Banks and Consumer Protection: Not Exclusively Parliament’s Jurisdiction

Adriane Yong 
Economics, Resources and International Affairs Division

In recent rulings, the Supreme Court of Canada clarified some constitutional issues concerning federal and provincial authority in regulating certain banking practices.

Section 91(15) of the Constitution Act, 1867 gives Parliament the power to regulate “banking, incorporation of banks and the issue of paper money.” Using this power, the federal government regulates the banking sector through the Bank Act and its regulations, as well as through various federal agencies, such as the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.

In 2003, two class-action lawsuits – each of which had the same facts – were launched against nine Canadian banks by consumers in Quebec: Bank of Montreal v. Marcotte and Amex Bank of Canada v. Adams.

The Supreme Court of Canada heard these cases on 13 February 2014. On 19 September 2014, it issued its judgments in favour of the consumers.

In essence, the Supreme Court of Canada assessed whether the disclosure provisions for lending practices outlined in a province’s consumer protection law apply to credit card services offered by banks.

These rulings, which clarified whether banks operating in Quebec have to meet the requirements of Quebec’s Consumer Protection Act, affect Parliament’s jurisdiction regarding the regulation of all aspects of banking.

Quebec courts reject the banks’ constitutional arguments

According to Réal Marcotte, who represented the plaintiff consumers in Bank of Montreal v. Marcotte, the defendant financial institutions violated Quebec’s Consumer Protection Act by failing to disclose, in their credit card agreements, the administrative fees that would be charged for purchases made in foreign currencies. He sought reimbursement of these fees.

The banks argued that the Consumer Protection Act does not apply to them as, pursuant to the Constitution Act, 1867, they have to comply only with the disclosure requirements set out in the Bank Act. The same defence was provided in Amex Bank of Canada v. Adams, which involved a larger group of plaintiffs and was considered separately.

In Bank of Montreal v. Marcotte, the Superior Court of Quebec ruled the following:

  • The Consumer Protection Act applies to the defendant banks.
  • A subset of the banks had violated the Act’s disclosure requirements.
  • This subset of banks had to reimburse the administrative fees and pay punitive damages.

The banks appealed both decisions to the Quebec Court of Appeal. While the Court of Appeal agreed that the Consumer Protection Act applies to the banks in question, it disagreed on the amount and types of damages to be awarded to the consumers.

Both the Superior Court of Quebec and the Quebec Court of Appeal rejected the banks’ constitutional arguments. The consumers and the banks appealed both decisions to the Supreme Court of Canada.

The banks’ constitutional arguments

The banks’ constitutional arguments centred on two doctrines: interjurisdictional immunity and paramountcy. These doctrines are part of the framework of principles that guide Canadian federalism.

The doctrine of interjurisdictional immunity prevents laws enacted by one level of government from encroaching on the jurisdiction of the other. As the Constitution Act, 1867 provides Parliament with exclusive jurisdiction over banking, the banks argued that the provisions of Quebec’s Consumer Protection Act that regulate the disclosure of charges in consumer contracts interfere with federal jurisdiction in this area.

The Supreme Court of Canada disagreed. According to it, while lending and providing credit are central to banks’ operations, a disclosure requirement in relation to credit card charges would not impair Parliament’s ability to exercise its jurisdiction over banks’ lending and credit activities.

The doctrine of paramountcy states that federal law prevails when there is a conflict between valid federal and provincial legislation. The banks claimed that the Consumer Protection Act’s provisions relating to consumer contracts and contracts of credit are in conflict with the credit card disclosure requirements in the Bank Act’s cost of borrowing regulations. Accordingly, they see these provisions of the Consumer Protection Act as inoperative.

Again, the Supreme Court of Canada disagreed. It found that the paramountcy doctrine does not apply to the disputed provisions of the two statutes. It noted that, as the disclosure requirements of the Consumer Protection Act and the Bank Act are consistent, there is no conflict between the statutes.

As well, it stated that the Consumer Protection Act does not provide standards for banking products or banking services, but instead describes Quebec’s basic rules of contract for consumer contracts. Thus, in its view, the Quebec statute assists the federal government in its regulation of banking.

In ruling in favour of the consumers, the Supreme Court of Canada restored the Superior Court of Quebec’s decision to have some of the banks reimburse the administrative fees that were charged for purchases made in foreign currencies, and pay punitive damages to the consumers.

Consequences for federally regulated entities

In Bank of Montreal v. Marcotte, the Supreme Court of Canada stated that, where possible, the modern approach to reconciling conflicts between federal and provincial laws is to have both laws apply.

Some in the legal community have suggested that the decisions will likely result in Quebec’s consumer protection laws being applied to other federally regulated financial institutions.

Other legal analysts feel that the rulings may have broader implications. Federally regulated businesses in sectors besides banking may need to be aware of relevant provincial consumer protection requirements in the event that there are potential conflicts with federal legislation.

Related Resources

Bulmer, John. Payment Systems: The Credit Card Market in Canada. Publication no. 09-10E. Parliamentary Information and Research Service, Library of Parliament, Ottawa, 24 September 2009.

Forsey, Eugene A. How Canadians Govern Themselves. 8th ed., 2012.

Hogg, Peter W., and Rahat Godil. “Narrowing Interjurisdictional Immunity.” Supreme Court Law Review. 2nd Series, Vol. 42, 2008.

University of Ottawa. “Special Topics: Paramountcy and Interjurisdictional Immunity.” Constitutional Law of Canada.