Fintech companies: What are the key laws & regulations you need to follow?

Ontario

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A

• Sets out the cost of credit disclosure requirements for initial disclosure statements and subsequent disclosure requirements for fixed credit, open credit, credit cards and leases, as well as related consumer rights and remedies.
• Ontario’s cost of credit disclosure laws are relatively harmonized with the equivalent laws in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, Northwest Territories and Saskatchewan. Such laws are compatible with the equivalent laws in Nova Scotia, Nunavut, Prince Edward Island and Yukon. However, Quebec’s laws are sufficiently unique such that Quebec-specific disclosure documents and loan agreements are preferred.

Payday Loans Act, 2008, S.O. 2008, c. 9

• Comprehensive regime that applies to lenders offering payday loans, which are fixed term loans for $1500 or less, repayable in accordance with the borrower’s pay schedule, with a maximum term of 62 days.
  Parts of the act also apply to certain types of lines of credit.
• The cost of the loan is set at $21 per $100, which exceeds the criminal interest rate set by the Criminal Code, R.S.C., 1985, c. C-46, as permitted for designated provinces under s. 347.1.

Federal

The federal equivalents apply only to federally regulated institutions. For example banks are subject to the disclosure and other requirements set out in the Cost of Borrowing (Banks) Regulations (SOR/2001-101) under the Bank Act, S.C. 1991, c. 46.

Ontario

Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29

• Licensing regime for persons or entities engaged in dealing or trading in mortgages, lending on the security of real property and/or administering mortgages.
• Simple referrals are exempted from the brokering requirements.
• Sets out disclosure requirements and standards of practice, among other things.

Federal

No federal equivalent (except as may apply to federally-regulated financial institutions).

Ontario

None.

Note: lending licenses may be required in New Brunswick (Cost of Credit Disclosure Act, S.N.B. 2002, c. C-28.3), Nova Scotia (Consumer Protection Act, R.S.N.S. 1989, c 92), Quebec (Consumer Protection Act, CQLR c. P-40.1) and/or Saskatchewan (The Trust and Loan Corporations Act, 1997, S.S. 1997, c. T-22.2).

Federal

No federal equivalent.

Ontario

Unconscionable Transactions Relief Act, R.S.O. 1990, C. U.2

• The legislation is silent as to finance charge limit, however, it allows a Court broad powers to deal with costs of loans that are deemed “excessive” where the transaction is “harsh and unconscionable”. The Court may: (a) re-open the transaction and take an account between the creditor and the debtor; (b) despite any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, re-open any account already taken and relieve the debtor from payment of any sum in excess of the sum adjudged by the Court to be fairly due in respect of the principal and the cost of the loan; (c) order the creditor to repay any such excess if the same has been paid or allowed on account by the debtor; or (d) set aside either wholly or in part or revise or alter any security given or agreement made in respect of the money lent, and, if the creditor has parted with the security, order the creditor to indemnify the debtor.

Federal

Criminal Code, R.S.C. 1985, c. C-46

• Limits the cost of borrowing (widely defined to include interest and most other charges) to 60% per annum.

Ontario

Securities Act, R.S.O. 1990, c. S.4

• Public companies subject to supervisory oversight of the Ontario Securities Commission.
• P2P lenders: limited to “accredited investors” if offerings are considered investment contracts.
• May also regulate transactions involving virtual currencies.

Federal

No federal equivalent.

Ontario

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A

• Loan brokering is broadly defined to include goods or services that are intended to assist a consumer in obtaining credit or a loan of money.
  No license required.
• Must enter into a loan broker agreement that meets the prescribed requirements, including a 10-day cooling period.
• Advance payments are prohibited.

Federal

No federal equivalent.

Ontario

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A

Prescribes certain content requirements and regulates the online contracting process. The legislation requires the disclosure of certain information to the consumer prior to the consumer entering into the contract and also requires that the disclosure information, together with certain additional information, be included as part of the Internet sales contract. In addition, the legislation requires that a copy of the contract be delivered to the consumer within 15 days of the contract being entered into.

Requirements apply only to consumer agreements entered into over the Internet although certain types of online consumer agreements are exempt (e.g., most credit agreements, consumer transactions regulated under the Securities Act or Commodity Futures Act, financial services related to investment products or income securities, financial products or services regulated under the Insurance Act, the Credit Unions and Caisses Populaires Act, 1994, the Loan and Trust Corporations Act or the Mortgage Brokerages, Lenders and Administrators Act, 2006).

Most provinces (with the exception of NB, PEI and the territories) have enacted similar legislation that is harmonized with the Ontario law.

Federal

No federal equivalent.

Ontario

Electronic Commerce Act, 2000, S.O. 2000, c. 17

• Recognizes the validity of electronic documents and communications so long as the applicable legislative standards are met. It specifies that a contract will not be invalid or unenforceable because it is in electronic form only. Instead, it extends the general law of contracts into the electronic sphere by providing that the elements of a contract (i.e., offer, acceptance or any other matter material to the formation or operation of a contract) can be expressed electronically. It also provides, as a general rule, that a legal requirement that information or a document be in writing will be satisfied by its being in an electronic form that is accessible for subsequent reference.
• Similar legislation exists in all provinces and territories.
• Most provincial electronic commerce legislation requires a person to consent to the use of electronic means to satisfy transaction requirements. With some exceptions, consent can be implied from the person’s conduct as long as there are reasonable grounds to believe that the consent is genuine and relevant to the information or document.

Federal

Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5

Similar operation and requirements as provincial laws, however, can only be relied upon with respect to the prescribed laws (namely, the Federal Real Property and Federal Immovables Act, the Federal Real Property Regulations, and the Canada Labour Code).

In other words, if any other federal law has an in writing, paper, or signature requirement, this cannot be obtained electronically.

Ontario

Consumer Reporting Act, R.S.O. 1990, c. C. 33

• Provides that credit bureaus may only provide credit reports to 3rd parties for prescribed reasons (which includes for credit granting purposes).
  In the context of credit granting, a lender may only request a credit report relating to a person if the person has applied for credit and the lender gives prior written notice that meets prescribed requirements (although under privacy laws, effectively some form of consumer consent is required before a report is requested).
• Similar laws exist in all provinces (excluding NB and the territories). Generally speaking, those laws provide that credit reports can only be provided by a credit bureau either upon the written instructions or express written consent of the consumer to whom the report relates and some go so far as to regulate the means by which such consent can be expressed. Many provinces (including Ontario) impose notice requirements where a lender denies a “benefit” to a consumer or where a charge to a consumer is increased based on information contained in a credit report.

Federal

No federal equivalent.

Ontario

Consumer Protection Act, 2002, 5.0. 2002, c. 30, Sched. A

• Sets out certain prohibited unfair practices related to the making of false, misleading or deceptive representations and unconscionable representations. Engaging in an unfair practice is an offence and also gives rise to a rescission right.
  The Act also prohibits negative option practices, which should be considered when materially changing an existing product or service or renewing an on-going service term.
  There are also provisions that govern unilateral amendments to consumer agreements and stipulate that notice (and in some cases consent) must be given/obtained.
  Sets out specific requirements for advertising credit.
• Most of the provinces and territories have similar laws that regulate unfair trade practices and negative option practices. In addition, Quebec’s consumer protection legislation contains a number of prohibited stipulations in consumer contracts, specific paper requirements for credit agreements, and unilateral amendment requirements.

Federal

Competition Act, R.S.C. 1985, c. C-34

• Regulates certain deceptive marketing practices, including prohibits representations that are (knowingly or recklessly) false or misleading in a material respect or misleading representations in subject lines of electronic messages or locators (e.g., URLs), savings claims, bait and switch selling, etc.
• Other federal equivalents apply only to federally regulated institutions (e.g., banks).

Ontario

Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5

• Applies to all organizations that collect, use or disclose personal information in the course of commercial activities, except to the extent an organization is collecting, using or disclosing personal information within a province that has adopted “substantially similar” legislation (Ontario does not have substantially similar private sector privacy laws).
• Substantially similar legislation exists in AB, BC, and QC.
• The legislation imposes certain obligations upon organizations with respect to personal information collection, use, disclosure, retention, security and access.
• One of the cornerstones of the legislation is the principle of consent. Specifically, organizations must identify the purposes for which personal information is collected at or before the time of collection and obtain the individual’s consent to such collection, use or disclosure.
• Further, and irrespective of whether or not consent is obtained, organizations may only collect, use or disclose an individual’s personal information for purposes that a reasonable person would consider appropriate in the circumstances.

Federal

Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5

• Applies to federal works and undertakings (e.g., banks) and to private sector organizations that collect, use or disclose personal information in the course of commercial activities in provinces that do not have substantially similar legislation.
• Also applies when personal information is disclosed across a provincial border in the course of commercial activity and in most situations where an organization in Canada receives or transmits personal information from or to a destination outside Canada.

Ontario

No provincial equivalent.

Federal

“CASL” ¹ S.C. 2010, c. 23

• Creates a prescriptive “express” or “opt-in” consent-based regime that applies to almost all electronic messages, including email, text and instant messages and some social media messages that encourage participation in a commercial activity.
  Also sets out prescriptive rules governing unsubscribe mechanisms, sender identity and contact information.
• Includes an express consent regime, with related disclosure requirements, for the installation of computer programs which apply to virtually all computer programs, regardless of whether the program is installed for a malicious purpose.

Ontario

No provincial equivalent.

Federal

Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17

• Other than money services business, Canada’s AML laws regulate “who you are” not “what you do”.
• As a result, most FinTechs will not be caught by Canada’s AML laws, with the exception of money services businesses and securities dealers.

Ontario

No provincial equivalent.

Note: Money services businesses are regulated in Quebec under the Money-Services Businesses Act, c. E-12.000001. Services that are regulated under the legislation include currency exchange, funds transfers, and cheque cashing.

Federal

Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17

• A money services business is very broadly defined, but has generally been understood to mean a business that transfers funds from one person (the customer) to a third party recipient. Also includes foreign exchange dealings, and cheque cashing.
• Must register with FinTrac, perform KYC (know your clients), establish and maintain a compliance regime, monitor and report large cash transactions, suspicious transactions and terrorist property.
• Requirements for money services businesses dealing in virtual currencies not yet in force.

Ontario

No provincial equivalent.

Federal

Code of Conduct for the Credit and Debit Card Industry in Canada

• Voluntary code that applies to credit and debit card networks, issuers and acquirers.
• Unlikely to apply to FinTechs but they should be aware of the Code as it could impact app development.

Ontario

No provincial equivalent.

Federal

United Nations Act, R.S.C. 1985, c. U-2

Special Economic Measures Act, S.C. 1992, c 17

Freezing Assets of Corrupt Foreign Officials Act, S.C. 2011, c. 10

Criminal Code, R.S.C. 1985, c. C-46

• Canadian sanctions apply to individuals and entities in Canada and Canadians outside of Canada.
• Includes restrictions against dealing with designated persons, including entering into or facilitating any financial transaction relating to terrorist property.
• Duty to continually screen.
• FinTechs will be subject to some reporting obligations but not to the same degree as financial institutions and reporting entities under AML laws.

Ontario

Insurance Act, R.S.O. 1990, c.l.8

• P2P Insurance is not yet in Canada but is available in other jurisdictions, such as Europe.
• Lenders will need to consider the restricted agent licensing regimes out west (not in Ontario).

Federal

Insurance products are not regulated at the federal level.

Ontario

Accessibility for Ontarians with Disabilities Act, 2005, S.O. 2005, c. 11

• New public websites and their content (including web-based applications) controlled  by organizations with 50 or more employees in Ontario must conform with the World Wide Web Consortium Web Content Accessibility Guidelines (WCAG) 2.0 Level AA, subject to some exceptions
• These guidelines implement standards for making websites usable by people of all abilities and disabilities to ensure that all users can have equal access to information and functionality through the Web Accessibility Initiative. An accessible website is achieved  when web pages and processes are validated  for compliance against the W3C’s Standards (WCAG 2.0 level AA)
• Also applies to websites that have undergone a “significant refresh” (e.g., a new look and feel to the website; a change in how users navigate around the website; and/or a major update or change to the content of the website)
  An organization will not have to comply with these requirements if it can demonstrate that meeting the requirements is not practicable
• Currently Manitoba is the only other province with similar accessibility laws although BC and NS have similar laws pending

Federal

No similar federal law although the Government of Canada has Web Accessibility and Web Usability Standards, but these only apply to federal websites.

Ontario

Human Rights Code, R.S.O. 1990, c. H.19

• Legislation provides that every person has a right to equal treatment with respect to services, goods and facilities, without discrimination because of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, age, marital status, family status or disability.
• With respect to the credit granting process, caution should be used in developing decisioning software to avoid undue reliance on these factors.
• Each of the provinces and territories has in place human rights protection legislation that similarly governs the supply of services.

Federal

Canadian Human Rights Act and the Canadian Charter of Rights and Freedoms

• Generally ensures equality of opportunity and freedom from discrimination in federal jurisdiction