Ontario's New Consumer Protection Act

After over a decade of various initiatives directed at modernizing its consumer protection legislation, including some false starts, the Ontario Government has succeeded in bringing into force a comprehensive revision and updating of the province’s laws in this area. On July 30, 2005 the Consumer Protection Act, 2002, with accompanying regulations, came into force.

This new Act, which was passed by the legislature in December 2002, but could not come into effect until regulations had been drafted, is the result of initiatives within Ontario as well as national initiatives to create new harmonized laws protecting consumers.

The new Act contains several significant themes. Firstly, it modernizes basic consumer warranties and related rights, extending them to services, and it creates a contractual rule of interpretation in favour of consumers. Related to this rule is a provision that deems the Act’s rights and remedies to apply notwithstanding any contractual waiver to the contrary.

Secondly, the Act consolidates provisions previously found in several different statutes including the Consumer Protection Act, the Business Practices Act, the Motor Vehicle Repair Act and the Prepaid Services Act. The precedent for this “omnibus” approach to consumer protection legislation was first adopted in Quebec’s Consumer Protection Act, passed in the 1970s. More recently, Alberta’s Fair Trading Act, passed in 2000, and B.C.’s Business Practices and Consumer Protection Act, passed last year, have established this as the preferred form of a consumer protection law, which Ontario has now adopted.

The third key feature of the new law is its adoption of the federal/ provincial/territorial template for harmonization of cost of credit disclosure rules. This template, which was developed over several years of inter-governmental consultation in the latter part of the 1990s, addresses not only a comprehensive modernization of cost of credit disclosure rules but also an extension of those rules to consumer leases, as well as the addition of certain substantive rights, such as limiting liability for early termination, lease-end payments and default charges.

The fourth key feature of the new law is its expansion of consumer remedies, including a potentially very effective consumer right to credit card chargeback in the event of contract cancellation. In addition to expanded private consumer remedies, the new Act gives regulatory officials in the new Ministry of Government Services more comprehensive enforcement and deterrence powers.

Consumer Rights

In contrast to its predecessor laws, the Act has broad application to services and leasing transactions. These extensions reflect our modern economy. The previous Consumer Protection Act was enacted in the late 1960s and was based almost exclusively on the then-predominant economic transaction of a “sale of goods.” The new law reflects the fact that our economy is increasingly service-based and financed through lease transactions as opposed to traditional forms of credit. Specifically, the Act contains a warranty of reasonably acceptable quality of services and, in adopting the warranties of quality and title found in the Sale of Goods Act, extends them to leases as well as barter transactions.

The new Act also contains several provisions that enhance consumer rights generally. Firstly, it makes null and ineffective any contractual waiver of rights granted under the Act including, significantly, any provision that provides for arbitration in lieu of a remedy under the Act. Ambiguities in an agreement are deemed to be interpreted to favour the consumer. Finally, a consumer is not required to pay for any goods or services that he or she did not request, including those provided by way of a “material change” to an on-going consumer agreement, unless agreed to by the consumer. This prohibition encompasses so-called “negative option billing” provisions.

Unfair Trade Practices

The Act incorporates all of the provisions previously contained in the Business Practices Act prohibiting false, misleading, deceptive or unconscionable representations. Remedies available to consumers seeking rectification of a merchant’s unfair practice include rescission of the purchase contract, as well as all related consumer agreements, including credit agreements. As well, the new consumer right to credit card charge-back will be available.

Consumer Agreements

The Act contains new rules for specific forms of consumer agreements and extends the model for rights and remedies provided by these rules to two new categories of agreements not previously regulated by Ontario law: internet agreements and time-share agreements. As well, the new regime for cost of credit disclosure imposes significant additional obligations on merchants and creates new rights and remedies for consumers, with particular application to credit card agreements and leases.

The new rules provide for: expanded disclosure; procedural requirements including delivery of a copy of any agreement as a precondition to consumer liability; limitations on the right to amend or extend an agreement unilaterally without consumer consent; and, in some cases, limitations on the length of the term of an agreement. In the case of credit agreements, the Act also limits the amount that may be charged to a consumer for early termination at the end of a lease or on default.

The categories of specific consumer agreements regulated by the new Act are the following:

(i) future performance agreements (previously called “executory contracts”) – essentially any agreement that provides either for delivery of goods or services, or for payment at a subsequent time, including any contract for continuing services, such as cellular, cable or telephone;

(ii) internet agreements– any agreement for the purchase of goods or services entered into online;

(iii) direct agreements– agreements entered into with a consumer other than at the merchant’s normal place of business, which include door-to-door sales and agreements made at conferences, exhibitions and other such events;

(iv) remote agreements– agreements entered into in any instance when the merchant and consumer are not personally together, such as result from direct mail and telemarketing offers;

(v) agreements for personal development services– such as for fitness clubs, modelling, sports, dance and other similar activities;

(vi) time-share agreements; and

(vii) agreements for automotive repairs.

The basic substantive requirements stipulated by the Act are as follows:

1. to provide disclosure of key contact information respecting the merchant and the particulars of the transaction;

2. to provide a copy of the agreement to the consumer; and

3. to deliver or provide the goods or services purchased within a 30-day or other longer, agreed, period.

The required disclosure items for each category of agreement are set out in detail in the regulations to the Act.

Merchants who sell goods or services through any of the specific forms of agreement listed above urgently need to revise their documents to accord with the new statutory rules. Merchants who fail to do so face the risk that their agreements may be repudiated by their customers: an agreement that is not in accordance with the statute is not binding on the consumer. This consideration has the greatest implication for on-going agreements such as leases, credit card agreements, and long-term contracts for services such as internet, cable and wireless. However any consumer purchase in which some portion of the purchase price remains unpaid can be considered at risk.

Certain types of consumer agreements are subject to a 10-day “cooling-off” period during which a consumer may cancel the agreement for any reason, even if it complies with the Act. Other agreements, including internet and future performance agreements, may be cancelled at any time if the merchant does not comply with disclosure requirements and the requirement to provide a copy of the agreement or, in the case of any future performance agreement, if the purchased goods or services are not delivered within 30 days, or such other longer agreed period.

Credit Agreements and Leases

The new legislation introduces into Ontario new rules for cost of credit disclosure that closely follow a federal/provincial/territorial template designed to harmonize such rules across Canada.

Harmonized rules are seen as critical for both businesses and consumers alike in a marketplace that is increasingly national in scope. Businesses that operate nationally want to avoid the inefficiencies and added costs of having different disclosure and contract documentation for each province or territory. Consumers also seek clear, straightforward disclosure of purchase and credit information, presented in form and terminology that is common anywhere in the marketplace.

The new cost of credit disclosure regime has four key elements:

1. a common terminology and formula for determining and disclosing the cost of any credit transaction;

2. an expanded disclosure procedure, including both initial and on-going information;

3. new rules for advertising disclosure; and

4.  certain new substantive rules, including rights of prepayment, restrictions and limitations on lease-end liability, liability for fraudulent credit card charges and default charges.

As noted above, a significant facet of the new disclosure regime is its application to consumer leases, particularly automobile leases, which were not covered by the previous Ontario law. In addition to leases, the new regime applies to all consumer loans involving fixed credit not secured by a mortgage, open credit (i.e. involving multiple advances) and credit cards, whether offered by financial institutions, suppliers, retailers, or other credit card issuers.

The implications can be severe for credit grantors who do not comply with the new rules: the consumer is not liable to pay the cost of borrowing if the required disclosure is not made.

Currently, the new harmonized rules are in force in three jurisdictions: Ontario, Alberta and federally (primarily under the Bank Act), but are expected to come into force in British Columbia on January 1, 2006 and most other provinces over the next 12 to 18 months. However, until the rules are adopted by all provinces and territories, merchants who operate nationally will need to review carefully their documentation to ensure that it complies with both the new rules and the rules existing under the old, pre-harmonized regimes.

Remedies and Enforcement

As noted, a key aspect of Ontario’s new law is an expanded array of consumer remedies. In addition, several new compliance tools have been added to the government’s enforcement arsenal.

The civil remedies available to consumers are significant. As previously highlighted, the key remedy available to a consumer is the right to refuse to be bound by a non-compliant transaction. This basic precept is overlaid with procedural rights that assist the consumer in obtaining a remedy. For example, in order to effect a cancellation, a consumer must give notice to the merchant. However, procedural requirements are consumer-friendly: the notice need not be in writing and may be sent to any address of the merchant known to the consumer. These procedural rules are clearly designed to enable consumers ready access to the Act’s remedies; however, they pose additional risks to merchants who must ensure that their internal procedures respond in a timely manner to consumers seeking to exercise their rights.

In addition to the basic right of cancellation, the Act provides for a new procedural remedy: reversal of credit card charges. Essentially, if a merchant refuses to refund any payment due to the consumer within the time prescribed, the consumer may obtain reversal of any credit card charges incurred on the transaction. If the card issuer receives notice from the consumer, it must reverse those charges unless it determines that the consumer is not entitled to the refund.

Given the prevalence of credit cards as a payment mechanism in today’s marketplace, the reversal of charges right is a potentially very powerful lever for the consumer.

The Act also increases the government’s toolbox of enforcement powers. In addition to enhanced compliance order-making powers and increased fines, the statute adds provisions enabling the government to publicize complaints received from consumers, which may include posting information on the government website. We understand that information will only be publicized with respect to complaints found to be justified, including particulars of any remedies imposed. However, this potential for negative publicity will be yet another lever to encourage merchants to comply with the Act.

David Young is a partner and member of the Competition and Marketing Law Group in Toronto. He is also Co-Chair of the Privacy Law Group. Contact him directly at 416-307-4118 or dyoung@langmichener.ca

This article appeared in Advertising & Marketing Brief Fall 2005.  To subscribe to this publication, visit our Publications Request page.