Clients launch proposed class action against BMO

Investors have launched a proposed class-action lawsuit against BMO Nesbitt Burns, BMO Trust Company and the BMO Bank of Montreal, claiming the company intentionally failed to change operational practices in response to 2001 Income Tax Act changes so they could continue to earn profits from foreign exchange fees at the expense of class members.

The statement of claim alleges that BMO violated and continues to violate several provisions in its own RSP trust agreements and account-operating agreements, as well as IDA by-laws, OSC rules and parts of the Loan and Trust Companies Act, by systemically converting foreign currency in registered accounts to Canadian currency without instructions from customers. In addition, the statement alleges the bank charged clients additional fees for the service.

The lawsuit is brought by Stouffville, Ontario, resident, James MacDonald, on behalf of all present and former clients holding RRSPs, RRIFs, or RESPs who have incurred foreign currency conversion charges in these accounts since June 14, 2001. The statement of claim alleges that contract breaches, unjust enrichment, negligence and breaches of fiduciary duty make BMO liable for general damages of $100 million, plus $10 million in punitive damages arising from the company’s actions. To proceed, the court must permit the class action. If the class action is certified, members of the class will be given notice and the opportunity to exclude themselves from the proceeding. BMO representatives were not immediately available for comment.

Before the Income Tax Act was amended in June 2001 to expand the definition of a qualified investment for registered accounts, clients could not hold foreign currency deposits without subjecting the amounts to the inclusion in the Income Tax Act‘s income provisions.

The statement claims BMO knew or ought to have known about the amendment to the definition in the Deferred Income Arrangement Division of the tax act as early as August 8, 2000, when notice of the intended change was given to the bank by the Federal Department of Finance. At the time, lawyers say the bank should have made changes to ways they operated trust accounts in order to cease all automatic conversions of foreign currency to Canadian currency.

Despite the changes, plaintiffs in the case say the bank systemically and automatically have converted and continue to convert foreign currency in trust accounts to Canadian currency. Furthermore, they say the bank then charges an undisclosed fee for the service, systemically and automatically withdrawing the amount from the accounts. As well, during the relevant period, the statement says defendants did not and do not charge the class members the best available exchange rate in effecting the conversion, but instead add a percentage fee to the rate charged to clients.

“The foreign exchange fee is not and has never been disclosed to MacDonald and the other class members. Instead the transaction confirmation forms and other account statements delivered to them by the defendants disclose a conversion rate, comprised of the total rate charged to them. MacDonald and the other class members were never informed that there was a difference between what BMO Trust, Nesbitt or BMO Bank of Montreal paid for the foreign currency and what the class members were charged and that the defendants profited from the difference,” claim the statement’s authors. “The foreign exchange fees are the source of enormous profits for the defendants. Hence, when the Income Tax Act was amended to permit trust accounts to hold foreign currencies, the defendants intentionally chose not to change the manner in which they operate the trust accounts or to otherwise stop the automatic conversion of foreign currencies to Canadian currency so they could continue to charge and collect the fees and derive profits there from, at the expense of the class.”

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com