OTTAWA -- Canada's top court has restored a Quebec trial judge's decision that penalizes five banks for failing to meet provincial disclosure requirements when they charged currency-conversion fees to their credit card customers.

The banks had argued that Quebec's Consumer Protection Act didn't apply to them because of the constitutional division between provincial and federal powers -- a position rejected by the Supreme Court of Canada and the lower courts.

The Supreme Court's decision found that both Ottawa and Quebec have detailed rules about the way in which credit card charges must be computed and disclosed but the two sets of rules are not inconsistent with each other.

The court said the banks were seeking "a sweeping immunity" from provincial laws but decided "there are many provincial laws providing for a variety of civil causes of action that can be potentially raised against banks."

The Canadian Bankers Association, which was chosen to speak on behalf of the industry, said the decision would require "further study to determine what the implications will be for consumers."

"Banks take the protection of their customers very seriously," the CBA said. "The federal consumer protection requirements of the Bank Act ensure that credit cardholders across Canada benefit from a clear, comprehensive and consistent set of rules that guarantee clear and simple disclosure of credit card terms and costs, and strong consumer protection monitored by the federal consumer protection regulator, the Financial Consumer Agency of Canada (FCAC)."

The class action suit that sparked the court battle with the banks was launched in April 2003 with Real Marcotte as the representative plaintiff. Marcotte had Bank of Montreal and Desjardins credit cards, but the class action was filed on behalf of similar customers at nine banks and Quebec's largest credit union, Desjardins.

Marcotte later filed a separate class action against the provincially regulated Desjardins after the federally regulated banks indicated they'd make a constitutional challenge. Another class action against Amex was filed on similar grounds to include non-consumer card holders who weren't covered by Quebec's Consumer Protection Act.

The trial judge found that five of the nine banks and Desjardins had violated the provincial rules for disclosing how foreign exchange fees were calculated, but that four of the nine banks had disclosed the information in accordance with the Quebec Consumer Protection Act and federal rules -- a position upheld on appeal.

However, Quebec's appeal court overturned the judge's punitive damages against Amex Bank of Canada, Bank of Montreal (TSX:BMO), Citibank and National Bank (TSX:NA). It upheld punitive damages against Toronto-Dominion (TSX:TD).

The Supreme Court of Canada partially disagreed with the appeal court and restored the trial judge's decision that held all five banks should pay punitive damages -- about $25 per affected cardholder -- for failing to disclose the currency conversion charges to their cardholders.

The Supreme Court also upheld the appeal court's decision that four other banks that were named in the original class action -- Royal (TSX:RY), CIBC (TSX:CM), Scotiabank (TSX:BNS) and Laurentian (TSX:LB) -- weren't subject to penalties or repayments because of the nature of their cardholder agreements.

A separate Supreme Court ruling involving the Desjardins credit union found that it should return the foreign exchange fees collected from its cardholders but that punitive damages weren't warranted.

The appeal court's decisions were appealed to the Supreme Court.

"The banks submit that the applicability of the relevant provisions of the CPA to banks would impair the core federal banking power. We disagree," the Supreme Court said in its decision on Bank of Montreal vs Marcotte.

"While interjurisdictional immunity remains an extant constitutional doctrine, the court has cautioned against excessive reliance on it. . . . We note that there is no precedent for the doctrine's application to the credit card activities of banks."

It says the Quebec's Consumer Protection Act does affect how banks carry out certain activities but that the rules don't amount to impairing federal powers and it is hard to imagine how these provisions would force Parliament to pass legislation to countermand them.

"For these reasons, we conclude that the Court of Appeal was correct in holding that interjurisdictional immunity is not engaged," the unanimous decision says.