B.C. tribunal settles dispute over ‘unusual credit arrangement’

A representative with the Bank of Canada displays the new polymer $5 and $10 bank notes alongside the $20, $50, and $100 during a press conference at the Bank of Canada in Ottawa on Tuesday, April 30, 2013. THE CANADIAN PRESS/Sean Kilpatrick

A B.C. tribunal has settled a dispute about an “unusual credit arrangement” where customers agree to “pay interest on a loan they do not receive,” according to a recent decision.

Daniel Obermann filed a claim against Spring Financial Inc. with the province’s Civil Resolution Tribunal which ruled on the matter Friday.

Obermann’s application to the company for a $5,000 loan was denied but he was enrolled in “another type of loan” which is called the ‘Foundation,’ tribunal member Peter Mennie’s decision explained.

“Under the Foundation, Mr. Obermann received no money but was required to pay interest on a $5,000 loan. Spring Financial says the purpose of ‘The Foundation’ is to help build a person’s credit score,” Mennie wrote.

Obermann signed the agreement for the ‘Foundation,’ which said the company would provide a $5,000 loan but would keep “the entire amount as security” while the customer would “make bi-weekly interest payments at an annual 18.99 per cent interest rate,” according to the decision.

Relying on B.C.’s Business Practices and Consumer Protection Act, Obermann argued Spring Financial Inc. was liable for damages because it engaged in a “deceptive act or practice,” the decision said.

The company argued the agreement Obermann signed made its terms clear, and explicitly said customers would not receive any “upfront financing” as part of the arrangement.

However, Mennie said Spring Financial Inc. did not provide any evidence to prove this—such as screenshots from its website or online application—which it was required to do to back up its claim.

Given this, Mennie found the company had engaged in a deceptive act. The standard of proof for the tribunal is a balance of probabilities, meaning whether something is more likely that not to have occurred.

“The Foundation agreement said, ‘Total Loan Amount: $5,000.’ A reasonable person would read this and assume they would receive a $5,000 loan,” the decision said.

“Buried in the fine print, the agreement said that Spring Financial will hold the ‘Security Contributions’ which includes the Total Loan Amount. The effect of the agreement is to mislead the consumer into entering an agreement where they pay interest on a loan they do not receive.”

Spring Financial Inc. argued Obermann was responsible for the first payment withdrawn under the agreement because it had not been cancelled in time or according to the proper procedure.

However, the tribunal found, based on the evidence presented, that Obermann called the company the day before the first payment was due and “said twice that he did not want Spring Financial to take money out of his bank account.”

Further, Mennie rejected the company’s claim Obermann had not cancelled the agreement because he had not contacted the proper department.

“Mr. Obermann hung up when the agent said he needed to speak to a different department which was closed for the day,” the decision noted, but ultimately the tribunal found there was “nothing in the agreement required Mr. Obermann to follow any set procedure.”

The tribunal ordered Spring Financial Inc. to pay $70.53 as reimbursement for payment it had withdrawn from Obermann’s account and $100 as compensation for two fees Obermann was charged for having insufficient funds when Spring Financial Inc. tried to withdraw funds from his account, according to the decision.