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BANKING - Interest and borrowing charges - Criminal rate of interest

Tuesday, June 27, 2017 @ 8:39 AM  

Lexis Advance® Quicklaw®
Summary trial application by the plaintiffs in a class proceeding for determination of a common issue. A class action was certified in respect of British Columbia residents who were members of the eight defendant credit unions and had paid an overdraft charge on an overdraft loan issued to honour a cheque drawn on an account with insufficient funds. The plaintiffs sought a summary trial determination of the common issue of whether an overdraft charge exceeding $5 constituted a criminal interest rate. The defendants submitted that the overdraft charges constituted fees to recover processing costs rather than fees for the advancing of credit, and were therefore outside the definition of "interest".

HELD: Application allowed. The true relationship between a credit union and its members with respect to the granting of overdrafts was one of lender and borrower. The creation or increase of an overdraft in a credit union's member account constituted an advancement of credit, as it occurred when a member did not have sufficient funds on account. In such circumstance, the credit union loaned the amount of the increase to the overdraft. Therefore, any associated fees of $5 or more constituted "interest", regardless of the term used by the credit unions to describe the charge. The fees charged were expressly within the definition of "Excluded Overdraft Charges" within s. 347 of the Criminal Code. The plaintiffs were entitled to the declaration sought.

Bodnar v. Community Savings Credit Union, [2017] B.C.J. No. 1051, British Columbia Supreme Court, V. Gray J., June 1, 2017. Digest No. TLD-June262017004