Introduction:
The Ontario Unconscionable Transactions Relief Act provides relief to borrowers when they have been subjected to harsh and unconscionable transactions. This legislation allows the court to grant relief where the cost of the loan is excessive or the transaction is unfair.
It empowers the court to intervene in cases where the cost of a loan is excessive and the transaction is deemed harsh and unconscionable. In such situations, the court may reopen the transaction, relieve the debtor of excessive payments, order repayment of excess amounts, and revise or set aside any security or agreement related to the loan. The court’s powers can be exercised in various types of actions or proceedings involving money lending disputes. Debtors have the right to apply for relief under this legislation to the Superior Court of Justice, and any orders made under this act can be appealed to the Divisional Court. The legislation preserves the rights of assignees or holders for value without notice and does not diminish the existing powers or jurisdiction of any court.
This blog post will examine the purpose of the legislation, its scope, and how it works in practice.
Purpose of the Legislation:
The primary purpose of the Unconscionable Transactions Relief Act is to give the court the power to grant relief to borrowers who have been subjected to unfair and unconscionable transactions. The legislation provides relief to borrowers when they have been taken advantage of, such as when an experienced lender takes advantage of a less experienced borrower. The court may also provide a remedy to a borrower in extraordinary circumstances, such as when the mortgagor must obtain independent legal counsel.
Scope of the Legislation:
Section 1 of the Unconscionable Transactions Relief Act applies to the lending of money where land is given as security. The cost of the loan is defined as “the whole cost to the debtor of money lent and includes interest, discount, subscription, premium, dues, bonus, commission, brokerage fees and charges.” The court may reopen the transaction, take an account between the creditor and the debtor, or set aside, revise, or alter any security given or agreement made in respect of the money lent. The court may also order the creditor to repay any excess if the same has been paid or allowed on account by the debtor.
How it Works in Practice:
In Longley v. Barbrick, a foreclosure case, the defendant needed a $2,500 loan and approached Company L, who arranged a loan with an 8% interest for 96 months. However, the mortgage executed with Company U stated a consideration of $5,000, without the defendant’s knowledge. A collateral agreement acknowledging a bonus difference between $5,000 and $2,500 was also signed. The mortgage was assigned to the plaintiff, who sought to enforce the original mortgage. The defendant counterclaimed. The court dismissed the plaintiff’s action and allowed the counterclaim, ordering the mortgage to be amended with a principal sum reduction from $5,000 to $2,500, and a corresponding reduction in interest charges. The 100% bonus on a fully secured loan was deemed unfair, unconscionable, and void. The plaintiff, who made no inquiries about the security when taking the assignment, could not insist on payment from the defendant and had remedies against the original mortgagee under the assignment of mortgage terms.
In Milani v. Banks, the respondents faced foreclosure on their property and sought a loan from the appellant, who they had never met before. The appellant agreed to lend them $32,000 for one month at 18% interest, but also charged a $3,000 fee, resulting in a combined interest and fee rate exceeding the criminal threshold. When the respondents defaulted, the appellant sued to recover payment. The trial judge ruled that the combined interest and fee amounted to a criminal rate, rendering the entire interest package unenforceable, and deemed the transaction unconscionable, setting aside the mortgage and guarantee. However, on appeal, the court allowed the appeal in part, severing the $3,000 fee while upholding the 18% interest rate. The court found that the trial judge failed to consider the respondents’ business experience and the appellant’s own financial risk in borrowing the money from her bank. Consequently, the mortgage transaction was deemed valid and enforceable, except for the fee, and the guarantee was also enforceable. The court cited Ontario (Attorney General) v. Barfried Enterprises, where Judson J. described the object of the legislation. The theory of the legislation is that the court is enabled to relieve a debtor, at least in part, of the obligations of a contract to which in all the circumstances of the case he cannot be said to have given a free and valid consent.
The Verdict:
The Unconscionable Transactions Relief Act provides relief to borrowers who have been subjected to harsh and unconscionable transactions. The legislation allows the court to grant relief when the cost of the loan is excessive or the transaction is unfair. The court may reopen the transaction, take an account between the creditor and the debtor, or set aside, revise, or alter any security given or agreement made in respect of the money lent. The legislation ensures that borrowers are protected from unscrupulous lenders and promotes fair lending practices.
