Credit Brokers, Lessors and Grantors
The Cost of Credit Disclosure and Payday Loans Act protects consumers by ensuring that the true cost of borrowing is accurately disclosed to them. The disclosure must be clear in any contractual documents as well as in any advertising.
The Act prohibits penalties on prepayment of most consumer loans or leases. It also prohibits certain collection practices to avoid harassment. Sections 9(1)& (2) of Regulation 2010-104 under the Cost of Credit Disclosure and Payday Loans Act provides guidelines for permissible collection practices and prohibits a number of abusive collection practices. Failure to comply with the regulations constitutes an offence punishable under the Act and may result in fines and administrative penalties.
The Act requires registration of credit grantors, credit brokers and lessors who are involved in the negotiation of, or the extension of credit or leases, for personal, family or household purposes.
In addition to consumer loans and retail credit, this Act also applies to mortgages, credit card transactions, leases and lines of credit.
Individuals offering credit
Individuals offering credit may require registration if they are ordinarily carrying on the business of extending credit to other individuals for personal, family or household purposes in New Brunswick.
In general, registration would not be required for one-time credit extension activities. Individuals offering credit should consider several factors in determining whether the type of activity they are conducting includes:
- being, or expecting to be, remunerated or compensated;
- engaging in activities similar to a registrant, such as providing financing by way of a promissory note or funding private mortgages;
- carrying on the activity with repetition, regularity or continuity;
- whether the activity is incidental to other activities or part of an individual’s primary business (the activity does not have to be an individual’s sole or even primary endeavour for them to be in the business);
- any other sources of income and how much time an individual spends on all activities associated with the extension of credit.
The above is not a complete list but are examples of factors we consider to be relevant in determining whether an individual is carrying on business, and therefore subject to the registration requirements. We do not automatically assume that any one of these factors on its own will determine whether an individual is in the business of extending credit.
Make an application
To apply for registration under the Cost of Credit Disclosure and Payday Loans Act, applicants must submit a completed Application for Registration and meet the requirements for registration under the Act and regulations. Registration under the Act is valid for a term of 12 months. Upon application for renewal registrants must complete and submit all items requested above.
For full application requirements, review the Cost of Credit Disclosure and Payday Loans Act and the regulations: Regulation 2010-104 (General Regulation - Cost of Credit Disclosure Act) and Regulation 2017-23 (Payday Lending Regulation – Cost of Credit Disclosure and Payday Loans Act).
For brokered transactions it can be difficult to differentiate the obligations of credit brokers from the obligations of credit grantors. The following provides some clarity on the responsibilities of each party.
Credit brokers and private lender transactions
If a credit broker is representing a lender who does not lend in the ordinary course of business (e.g., a private lender), the broker is responsible for carrying out the disclosure obligations that would ordinarily fall upon the credit grantor.
Credit brokers and lender transactions
The credit broker’s disclosure obligations do not limit the disclosure responsibilities of the credit grantor. When a broker takes a loan application from a borrower and forwards it to the credit grantor, the broker must give the borrower an initial disclosure statement. The lender then has the option of adopting the broker's disclosure statement or providing their own disclosure statement.
A broker whose involvement in a transaction is limited to referring a prospective borrower (where no credit application is taken) to a prospective lender (i.e., an intermediary), is not required to provide a disclosure statement to the borrower, even if the broker charges for this service. The responsibility of the disclosure statement in this type of brokered loan is the lender.
Brokerage fees (e.g., file opening fees and commissions) are to be disclosed by the broker and accounted for in calculating the annual percentage rate (APR) where the broker collects a brokerage fee directly from the borrower. It is the lender’s responsibility to disclose the brokerage fee and account for it in the APR calculation where the fee is deducted by the lender from the amount advanced to the borrower, and is paid directly by the lender to the broker. Essentially, the only circumstance in which the lender will not be required to disclose an APR that incorporates the brokerage fee is when the borrower has been referred to the lender by the broker, and the broker’s fee has been paid by the borrower directly to the broker.