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CRIMINAL CODE OFFENCES - Offences against rights of property - Criminal interest rate

Tuesday, May 01, 2018 @ 8:38 AM  

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Appeal by several credit unions from a declaration that their overdraft charges constituted interest as defined in s. 347 of the Criminal Code. The credit unions agreed to provide their members with banking and financial services. None of the account agreements required the credit unions to honour an overdraft, but all contemplated the possibility of overdraft requests happening as incidental to the nature of the other services the credit unions provided. Occasionally, members would tender a cheque or other instrument for an amount exceeding what they had on deposit, deliberately or inadvertently. Credit unions would then assess whether to permit an overdraft or reject the instrument due to insufficient funds. The clearing system operated by Credit Union Central was a time-sensitive, labour-intensive process. Accordingly, each credit union charged a fee ranging from five to 20 dollars to recover the costs incurred when assessing whether to permit an overdraft. Some credit unions charged an additional fee if the overdraft was rejected. The present class action alleged that credit unions charged members a criminal interest rate through charging the fees. On a summary trial application by the representative plaintiffs, the judge found that when the credit unions created or increased an overdraft by honouring a member’s overdraft request, it advanced credit to that member by loaning them the amount of the overdraft. As such, the fees met the definition of interest in the Code, unless they met the definition of overdraft charge by not exceeding five dollars. The judge declared that any overdraft charge exceeding five dollars constituted interest for the purpose of s.  347 of the Code.

HELD: Appeal dismissed. The fact that the credit unions charged the fee to cover the cost of assessing whether to grant an overdraft did not necessarily make the fee something other than interest. In substance, the fee increased the overall cost of borrowing to the borrower. The reason attributed to why the fee was charged was not determinative of the fee’s characterization as interest. The first five dollars of fees in excess of five dollars were not exempt from being considered interest. Once a fee exceeded five dollars, it did not meet the definition of an overdraft charge and the fee, in its entirety, fell within the definition of interest under s. 347.

Bodnar v. Community Savings Credit Union, [2018] B.C.J. No. 569, British Columbia Court of Appeal, E.A. Bennett, D.C. Harris and J.J.L. Hunter JJ.A., April 3, 2018. Digest No. TLD-April302018003