COVID-19 Financial Services Update: electronic chattel paper amendments to the PPSA come into force in Ontario

May 14, 2020 | Jennifer Babe

The amendments to the Ontario Personal Property Security Act (“PPSA”) and the Electronic Commerce Act that enable perfection by control of electronic chattel paper  (“ECP”)  came into  force on May 15, 2020.

This is an especially important change during the COVID-19 emergency for parties that have been creating contracts to finance or lease  vehicles, equipment and other goods by remote electronic means,  to be able to use their portfolios of ECP as collateral for raising funds.

Since the outset of the COVID-19 emergency, Ontario vehicle dealers have been variously classed as essential services and entitled to be open, then ordered to close (except for vehicle repairs) and as of May 5 open but only able to admit one customer at a time to the dealer’s premises.

On March 19 the Ontario Motor Vehicle Industry Council (“OMVIC”), the vehicle dealer regulator, published a bulletin entitled, “Online Selling and Sales to Remote Customers”.    OMVIC informed dealers that on the terms outlined in that bulletin that  they were permitted to create sales, leases and financing contracts by electronic means, and that they were able to deliver vehicles to a customer’s home for a test drive, or to deliver a vehicle to complete the transaction.   OMVIC specifically stated that dealers were not permitted to create contracts in a consumer’s home.

A copy of this OMVIC bulletin and subsequent updates to clarify OMVIC’s position are available on their website

Since the declaration of the State of Emergency there are now months of vehicle and other classes of equipment ECP that have been created in Ontario.  As with many other things that people and businesses are now comfortable doing remotely during the emergency, there is no doubt that customers will continue to do vehicle, equipment and other goods shopping and financing online.

These PPSA and Electronic Commerce Act amendments deal with the prior PPSA priority rule that inhibited electronic transactions because the PPSA gave priority to the secured party or purchaser holding the original wet ink contract.  This has meant that unlike other businesses using electronic commerce, vehicle and equipment financing and leasing parties have printed, handled and stored paper originally signed contracts, at great cost, in order to be able to give possession of the original contracts to the funding parties to ensure these funders had priority under the PPSA.

These amendments will enable those engaged in using chattel paper to reduce or eliminate the costs of creating and handling paper and to raise funds in transactions such as securitizations using their ECP as collateral.

A key issue in the new ECP regime is that the secured party must obtain “control” of the ECP, in accordance with the PPSA new rules.  To obtain that control, American parties who have had perfection by control under Article 9 of the Uniform Commercial Code for about a dozen years, have developed electronic vaulting systems.

We understand that several North American commercial parties who have developed such vaults in the United States have been working on Canadianizing their vault since these Ontario and Saskatchewan PPSA amendments were passed in May 2019.  As such, we may soon have acceptable vaults for use by parties wishing to raise funds by means of perfection of control of ECP in Ontario, and we hope soon, in Saskatchewan.

For further information about these amendments, see our May 3, 2019 article on the provisions of the like ECP amendments passed in Saskatchewan last May.

 

Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.

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