Credit unions retain 5-dollar overdraft fee, must return amount over legal limit: BC Court of Appeal

The British Columbia Court of Appeal has found that a lower court should have reduced a credit union’s overdraft charges per transaction to be in line with the Criminal Code limit.

In Community Savings Credit Union v. Bodnar, 2022 BCCA 263, the defendant credit unions imposed overdraft fees that exceeded $5 per transaction until 2003. At the time, they did not know about s. 347 of the Criminal Code, which considered credit union overdraft charges exceeding $5 per transaction to be interest.

The representative plaintiffs brought a class proceeding alleging that the defendants’ overdraft fees until 2003 often led to effective interest rates over the 60-percent limit under s. 347. They further claimed that those affected should receive either reimbursement under unjust enrichment principles or damages under the relevant provisions of BC’s Trade Practice Act and BC’s Business Practices and Consumer Protection Act.

The trial judge answered the common issues of the proceeding as follows:

• The credit unions were unjustly enriched at the affected members’ expense when the overdraft fees increased the effective interest rate beyond the 60-percent limit under the Criminal Code
• The appropriate equitable remedy was to allow the credit unions to retain $2.50 of the overdraft charge per transaction
• The Criminal Code breach amounted to an unconscionable act or practice under the BC statutes
• The postponement provision of BC’s former Limitation Act could be invoked for transactions occurring over six years before the start of the proceeding.

On appeal, the credit unions argued that the question of unjust enrichment should depend on the circumstances of each transaction and should not be decided on a class-wide basis. Second, regarding the equitable remedy, they claimed to be entitled to retain an overdraft fee of $5 instead of $2.50.

Third, the credit unions contended that breaching the Criminal Code provision did not automatically make the transactions unconscionable under the BC statutes. Fourth, they disagreed with the judge’s findings relating to postponement of the limitation period.

One error in judge’s answers

The Court of Appeal affirmed the trial judge’s conclusions, except for  one error. The judge should have allowed the credit unions to retain $5, not $2.50, of each overdraft charge, theappellate court found. It amended the judge’s answer to the relevant common question to reflect this correction.

When the judge reduced the amount that the credit unions could retain to $2.50, he granted an unavailable remedy, the Court of Appeal said. The case of Forjay Management Ltd. v. 0981478 B.C. Ltd., 2019 BCSC 238 did not list this as one of the three appropriate remedies.

In this case, notional severance was the proper remedy. The appellate court’s task was to lower the interest rate to the maximum legal level. Thus, it lowered the interest rate to 60 percent by reducing the overdraft charge to $5.

The appellate court accepted that there were other ways to fulfill its task, but it decided that this solution was the simplest and most obvious, it recognized that the defendants’ error related to s. 347 of the Criminal Code, and it ensured that the transactions would be legal under the code.