2/3rds repossession rule

 

Consumer agreements are categorized by type under the Consumer Protection Act (Ontario) (the “Act”). I will post a summary of the types of agreements in an upcoming post. In the interim, the types of agreements are:

  • Future performance agreement
  • Direct agreement
  • Remote agreement
  • Internet agreement
  • Time share agreement
  • Personal development services agreement
  • Credit agreement
  • Lease agreement

The Act contains disclosure provisions for each type of agreement, but the overlap rules under the Act exempt the application of certain provisions when an agreement is of more than one type.

The requirements for future performance agreements are under Part IV of the Act. The majority of consumer agreements are future performance agreements, in that either delivery, payment or performance in full is not made at the time the parties enter into the agreement.

Under the future performance agreement provisions of the Act, where a consumer has paid 2/3rds  or more of his or her payment obligation, a supplier cannot retake possession of or resell the goods or services when a consumer defaults in payment unless the supplier obtains permission from the Superior Court of Justice (the “2/3 Rule”).

However, there are exceptions to the rule. For instance, where a future performance agreement is also a Part VIII lease agreement or a Part VII credit agreement, the 2/3 Rule does not apply (with an exception noted below). The Act differentiates credit agreements (more on this in an upcoming post):

  • A credit agreement where credit or a loan is extended to the borrower (i.e. consumer)
  • Subject to the below, a supplier credit agreement where fixed credit is extended to the borrower to assist the borrower in obtaining goods or services from the supplier (or its associate e.g. affiliate)

Part IV of the Act, which includes the 2/3 Rule, does not apply to the part of a supplier credit agreement where the supplier extends the fixed credit, but it does apply to the part of the agreement where the supplier supplies the goods or services. This seems counterintuitive, particularly where the extension of credit and the supply of the goods or services may be contained in a single agreement. It’s likely this was drafted for circumstances where the extension of credit is in a stand-alone agreement and the supply of the goods or services (by the lender who extended the credit for the purchase) is in a stand-alone agreement. For instance, a company may provide financing to a borrower to purchase an appliance and the financing terms are contained in a credit agreement. A separate purchase agreement is entered into that may be attached to the credit agreement.

To add further complexity (why not!), the Part VII credit agreement provisions do not apply to a supplier credit agreement that satisfies all of the following conditions:

  • requires the borrower to pay in full in one advance within a specified period of time after delivery of an invoice or statement of account to the borrower;
  • is unconditionally interest-free during the above-referenced specified period of time;
  • does not provide for any non-interest charges;
  • is unsecured other than a lien arising under the agreement by operation of law; AND
  • cannot be assigned other than as security.

In this instance, one would have to categorize the agreement, if applicable, under the other types of agreements and provide the requisite disclosure.

More on this in the upcoming posts describing each type of agreement. We’re done spinning around in circles for now!

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