Cost of Borrowing (Retail Associations) Regulations (SOR/2002-263)

Interpretation

1 The definitions in this section apply in these Regulations.

Act

Act means the Cooperative Credit Associations Act. (Loi)

APR

APR means the cost of borrowing for a loan under a credit agreement expressed as an annual rate on the principal referred to in subsection 3(1). (TAC)

borrower

borrower includes a person to whom a loan is proposed to be made and a holder, or an applicant to become a holder, of a credit card. (emprunteur)

credit agreement

credit agreement includes an agreement for a line of credit, a credit card or any kind of loan. (convention de crédit)

disbursement charge

disbursement charge means a charge, other than one referred to in subsection 5(1), to recover an expense incurred by a retail association to arrange, document, insure or secure a credit agreement. It includes a charge referred to in paragraphs 5(2)(c) and (f) to (h). (frais de débours)

hypothec

hypothec means a hypothec on immovable property. (hypothèque)

principal

principal means the amount borrowed under a credit agreement but does not include any cost of borrowing. (capital)

public index

public index means an interest rate, or a variable base rate for an interest rate, that is published at least weekly in a newspaper or magazine of general circulation, or in some media of general circulation or distribution, in areas where borrowers whose credit agreements are governed by that interest rate reside. (indice publié)

Application

2 These Regulations apply to credit agreements, other than a credit agreement entered into

• (a) for business purposes of a borrower;

• (b) with a borrower that is not a natural person;

• (c) under the terms of the Canada Student Loans Act; or

• (d) under the terms of any Act of Parliament or of the legislature of a province that relates to student loans and that requires the rate of interest or the discount that may apply to the borrower to be disclosed to the borrower.

Cost of Borrowing

Calculation

• 3 (1) For the purpose of section 385.17 of the Act, the cost of borrowing for a loan under a credit agreement, other than a loan obtained through the use of a credit card or line of credit, is to be expressed as an annual rate on the principal, as follows:

  APR = (C / (T × P)) × 100

  where

  APR

  is the annual percentage rate cost of borrowing;

  C

  is an amount that represents the cost of borrowing within the meaning of section 5 over the term of the loan;

  P

  is the average of the principal of the loan outstanding at the end of each period for the calculation of interest under the credit agreement, before subtracting any payment that is due at that time; and

  T

  is the term of the loan in years, expressed to at least two decimal points of significance.

• (2) For the purpose of the APR calculation under subsection (1),

  • (a) the APR may be rounded off to the nearest eighth of a per cent;

  • (b) each instalment payment made on a loan must be applied first to the accumulated cost of borrowing and then to the outstanding principal;

  • (c) a period of

    • (i) one month is 1/12 of a year,

    • (ii) one week is 1/52 of a year, and

    • (iii) one day is 1/365 of a year;

  • (d) if the annual interest rate underlying the calculation is variable over the period of the loan, it must be set as the annual interest rate that applies on the day that the calculation is made;

  • (e) if there are no instalment payments under a credit agreement, then the APR must be calculated on the basis that the outstanding principal is to be repaid in one lump sum at the end of the term of the loan; and

  • (f) a credit agreement for an amount that comprises, in whole or in part, an outstanding balance from a prior credit agreement is a new credit agreement for the purpose of the calculation.

• (3) For the purpose of section 385.17 of the Act, the cost of borrowing for a loan obtained under a credit card agreement or line of credit is to be expressed as an annual rate, as follows:

  • (a) if the loan has a fixed annual interest rate, that annual interest rate; or

  • (b) if the loan has a variable interest rate, the annual interest rate that applies on the date of the disclosure.

Annual Interest Rate

4 The APR for a credit agreement is the annual interest rate if there is no cost of borrowing other than interest.

Included and Excluded Charges

• 5 (1) Subject to subsection (2), the cost of borrowing for a loan under a credit agreement, other than an agreement for a credit card or line of credit, consists of all the costs of borrowing under the loan over its term, in particular the interest or discount that applies to the loan in accordance with section 385.14 of the Act, and including the following charges:

  • (a) administrative charges, including charges for services, transactions or any other activity in relation to the loan;

  • (b) charges for the services, or disbursements, of a lawyer or notary that a retail association required the borrower to retain;

  • (c) insurance charges other than those excluded under paragraphs (2)(a), (f) and (h);

  • (d) charges for a broker, if the broker’s fees are included in the amount borrowed and are paid directly by the retail association to the broker; and

  • (e) charges for appraisal, inspection or surveying services, other than those mentioned in paragraph (2)(g), related to property that is security for a loan, if those services are required by the retail association.

• (2) The cost of borrowing for a loan does not include

  • (a) charges for insurance on the loan if

    • (i) the insurance is optional, or

    • (ii) the borrower is its beneficiary and the amount insured reflects the value of an asset that is security for the loan;

  • (b) charges for an overdraft;

  • (c) fees paid to register documents or obtain information from a public registry about security interests related to property given as security;

  • (d) penalty charges for the prepayment of a loan;

  • (e) charges for the services, or disbursements, of a lawyer or notary, other than those mentioned in paragraph (1)(b);

  • (f) charges for insurance against defects in title to real or immovable property, if the insurance is paid for directly by the borrower;

  • (g) charges for appraisal, inspection or surveying services provided directly to the borrower in relation to property that is security for a loan;

  • (h) charges for insurance against default on a high-ratio mortgage or hypothec;

  • (i) fees to maintain a tax account that are

    • (i) required for a mortgage or hypothec referred to in paragraph (h), or

    • (ii) optional;

  • (j) any fee to discharge a security interest; or

  • (k) default charges.

Disclosure — General

Manner

• 6 (1) For the purpose of subsection 385.16(1) of the Act, a retail association that grants credit must, in writing, provide the borrower with a disclosure statement that provides the information required by these Regulations to be disclosed.

• (2) A disclosure statement may be a separate document or may be part of a credit agreement or an application for a credit agreement.

• (2.1) For a disclosure statement that is part of a credit agreement in respect of a loan, a line of credit or a credit card or an application for a credit card,

  • (a) the disclosure statement must be presented in a consolidated manner in a single location in that agreement or application; and

  • (b) the applicable information box, as set out in one of Schedules 1 to 5, containing the information referred to in that Schedule, must be presented at the beginning of the agreement or application.

• (2.2) For a disclosure statement that is separate from the credit agreement or the application,

  • (a) the disclosure statement must be provided before entering into the agreement or together with the agreement or the application; and

  • (b) the applicable information box, as set out in one of Schedules 1 to 5, containing the information referred to in that Schedule, must be presented at the beginning of the disclosure statement.

• (2.3) Numbers that are set out in the information box, including numbers that refer to an interest rate, a time period, a date or a dollar amount, are not required to be repeated in the disclosure statement but may instead be referenced in it.

• (2.4) In order to maximize its legibility, the information in the information box must be presented with

  • (a) text in an easily readable font style and font size of at least

    • (i) 12 points, with bold font for titles and numbers, including numbers that refer to an interest rate, a time period, a date or a dollar amount, and

    • (ii) 10 points for any other text;

  • (b) standard spacing between words and characters, such that the text does not appear to be in a font smaller than a 10-point font;

  • (c) sufficient margins above, below and to either side of the text such that sufficient white space is provided around the text; and

  • (d) dark text on a light background in order to maximize the contrast so that the text is clearly visible.

• (3) Information disclosed in a disclosure statement may be based on an assumption or estimate if the assumption or estimate is reasonable and the information disclosed by it

  • (a) cannot be known by the retail association when it makes the statement; and

  • (b) is identified to the borrower as an assumption or estimate.

• (4) Any disclosure that is required to be made by a retail association under these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.

• (5) [Repealed, SOR/2009-261, s. 2]

• (6) A disclosure statement that is sent to the borrower by mail is considered to be provided to the borrower on the fifth business day after the postmark date.

• 6.1 (1) Subject to subsections (2) and (3), if a retail association enters into a credit agreement with two or more borrowers, it must provide the disclosure statement referred to in subsection 6(1) to all of the borrowers.

• (2) If all of the borrowers have consented, orally or in writing, in paper or electronic form, to the provision of the disclosure statement to one of the borrowers on their behalf, the retail association must provide the statement to that borrower.

• (3) If two or more but not all of the borrowers have consented, orally or in writing, in paper or electronic form, to the provision of the disclosure statement on their behalf to one of the consenting borrowers, the retail association may provide the statement to that borrower on their behalf, if it also provides the statement to every borrower that has not so consented.

• (4) If the consent referred to in subsection (2) or (3) is given orally by a borrower, the retail association must, without delay, provide confirmation of that consent to the borrower in writing, in paper or electronic form.

Timing of Initial Disclosure

• 7 (1) A retail association that proposes to enter into a credit agreement with a borrower must provide the borrower with the initial disclosure statement required by these Regulations on or before the earlier of the making of a payment, other than a disbursement charge, in relation to the credit agreement by the borrower and

  • (a) two clear business days before the entering into the credit agreement by the borrower and the retail association, in the case of a credit agreement for a mortgage or hypothec; or

  • (b) the entering into the credit agreement by the borrower and the retail association, in any other case.

• (2) Paragraph (1)(a) does not apply if

  • (a) the borrower consents to being provided with the initial disclosure statement for the credit agreement in accordance with paragraph (1)(b);

  • (b) the borrower obtains independent legal advice;

  • (c) a rescission period of at least two clear business days is provided in the credit agreement; or

  • (d) favourable terms, such as imposing no penalty or fee for early payment, are provided in the credit agreement.