TorontoIt is five in the morning, in a residential neighbourhood in this province, on a Tuesday in the late winter. The citizen, who has been asleep for four hours, wakes to a sound that turns out, on closer examination, to be the tow truck's hydraulic deck lifting his car onto the flatbed. The tow truck is not, by any normal description of the country's automotive-recovery industry, an unusual vehicle to see. It is unusual at five in the morning, on a quiet street, lifting a car the citizen has been making payments on for three years. The citizen, when he steps onto the porch in a coat over pyjamas, is informed by the tow driver that the vehicle has been recovered on behalf of the lender. The lender, when the citizen calls the bank's overnight line, will eventually clarify that the recovery is the consequence of one missed payment. The missed payment was due eight days ago. The citizen did not receive a notice. The citizen did not receive a call. The citizen had been, on the bank's own internal records, in good standing every other month of the preceding three years. The car is on the flatbed. The flatbed is leaving.

The country's response to this scene, when the citizen describes it the next morning to a friend, is some version of the polite shrug. The car belonged to the bank as collateral until the loan was paid off. The bank had, on its standard contract terms, the legal right to recover the collateral. The tow driver was doing his job. The citizen, by missing the payment, had triggered a clause the citizen had signed. None of these statements is, in narrow legal terms, false. All of them, taken together, describe a practice the rest of the developed world's banking sectors have, in the last twenty years, voluntarily abandoned. The country has not. The country has, on the contrary, allowed the practice to become an industry.

The duty the country wrote into the legislation

The Personal Property Security Act, in this province as in every common-law province in the country, contains a duty of good faith. The duty applies to every party to a secured-credit transaction. The bank, the borrower, and the bank's recovery agent are all, by the Act's own terms, required to act in good faith and in a commercially reasonable manner. The Act's drafters were, in the 1990s when the current version was passed, mindful that the bank's structural power over the borrower required a counterweight. The counterweight is the duty. The duty was written down. The duty exists.

What the Act does not do, and what the country's regulators have spent thirty years not adding, is define what the duty requires the bank to do before it sends a tow truck. The Act does not require notice. The Act does not require a phone call. The Act does not require the bank to verify, against its own records, that the missed payment is not the consequence of a banking error on the bank's own end. The Act does not, in plain terms, require the bank to behave like the institution the borrower thought it was. The Act assumes the bank is. The bank, on the file in front of this magazine and the others like it, is not.

What good faith would actually require

A simple list, on the kind of common-sense reading of good faith that a court in any other G7 jurisdiction would, on review of a comparable practice, recognise as adequate. A written notice to the borrower's last known address, issued no fewer than ten business days before recovery. A phone call to the borrower's last known number, attempted at least twice, at intervals at least forty-eight hours apart. An invitation to cure the missed payment by an electronic transfer, by phone, before the recovery is dispatched. A documented escalation through the bank's collections department, with a named officer responsible for the file. A pause on recovery in any case in which the missed payment is, on the bank's own electronic records, the borrower's first missed payment in the preceding twelve months. A written explanation, sent to the borrower within twenty-four hours of recovery, of the precise legal basis on which the vehicle has been taken and the procedure by which the vehicle can be redeemed.

The country has not, in any meaningful operational sense, required the bank to observe the duty of good faith the country itself wrote into the statute.

None of these requirements would, on any honest reading, impose a meaningful cost on the bank. The total operational cost of all six, per recovery, is in the low hundreds of dollars. The total cost of the practice the bank presently uses, the tow truck at five in the morning, no notice, no call, no escalation, is, by contrast, in the low thousands of dollars per recovery. The bank's preferred practice is more expensive than the practice the duty of good faith would, on any honest reading, require. The bank prefers the more expensive practice because the more expensive practice signals, to every other borrower in the bank's book, that the bank is the kind of lender that will, on a missed payment, send the tow truck. The signal is the product. The product is fear.

The recovery industry

The bank does not, in most cases, operate the tow truck. The tow truck is operated by a recovery firm, on contract to the bank, paid a fixed fee per vehicle recovered. The recovery firm operates around the clock. The recovery firm's drivers are paid, in the modal arrangement, on commission. The drivers' interest, on this commission structure, is in completing as many recoveries per shift as possible. The drivers' interest is therefore in arriving without notice, completing the lift quickly, and departing the scene before any conversation with the borrower can take place. The bank's interest, in turn, is in maintaining the contractual relationship with the recovery firm at the lowest possible cost. The cost is lowest when the firm is permitted to operate with the kind of operational latitude the present practice describes.

The country has, over the last fifteen years, watched the recovery industry quietly mature into a sector with revenues in the low hundreds of millions of dollars annually. The sector has its own trade association. The sector has its own lobby in the relevant federal and provincial ministries. The sector has, in three of the last six years, successfully lobbied against minor amendments to the Personal Property Security Act that would have imposed notice and pause requirements of the kind described above. The amendments would have cost the sector roughly two per cent of its annual revenue. The amendments would have saved the country's borrowers, on the available empirical data from the small number of academic studies that have looked at the question, sums in the low tens of millions of dollars annually in avoided recovery fees, storage fees, redemption fees, and the cascading consequences of the loss of a vehicle the borrower needed to get to work.

The country's comparative shame

The United Kingdom requires, by statutory instrument under the Consumer Credit Act 1974 as amended, a minimum fourteen-day default notice before any repossession of a consumer-secured vehicle. France requires forty-five days. Germany requires thirty. The Netherlands requires twenty-one. Australia, by the National Credit Code, requires thirty days plus a documented escalation pathway. New Zealand, on its 2003 Credit Contracts and Consumer Finance Act, requires a written notice and a documented good-faith attempt to negotiate a cure.

This country requires nothing. The bank's contract, on the bank's standard terms, requires nothing. The provincial PPSA, on its current drafting, requires nothing specific. The federal Bank Act, on the prudential side, requires nothing specific. The Financial Consumer Agency of Canada, on its supervisory mandate, requires nothing specific. The country's consumer-credit landscape, on the question of secured-vehicle repossession, is, by every available international comparison, the most lenient in the developed world for the bank and the least protective of the borrower.

The bank's defence, in its own words

The bank's response to any of this, when asked publicly, is a paragraph this magazine has now read in three separate formal-letter responses to three separate borrowers. The paragraph contains four sentences. The bank values its relationship with its customers. The bank operates within the legal framework set by the relevant provincial and federal regulators. The bank's collection and recovery procedures are subject to regular internal review. The bank welcomes feedback on customer experience. The paragraph is not, in the magazine's reading, a defence. It is the country's most-distributed example of the corporate communications style that does no work at all.

What the country could choose

The country could, by an amendment to the Personal Property Security Act in each of the relevant provinces, do six things. None of them is novel. None of them is uncosted. None of them requires the federal government's involvement. They would, taken together, end the present practice within twelve months. Written notice, ten days. Two attempted phone calls, forty-eight hours apart. An option to cure by electronic transfer. A documented internal escalation. A pause for first-time missed payments within twelve months. A written post-recovery explanation. Six steps. A two-page amendment. A single sectoral reform that the rest of the developed world has, on the available data, already adopted with no observable harm to the banking sector.

The verdict

Five in the morning. A tow truck on the lawn. A citizen in a coat over pyjamas. A bank, on a screen somewhere, marking the file recovered. A recovery driver paid, on commission, to leave before the citizen finishes asking the questions a good-faith creditor would have answered in writing two weeks earlier. The country can keep calling this remedy. The rest of the developed world stopped calling it that twenty years ago.

Write the notice. Make the call. Pause for the first miss. Or admit that what the country has allowed is not a remedy. It is a tow truck. The tow truck does not, by any reading the law was supposed to permit, owe the citizen nothing.