Introduction
The new Consumer Protection Act, 2002 (the “Act”) will come into force on July 30, 2005. This Act combines and updates six existing pieces of legislation: the Business Practices Act, the Consumer Protection Act, the Consumer Protection Bureau Act, the Loan Brokers Act, the Motor Vehicle Repair Act, and the Prepaid Services Act. It also updates legislation in the three sectors which involve big ticket consumer purchases: motor vehicles, homes and travel, which are regulated by the Motor Vehicle Dealers Act, the Real Estate and Business Brokers Act; and the Travel Industry Act.
The New Act
The Act will invariably impact upon persons who carry on business in Ontario, or sell, lease or finance goods or services to consumers who reside in Ontario. It applies to both the sale and financing of goods and services to consumers. It also creates uniform business standards with respect to consumer disclosure, contract content and remedies. The Act defines ‘consumer’ as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes”.
Sellers should be aware that any ambiguous language in consumer contracts will be interpreted by courts in favour of the consumer and thus all language must be “clear, comprehensible and prominent”. In addition, suppliers should note that they are deemed to warrant that the services supplied under a consumer agreement are of reasonably acceptable quality. Such goods carry the implied conditions and warranties provided under the Sale of Goods Act, and these warranties, with necessary modifications, apply whether the goods are leased or traded in some other way. Of particular interest to many businesses are the new E-Commerce provisions and the provisions of the Act dealing with Credit Agreements, Leasing, Unsolicited Goods and Material Changes, which are further described below.
E-Commerce
Under the new Act, before a consumer enters into an internet agreement, a seller of goods or services must disclose to the consumer certain information, including delivery arrangements, the name of the carrier, the method of transportation and the place of delivery. The internet agreement provisions apply where there is a payment obligation of $50.00 or more. The most notable provisions include:
Credit Agreements
Part VII of the Act applies to advances of fixed credit, floating rate credit by way of loan, or floating rate credit by way of credit card, under a conditional sales contract. The Act imposes disclosure requirements with respect to: the cost of borrowing; interest rates; the manner of interest accrual and calculations; grace periods; optional services; payments; default charges; security interests in personal property; and borrower and lender rights with respect to any insurance required. In addition, fixed credit agreements require disclosure of the start and end date, amortization period, the average percentage interest rate, prepayment rights, charges and penalties. The new legislation further prescribes that a borrower is entitled to prepay the full outstanding balance under a credit agreement at any time without bonus or penalty.
Leasing
Part VIII of the Act outlines new disclosure requirements for leases of goods which are for a term of four months or more, as well as leases that are indefinite in term or renewed automatically, and those under which a consumer can be required to make certain lease-end payments. The level of detail required by each disclosure depends on whether it is a financing lease with an option to purchase (open end leasing) or a true lease where the lessee merely pays for the use of the goods and has no further obligations (closed end leasing). Advertisements that include lease cost representations must disclose that the arrangement is for a lease, the lease term, the amount of each payment to be made other than periodic payments, the timing and amount of periodic payment, and the annual interest rate. The maximum liability of the lessee at the end of the term of a residual obligation lease after returning the leased goods to the lessor will be capped according to a formula set out in the Regulations to the new Act.
Unsolicited Goods and Material Change
Negative option billing is now prohibited. In addition, the Act also requires businesses to obtain the express consent of consumers to any "material change" in the ongoing provision of goods or services. Unless the supplier can establish that the consumer consented to such change, the goods or services being provided may be deemed to be "unsolicited", in which case the consumer will have no legal obligation regarding their use or disposal. In addition, the supplier will be unable to demand payment, or make any statement that suggests that a consumer is required to make payment, even if the consumer uses or misuses, damages or misplaces the goods or services. In fact, even if the consumer pays for the "unsolicited" goods or services, or does nothing and simply allows time to pass, the supplier cannot argue that the consumer requested the goods or services. Moreover, a consumer that has paid for the "unsolicited" goods or services can still demand a complete refund for a full year, which, as mentioned previously, must be paid within 15 days.
Remedies
A person cannot contract out of the rights under the Act. The Act provides a consumer with the right to commence an action in the Superior Court of Justice, or to commence or participate in a class action. However, before seeking recourse from the courts, the Act provides different avenues for the consumer to seek redress. The primary remedy available to a consumer under the Act is the consumer’s right to cancel an agreement. When a consumer cancels an agreement in accordance with the Act, the consumer is obligated to return the goods or permit the goods to be repossessed and the supplier must provide a refund within 15 days. When a consumer does not receive a response from a supplier with respect to a refund, the consumer may be entitled to recover the refund from the credit card issuer for the card through which the payment was made. A request for cancellation of charges must be made in writing to the credit card issuer within sixty days of the date the refund was due. The credit card issuer then has thirty days to acknowledge the consumer’s request.
Class Actions
The new Act will render invalid any terms and conditions of the sales contract that would require consumers to arbitrate disputes with the seller. It will entitle consumers to participate in class actions against the seller regardless of any terms or conditions in the consumer agreement to the contrary.
Conclusion
The legal obligations imposed under the new Act will constitute a significant challenge for businesses from a compliance and cost perspective. Companies need to now begin the process of reviewing and modifying their current sales practices, including their web sites and telephone sales procedures. Businesses also need to develop new procedures for notifying consumers of material changes to their goods and services and making them aware of amendments, renewals and extensions to their sales terms and conditions. In complying with the new Act, companies need to re-organize their business activities and re-work their existing forms and documents in the most cost effective manner. Contravention of the Act will be costly as penalties have been increased. Any person convicted of contravening the Act may be held liable to pay a maximum fine of $50,000 or to imprisonment for a term not exceeding two years. Every corporation convicted for contravening the Act is liable to a maximum fine of $250,000. As the new Act will have an impact on most businesses which carry on business or sell goods or services to consumers in Ontario, it is important that companies become familiar with the new Act and begin taking steps to comply with the obligations imposed by it.
The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.