insurer and to cancel optional services.
* Under s 99, where a credit card is lost or stolen, the holder is not liable for any charges incurred after notice in person or by registered mail has been given to the issuer of the card. In the case of purchases made before notice is given, an individual is only liable for $50 or up to the credit limit remaining on the card, whichever is less. This protection does not extend to situations where a credit card is used with a personal identification number at an ATM (see ''Plater v Bank of Montreal'', [1988] BCWLD 986, 22 BCLR (2d) 308 (Co Ct)).
 
=== 1. Notice Required for Increased Interest Rates ===
 
Under s 98, there is a notice requirement for increasing credit card interest rates.
 
=== 2. Unsolicited Credit Cards ===
 
A credit card issuer must not issue a credit card to an individual that has not applied for one (s 96). This does not affect the ability of a credit card issuer to provide a renewal or replacement card that has been applied for.
 
=== 3. Prepaid Purchase Cards (Gift Certificates and Gift Cards) === 
 
The terms of prepaid purchase cards are regulated under ss 56.1 – 56.5. A prepaid purchase card is a card, written certificate or other voucher with a monetary value that is issued or sold to a person in exchange for the future supply of goods or services. These include gift cards or gift certificates.
 
Under s 56.2, cards are prevented from being issued with an expiry date. ''Prepaid Purchase Cards Regulation'', BC Reg. 292/2008 contains exemptions from the expiry date prohibition. These include cards issued for a specific good or service, cards issued for a charitable purpose, and cards issued to a person who provides nothing of value in exchange.
 
== G. High-Cost Loans (Payday Loans) ==
 
=== 1. Criminal Code ===
 
The ''Criminal Code'' prohibits loans that charge a criminal rate of interest (s 347), which is defined as an annual rate that '''exceeds 60 percent'''.
 
Loans offered by payday lenders, if calculated according to the ''Criminal Code'', may charge rates that exceed the amount permitted under the definition. In 2006, the federal government amended the ''Criminal Code'' to '''exempt''' payday loan agreements from the criminal interest rate provision. Payday loan agreements are defined and are exempted from s 347 provided that the following three conditions are met (s 347.1):
# The loan must be for $1500 or less and for 62 days or less;
# The person must be licensed or specifically authorized under provincial/territorial law to enter into that payday loan agreement; and
# The province must be designated by the Governor in Council (which will happen in the province has adequate measures to protect recipients of payday loans).
 
=== 2. Payday Loans ===
 
Under the ''Payday Loans Regulation'', BC Reg 57/2009, s 2 designates payday lenders as a “designated activity” under s 142 of the ''BPCPA''. A payday lender “means a person who offers, arranges, provides or otherwise facilitates payday loans to or for consumers” and includes “a person who, for compensation, arranges, negotiates or facilitates an extension of credit”. Anyone who participates in a designated activity must carry a license (s 143). A payday lender must carry a separate license for each operating location. They must have a sign at each location displaying this license number, the maximum charges permitted in BC (15% of principal), the amount they charge, the total cost of borrowing $300 for 14 days, and the annual percentage rate they charge.
 
The regulations also set limits on the amount of interest that can be applied, mirroring s 347 of the ''Criminal Code''.
* The maximum amount that can be charged on a payday loan is $15 for every $100 borrowed including all charges and fees.
* In addition, a payday loan cannot exceed 50% of the borrower's net pay to be received during a single pay period within the payday loan term.
* If the repayment amount is not paid, default fees cannot exceed 30% per annum on the outstanding principal.
 
Thus, payday loans in BC are permitted under ''Criminal Code'' s 347.1, as long as they follow the provincial requirements.
 
These requirements do set out a number of additional restrictions on payday lenders (''BPCPA'' s 112.08). Notably, a payday lender may '''not''':
* Sell insurance to or for the borrower, or require or request that the borrower insure a payday loan;
* Issue a new payday loan to a borrower who already has a payday loan issued by the lender;
* Require, request or accept consent from a borrower to use or disclose the borrower's personal information for a purpose other than offering, arranging, providing or otherwise facilitating a payday loan;
* Require, request or accept any undated cheque;
* Require, request or accept any post-dated cheque, pre-authorized debit or future payment of a similar nature, for any amount exceeding the amount to repay the payday loan by the due date, including interest and permissible charges (although, a one-time fee of $20 is allowed for a dishonoured cheque or pre-authorized debit – see s 17(2)(b) of the ''Payday Loans Regulation'');
* Require or request any payment from the borrower before it is due under the loan agreement;
* Grant rollovers (i.e. charge a fee to extend a loan’s due date);
* Require, request or accept an assignment of wages from the borrower (and if they do the assignment of wages is not valid);
* Require, request or accept from the borrower or any other person, as security for a payday loan, any personal property, real property, or documentation that could be used to transfer title in personal property or real property; or
* Discount the principal amount of a payday loan by deducting or withholding from the initial advance an amount representing any portion of the total cost of credit.
 
Additionally, there is a mandatory period set out in the regulations where a consumer is allowed to return the money and cancel the payday loan. This period begins on the date that the borrower receives the first advance and expires at the end of the second day that the payday lender is open for business after that first advance (''Payday Loans Regulation'' s 14.2(1)).
 
=== 3. High-Cost Credit Products ===
 
Legislation designed to protect consumers from lenders who offer loans with high interest rates but are not payday lenders received royal assent in May 2019, but requires regulations to be passed before coming into force.
 
High-cost credit products are loans or lines of credit that charge high interest rates and/or various fees. The formal definition of a '''High-Cost Credit Product''' is:
* (a) A fixed credit product that has an APR that exceeds the prescribed APR and meets other prescribed criteria;
* b) An open credit product that has an annual interest rate that, calculated in accordance with the regulations, exceeds the prescribed annual interest rate and meets other prescribed criteria,
* c) A lease that has an APR that exceeds the prescribed APR and meets other prescribed criteria, or
* d) A prescribed product through which credit (e.g. a loan) is extended by a high-cost credit grantor to a borrower (e.g. the consumer) primarily for a personal, family or household purpose, but does not include a payday loan, mortgage on real property or prescribed credit product.
 
:'''NOTE:''' Because interest rates can be compounded (interest on interest) at different frequencies (usually monthly, but can also be annually, semi-annually, quarterly, weekly, daily, or even continuously – which is set by the lender as a term of the contract for the loan or other credit arrangement), annual percentage rate (APR) is the convention for quoting interest rates on an annual basis. Since legislation also expresses interest rates in APR, this allows one to directly compare the APR-quoted interest rate from the contract to the APR-quoted limit in the statute.
 
Once the regulations are passed, a new part (Part 6.3 which is not yet in effect) will be added to the ''BPCPA'' that creates restrictions on high-cost credit products. The new regime limits a credit grantor (the lender) to a prescribed rate (or the criminal rate, if none is prescribed), requires certain terms to be in high-cost credit agreements, and requires that the credit grantor not charge, require, or accept any amount not allowed (such as a fee for making a payment before it is due), not disclosed, or that exceeds the high-cost credit agreement.
 
== H. Remedies and Sanctions ==
 
In addition to the remedies already mentioned that are available to consumers, the ''BPCPA'' provides for further sanctions:
 
=== 1. Fines or Imprisonment ===
 
For any contraventions of the ''BPCPA'', s 190 establishes a summary conviction offence with penalties of imprisonment up to one year and fines of up to $10,000 for individuals and $100,000 for corporations. .
 
=== 2. Investigation and Search Powers ===
 
Part 10 gives the Director the power to investigate and request information where there are reasonable and probable grounds to believe that a person has contravened, is contravening, or is about to contravene the ''BPCPA'' or an order made under it.




{{REVIEWED LSLAP | date= August 8, 2021}}
{{REVIEWED LSLAP | date= August 8, 2021}}
{{LSLAP Manual Navbox|type=chapters8-14}}
{{LSLAP Manual Navbox|type=chapters8-14}}

Revision as of 04:02, 9 August 2021

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 8, 2021.
LSLAP Manual
LSLAP Manual
This page is from the
Law Students' Legal
Advice Program Manual.
See the full contents.
LSLAP Manual
Introduction
Chapters
11. Consumer Protection
 · I. Introduction

 · II. Governing Legislation and Resources
 · III. Contracts for Sale of Goods
 · IV. Consumer Protection
 · V. Direct Sales
 · VI. Conditional Sales Contracts
 · VII. Motor Dealer Act
 · VIII. Miscellaneous
 · IX. Forum of Redress

 · X. Consumer Transactions
v • d • e



The Personal Property Security Act, RSBC 1996, c 359 [PPSA] governs conditional sales agreements (e.g. the contract is subject to some condition to be fulfilled later) and security contracts. The PPSA established a new unified system for the registration, priority, and enforcement of transactions where collateral is given to secure payment or the performance of an obligation. The main purpose of the PPSA is to offer lenders or creditors a system of priority vis-à-vis other creditors where it is necessary for the lender or seller to take an interest in personal property to ensure the obligations of the borrower or purchaser are met. The legislation effectively creates a system for the registration and enforcement of a security interest against personal property.

Under s 2, the PPSA governs every transaction that creates a security interest, regardless of the form of the agreement, even in agreements that do not appear to be security agreements, so long as it is creating a security interest in substance. A “security interest” is defined in s 1(1) as an interest in goods that secures payment or the performance of an obligation.

NOTE: For the purposes of this section, goods is used to define security interests. However, the actual definition is broader than that. For more information, see ss 1(a) and ss 1(b) “security interest”.

Chapter 10: Creditors’ Remedies and Debtors’ Assistance has a discussion on the protection offered to a consumer by the PPSA, including the requirements of enforceable security. The PPSA has some special considerations applicable if the goods in which the collateral was taken were consumer goods. Consumer goods are defined in s 1(1) as goods that are acquired primarily for personal, family, or household purposes.

A. Creditor’s Remedies Against the Debtor

1. Control by the Creditor

Under s 58, the PPSA provides that, where the debtor defaults on a security agreement, the creditor can take control of the collateral item through any method authorised by law with a few select exceptions (s 56). Where, however, the collateral is a consumer good and the debtor has paid two-thirds of the total amount secured, the creditor may not seize the goods without an application to the court (s 58(3))

2. Action by the Creditor

A creditor (lender) can sue the debtor (borrower) for breach of contract and seek repayment of the monies owed. Additionally, the creditor can enforce their interest in the collateral by seizure (s 58) or possession (s 61). Generally, the secured party (lender) can seize and sue for any deficiency. However, when consumer goods form all or merely a portion of the collateral, the secured party must elect to seize or sue, subject to s 58(3).

3. Acceleration Clauses

A security agreement provides that a creditor may accelerate payment (or performance) by the debtor if the creditor, in good faith, believes and has commercially reasonable grounds to believe that the prospect of payment or performance is about to be impaired or that the collateral is or is about to be placed in jeopardy (s 16).

B. Restrictions on the Creditor’s Right to Dispose

Under s 59 of the PPSA, a creditor cannot sell the seized goods before the expiration of the 20-day notice period, as every party entitled to notice under ss 59(6) or ss 59(10) via approved methods outlined in s 72 may redeem the collateral by fulfilling the obligations secured in the security agreement (s 62). Where the collateral is a consumer good, the redeeming party need only pay the amount in arrears (i.e. debt owing to date) plus reasonable seizure fees (s 62(1)(b)). This is known as the right of reinstatement. It cannot be used more than twice in a 12-month period (s 62(2)).

C. Disqualification from “Seize or Sue” Provisions

A party with a security interest in consumer goods may avoid the “seize or sue” restriction where:

  • a) The debtor (borrower) is a company, a partnership of corporations, or a joint venture of corporations (s 55(4)(a));
  • b) The debtor has engaged in wilful or reckless acts or neglect which have caused substantial damage or deterioration to the goods, and the secured party may seek a court order pursuant to s 67(9) disqualifying the debtor from the rights and remedies ordinarily available under

ss 67(1) – (7); or

  • c) The secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests; a claim may be advanced against the debtor for the value of the accession (s 67(8)).
NOTE: Accession means goods that are installed in or affixed to other goods. For example, a shovel attached to a truck. See ss 38 and 1(1) for more information about accessions.

The seizure of consumer goods generally extinguishes the debt in relation to the security agreement. However, there are exceptions under s 67:

  • If the creditor (lender) returns the consumer goods within 20 days after the seizure, that will revive the debt;
  • If the security agreement is a mortgage or an agreement for sale and the consumer goods are part of this security, in the case that the lender exercises their rights under the mortgage or agreement of sale but does not seize the goods, the debt is not extinguished; or
  • If the creditor (lender) has a purchase money security interest in the seized consumer goods and other consumer goods, the debt is extinguished to the extent identified in the security instrument as relating to the seized consumer goods.

These qualifications also apply in the event of a voluntary foreclosure and a voluntary surrender of consumer goods rather than a seizure.

For consumer goods only, if the creditor (lender) chooses not to enforce their interest in the collateral and chooses to seek judgement instead, the security interest in the collateral is also extinguished (s 67(10)(a)).

D. Third Party Purchaser’s Rights

Under ss 30(3) and 30(4), where a third party purchases collateral in the form of consumer goods worth less than $1,000, and the third party does not have knowledge of the security agreement between the vendor and the creditor, the third party takes the item free of the creditor’s interest, even if registered. This is known as the “garage sale” defence. The purchaser is known more commonly as a bona fide purchaser for value without notice.

The third party’s priority over the creditor ends if there is knowledge of the pre-existing security interest. Under s 1(2), “knowledge” is judged objectively rather than subjectively (i.e. would a reasonable person know?).

NOTE: If the creditor’s interest in the collateral does not continue because the third-party purchaser takes title free of that interest, the creditor’s interest will continue in the proceeds of the sale by the debtor to the purchaser if it is continuously perfected under ss 28(2) or perfected within 15 days under ss 28(3).

E. Application of PPSA to Leases

Many consumers lease cars instead of buying on credit under a financing agreement. A lease can qualify as a security agreement: see DaimlerChrsyler Services Canada Inc. v Cameron, 2007 BCCA 144 for factors and Re Bronson, (1995), 34 CBR (3d) 255 (BCSC). Therefore, if they default and the car is repossessed, the “seize or sue” restriction may apply, but the situation is not always clear-cut. LSLAP clients should be referred to a lawyer.

F. Bills of Exchange Act

Under Part V of the Bills of Exchange Act [BEA], a bill of exchange or promissory note given for a consumer purchase must be clearly marked “Consumer Purchase” (s 190(1)), and where it is marked, the rights of an assignee of the bill or note are subject to any defence the purchaser would have against the vendor (s 191). Where it is not marked, it is void except in the hands of a holder in due course without notice (s 190(2)). The purpose of Part V is to codify the rule in Federal Discount Corp v St Pierre, (1962), 32 DLR (2d) 86.

Part V does not cover private sales (where the seller is not engaged in the business of selling the goods in question), or sales to small businesses or corporations of items to be used in their business. Nor does it cover a purchaser’s loan, i.e. a loan from a lender to a person to enable that person to buy goods and/or services from a seller (subject to s 189(3) below).

Section 189(1) defines a consumer bill and s 189(2) defines a consumer note. Under s 189(3), a consumer bill or note is conclusively presumed if:

  1. the consideration for its issue was the lending of money, etc. by a person other than a seller, to enable the purchaser to make a consumer purchase; and
  2. the seller and the person who lent the money, etc. were, at the time the bill or note was issued, not dealing with each other at arm’s length within the meaning of the Income Tax Act.

If an instrument meets the definition of a consumer note, any defence that consumer would have for an action against them by the seller would also be available as against subsequent note holders.

Therefore, if the consumer does not get what they have paid for, that person may not be required to pay the loan back when pressed for payment by the assignee. Also, if the seller does not fulfil obligations under a warranty, the consumer will be able to resist payment. (See Canadian Imperial Bank of Commerce v Geldart, [1985] BCJ No 1973 and Canadian Imperial Bank of Commerce v Kabatoff, [1986] BCJ No 942)


This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 8, 2021.
v • d • e
 
Chapters 8-14
Employment Insurance  · Employment Law  · Creditors and Debtors  · Consumer Protection  · Auto Insurance (ICBC)  · Motor Vehicle Law  · Mental Health Law
Chapter Eight:
Employment Insurance
Chapter Nine:
Employment Law
Chapter Ten:
Creditors' Remedies and Debtors' Assistance
Chapter Eleven:
Consumer Protection
Chapter Twelve:
Auto Insurance (ICBC)
Chapter Thirteen:
Motor Vehicle Law
Chapter Fourteen:
Mental Health Law
© Copyright 2023, The Greater Vancouver Law Students' Legal Advice Society.


Retrieved from "https://stagewiki.clicklaw.bc.ca/index.php?title=Direct_Sales,_Future_Performance,_and_Time_Share_Contracts_(11:V)&oldid=50225"