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"Buy Now, Pay Later" Promotions and Fine Print Under Scrutiny - Deceptive Marketing Practices Remain a Priority For Competition Bureau

November 21, 2013

By Jennifer McKenzie

In July, the Competition Bureau brought a lawsuit in the Ontario Superior Court against two of Canada's largest home furniture retailers, Leon's Furniture Limited ("Leon's") and The Brick Ltd. ("The Brick") seeking, among other things, refunds for customers who participated in  "buy now, pay later" promotions, as well as Administrative Monetary Penalties under the Competition Act.

In a press release issued July 9, 2013, the Competition Bureau stated that its investigation revealed that customers had to pay up-front fees to participate in the promotion, notwithstanding the “pay later” promise, resulting in an item costing customers more than the advertised price. The example given in the press release is a sofa advertised at $1,500. Customers wanting to defer payment on the sofa could end up paying more than $350 at the time of purchase depending on processing or administrative fees, delivery fees and taxes.

The Commissioner of Competition ("Commissioner"), John Pecman stated in the release: "Canadian consumers must receive clear and accurate information about what must be paid at the time of purchase, and what the actual cost of a particular item is if they use a deferred payment option.

The Competition Bureau is alleging that Leon's and The Brick buried details of the up-front fees and the real cost to customers of furniture bought using deferred payment in fine print.

This is consistent with the Competition Bureau's policy of ensuring consumers are aware of the amount they are actually paying for a product. As an example, in 2009, the Competition Bureau issued Consumer Rebate Promotions enforcement guidelines, which prohibit price rebates that disguise the price customers pay at the time of purchase.

Leon's and The Brick have now filed a Statement of Defence, denying the allegations of the Commissioner, and stating, among other things, that the representations cited in the Statement of Claim were taken out of context, and that, even if taken out of context, these statements were neither false nor misleading. For example, Leon's and The Brick note that they have offered deferred payment programs for more than 25 years, with the Leon's promotions being "Canadian icons". It is well recognized that, outside of Quebec, retailers who offer deferred payment programs generally charge processing fees for the service. Further, the industry practice is to advertise prices which do not include taxes or fees for additional services, such as financing or delivery. It is well known by consumers that such taxes and fees may be payable. Leon's and The Brick highlighted that, in addition to not paying any part of the purchase price during the deferral period, their customers do not pay any interest during that period (unlike other retailers who charge retroactive interest if the customer fails to pay for the product at the end of the deferral period). Taxes and fees for additional services (for example, for delivery, financing, and any government imposed fees) may be payable either at the beginning or the end of the deferral period. In most cases, the processing fees are paid at the end of the deferral period. The amount and timing of such fees are disclosed to the customer before purchase.

The Commissioner in turn filed his Reply, arguing that the surcharge is an inherent part of the purchase price, refuting that the representations stated in his Statement of Claim were out of context and maintaining that several representations were unaccompanied by any disclaimer. The pleadings are now closed.

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