On April 25, 2007, the British Columbia Court of Appeal affirmed the decision of Madam Justice Brown that found the payday loan fees charged by A OK Payday Loans Inc. (A OK) contravened the criminal interest rate provision of the Criminal Code, that it would be unjust for A OK to retain those fees collected, and that the fees were unconscionable under British Columbia's consumer protection legislation.
Since 1998, A OK has made short-term loans of small amounts from three business locations in British Columbia. These “payday loans” were for amounts generally between $100 and $500 and advanced under standard form loan agreements. The loan term would be for 15 days or until the borrower's next payday, whichever came first. Interest was charged for a two-week period at 21 per cent per annum, together with a processing fee of 19 per cent or more of the principal sum advanced.
To obtain a loan, each borrower was required to provide A OK with a signed cheque for the total amount of the sum advanced, the interest charged, and the processing fees. A OK held the cheque as security and used it to obtain repayment if the borrower did not exercise an option to repay the loan by other means, such as cash payment or a debit transaction. If the borrower failed to repay the loan on its due date, the standard agreement required the borrower to pay a further late fee of $75.
In Kilroy v. A OK Payday Loans Inc., the Court of Appeal rejected A OK's argument that the processing fee was not an interest charge for the purposes of the Criminal Code because it covers the real administrative cost of processing the loan, staff and facilities. The court noted that the “processing fee” could not be distinguished from the “facility fee” in William E. Thomson Associates Inc. v. Carpenter (1989), 69 O.R. (2d) 545 (C.A.), which was a fee stated to be charged for services and expenses but was nevertheless found by the Ontario Court of Appeal to be interest for the purposes of the Criminal Code.
The court further held that while the late fee could be avoided by prompt payment of the loan on its due date, that fact did not exclude the late fee from being interest for the purposes of the Criminal Code.
On the issue of unjust enrichment, the court found that it would be unjust for A OK to retain the unlawful fees, rejecting the argument advanced by A OK that a consideration of the circumstances of individual class members was necessary in order to determine whether A OK had been unjustly enriched.
In reaching its decision, the court questioned the decision in Bon Street Developments Ltd. v. Terracan Capital Corp., 76 B.C.L.R. (2d) 90 (S.C.) in light of the more recent pronouncements of the Supreme Court of Canada in Garland. In Bon Street Developments, a commercial borrower failed to recover interest paid to its lender at an illegal rate.
Finally, the court concluded that, in the context of standard-form consumer transactions, interest charged at a rate determined to be illegal under the criminal law is unconscionable for the purposes of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 and the former Trade Practice Act, R.S. B.C. 1996, c. 45.
It is believed that this is the first payday loan class action in British Columbia to be successfully determined on the merits.
Paul Bennett and Mark Mounteer of Hordo & Bennett acted for the representative plaintiff. Ward Branch and Luciana Brasil of Branch MacMaster acted for A OK Payday Loans Inc. on the appeal. Bruce Hallsor of Crease Harman & Company, who was counsel at the trial level, remained counsel for the appeal proceedings.
Since 1998, A OK has made short-term loans of small amounts from three business locations in British Columbia. These “payday loans” were for amounts generally between $100 and $500 and advanced under standard form loan agreements. The loan term would be for 15 days or until the borrower's next payday, whichever came first. Interest was charged for a two-week period at 21 per cent per annum, together with a processing fee of 19 per cent or more of the principal sum advanced.
To obtain a loan, each borrower was required to provide A OK with a signed cheque for the total amount of the sum advanced, the interest charged, and the processing fees. A OK held the cheque as security and used it to obtain repayment if the borrower did not exercise an option to repay the loan by other means, such as cash payment or a debit transaction. If the borrower failed to repay the loan on its due date, the standard agreement required the borrower to pay a further late fee of $75.
In Kilroy v. A OK Payday Loans Inc., the Court of Appeal rejected A OK's argument that the processing fee was not an interest charge for the purposes of the Criminal Code because it covers the real administrative cost of processing the loan, staff and facilities. The court noted that the “processing fee” could not be distinguished from the “facility fee” in William E. Thomson Associates Inc. v. Carpenter (1989), 69 O.R. (2d) 545 (C.A.), which was a fee stated to be charged for services and expenses but was nevertheless found by the Ontario Court of Appeal to be interest for the purposes of the Criminal Code.
The court further held that while the late fee could be avoided by prompt payment of the loan on its due date, that fact did not exclude the late fee from being interest for the purposes of the Criminal Code.
On the issue of unjust enrichment, the court found that it would be unjust for A OK to retain the unlawful fees, rejecting the argument advanced by A OK that a consideration of the circumstances of individual class members was necessary in order to determine whether A OK had been unjustly enriched.
In reaching its decision, the court questioned the decision in Bon Street Developments Ltd. v. Terracan Capital Corp., 76 B.C.L.R. (2d) 90 (S.C.) in light of the more recent pronouncements of the Supreme Court of Canada in Garland. In Bon Street Developments, a commercial borrower failed to recover interest paid to its lender at an illegal rate.
Finally, the court concluded that, in the context of standard-form consumer transactions, interest charged at a rate determined to be illegal under the criminal law is unconscionable for the purposes of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 and the former Trade Practice Act, R.S. B.C. 1996, c. 45.
It is believed that this is the first payday loan class action in British Columbia to be successfully determined on the merits.
Paul Bennett and Mark Mounteer of Hordo & Bennett acted for the representative plaintiff. Ward Branch and Luciana Brasil of Branch MacMaster acted for A OK Payday Loans Inc. on the appeal. Bruce Hallsor of Crease Harman & Company, who was counsel at the trial level, remained counsel for the appeal proceedings.
Lawyer(s)
Ward K. Branch
R. Bruce Hallsor
Paul R. Bennett
Mark W. Mounteer
Firm(s)
Bennett Mounteer LLP
Branch MacMaster LLP
Crease Harman & Company