In Quebec, the Consumer Protection Act (the “CPA”) governs contracts for goods or services entered into between consumers and merchants in the course of their business.[1]
When it comes to loans of money or credit, lenders wishing to establish themselves in Quebec as well as consumers must be aware of the complex and well-defined legal framework set out by the legislator in the CPA. The following is a brief overview of Quebec’s credit contract regulations and the obligations arising from them.
Types of credit contracts
The CPA identifies three types of credit contracts: (1) contracts for the loan of money; (2) open credit contracts; and (3) contracts involving credit.[2]
Contracts for the loan of money allow consumers to borrow money for credit charges (which includes interest, administration fees, brokerage fees, storage fees and insurance).[3]
Open credit contracts include credit card contracts, contracts for the use of lines of credit and any other contract of the same nature where an amount can be borrowed and repaid on a revolving basis.[4]
Contracts involving credit typically include contracts of sale by instalment[5] or any other sale of a product or service accompanied by the financing offered by the seller of that good or service.
General obligations
All contracts of credit covered by the CPA, regardless of type, must contain certain specific information,[6] including the entire amount to be paid in credit charges and how it is expressed as a credit rate.[7]
Contracts for the loan of money,[8] credit card contracts,[9] open credit contracts,[10] instalment sale contracts[11] and other contracts involving credit excluding instalment sales[12] must also be consistent with the models and forms established by regulation.
Permits and capacity to repay
Under the CPA, lenders must hold a permit to offer contracts for the loan of money to consumers,[13] failing which consumers have the right to resiliate such contracts.[14] Merchants may obtain a permit from the president of the Office de la protection du consommateur[15] (“OPC”), the body responsible for enforcing the CPA.
In addition to including the items referred to in the previous section in the credit contract and holding a permit for a contract for the loan of money, merchants will also be required to assess whether the consumer who requested the credit has the capacity to repay before entering into a contract.[16] Failure to do so will prevent lenders from receiving the credit charges.[17] In this assessment, lenders must, inter alia, take into account consumers’ gross income, monthly disbursements and credit history.[18]
Note that banks governed by the Bank Act and financial services cooperatives governed by the Act respecting financial services cooperatives (Quebec) are exempt from the obligation to hold a permit for a merchant entering into contracts for the loan of money or high-cost credit contracts.[19]
High-cost credit contracts
The CPA sets out special rules for “high-cost” credit contracts. Such contracts may be one of the three types of credit contracts referred to above but are characterized by the fact that the credit rate they provide is higher than the Bank Rate of the Bank of Canada plus 22 percentage points.[20] As of November 2023, credit contracts with an annual credit rate of 27% and above will therefore be considered “high-cost.”
Nevertheless, the OPC refuses to issue permits to merchants who plan to charge a credit rate higher than 35% per year, as it considers that such a rate could result in lesion.[21] As with money loans, merchants entering into a high-cost credit contract will have to obtain a permit.[22] Only certain persons like banks and financial services cooperatives do not need to obtain permits to enter into high-cost credit contracts.[23]
In addition, consumers who enter into a credit contract while their debt ratio exceeds 45% will be presumed to have contracted an excessive, harsh or unconscionable obligation,[24] which will allow them to demand that their contract be annulled or their obligations be reduced.[25]
Moreover, consumers may cancel high-cost credit contracts without cost or penalty at their discretion within 10 days of receipt of a copy of the contract. Contracts for the loan of money or contracts involving credit, meanwhile, can only be cancelled by consumers within two days.[26]
Conclusion
In short, merchants wishing to offer credit to consumers in Quebec must comply with the CPA and its regulations. Failure to do so may render their contracts invalid or unenforceable.
Should you have any questions or concerns, please feel free to reach out to a member of Miller Thomson’s Financial Services group.
[1] S. 2, Consumer Protection Act, CQLR, c. P-40.1.
[2] S. 66 CPA.
[3] https://www.opc.gouv.qc.ca/en/consumer/good-service/credit-collection-of-debts-and-personal-finances/money-loans/advice/
[4] S. 118, second para., CPA.
[5] S. 132 CPA.
[6] S. 115 CPA for contracts for the loan of money; s. 125 CPA for open credit contracts; s. 134 CPA for instalment sales; s. 150 CPA for other contracts involving credit.
[7] Ss. 71 and 72 CPA.
[8] Ss. 61.0.7 and 61.0.8 Regulation respecting the application of the Consumer Protection Act, CQLR, c. P-40.1, r. 3 (“RCPA”).
[9] S. 61.0.9 RCPA.
[10] Ss. 61.0.10–61.0.12 RCPA.
[11] Ss. 61.0.13 and 61.0.14 RCPA.
[12] Ss. 61.0.15 and 61.0.16 RCPA.
[13] S. 321, first para., subpara. (b) CPA.
[14] S. 322 CPA.
[15] S. 323 CPA.
[16] S. 103.2 CPA.
[17] S. 103.3 CPA.
[18] S. 61.0.1 RCPA.
[19] S. 18(a) RCPA.
[20] Art. 61.0.3, first para. RCPA.
[21] Marc Vigneault, “Le crédit au consommateur et les nouvelles dispositions de la LPC,” Office de la protection du consommateur, June 6 and June 13, 2019, p. 27, online: https://cdn.opc.gouv.qc.ca/media/documents/a-propos/AccesInformation/2019/344001133_Document_5.pdf (in French).
[22] S. 321, first para., subpara. (g) CPA.
[23] S. 18 RCPA.
[24] S. 103.5 CPA; s. 61.0.6 RCPA.
[25] S. 8 CPA.
[26] S. 73 CPA.
