The $100 protection plan sold by Costco for a new phone is illegal. At least that’s what three Quebec lawyers want to prove in an unusual appeal.
It’s disguised insurance, argue Me David Bourgoin, Me Benoit Gamache and Me Benoit Marion in a request to bring a class action filed on December 6 in Superior Court.
“It’s been happening under everyone’s noses for several years,” says M in an interview.e Gamache, head of one of the three firms involved.
The charade leads every day to prohibited practices, he says, since in Quebec, the sale of insurance is subject to more obligations than that of guarantees.
The Source, Telus, Bell, Rogers, Glentel (Cabine T) and Costco are accused of violating both the Consumer Protection Act and the Act respecting the distribution of financial products and services.
For example, the seller never reveals to the customer how much he receives – from 30% to 60% commission – for the sale. He also does not review the exclusions of the plan – there are many of them –. He also charges him too many taxes – GST, TVQ.
Three violations of the LPC and the LDPSF, proudly explains Me Gamache, who likes to point out that the two other lawyers on file are “smarter” than him.
At $5, $25, $50 or more than $100, these plans are offered for all gadgets: from the vacuum cleaner to the phone, including headphones and the television.
Over the past three years, Quebecers have purchased “at least” a million from the six retailers named in the suit. Punitive damages reach $10 million at $10 per plan, “a conservative average.”
Same everywhere…and illegal
The three lawyers must now prove that these protection plans are insurance products.
“We buy wind. The world needs to know this. Essentially, what we buy is wind,” asserts Benoit Gamache.
On its face, the product does not have an extended warranty, he summarizes.
Both simple and technical, the appeal is original, insists the lawyer, because it presumes that the law is violated Before that we buy the plan.
“It’s the business model of the entire industry, it’s systemic,” he repeats.
The Financial Markets Authority (AMF) has also gone to war against false extended guarantees.
Costco Canada and American Bankers were condemned in 2020 for their Max+Protection plan, presented as an “extended guarantee” but rather judged by the AMF as an “insurance contract”.
The American Bankers Association paid $100,000 in fines and Costco Canada, $50,000. Small change compared to what the three lawyers now want to make the six retailers cough up.
The compensatory damages this time are estimated at “several tens of millions of dollars”, because they include the commissions received by the sellers as well as the taxes overpaid by Quebecers.
The Superior Court must first decide whether or not to accept the request.
An example
The lawsuit cites the example of a woman who paid an extra $9 to “guarantee” the $30 pair of headphones she had just purchased.
“I have a 12-year-old teenager, I’m starting to buy her things that she will break in three days,” laughs Marianne Villeneuve in the interview.
Arriving at the cash register of a La Source branch in Montreal on September 23, she was offered a 24-month protection plan for $9 plus taxes.
The employee told him “that the terms of the plan will be sent to him by email without further explanation,” it is described in the lawsuit.
Mme Villeneuve therefore paid $45.06 for his headphones and the protection plan, or $39.19 plus GST (5%) and QST (9.97%).
“She was not exposed to the exclusions of her protection plan before purchasing it,” underlines the lawsuit, which contravenes the law.