AUG 15, 2010
BANK of MONTREAL MASTERCARD
P.O. Box 300 Stn. 'M'.,
Toronto, ON, M6S 4X2
NOTICE OF SUSPENSION OF ACCOUNT
RE: MasterCard account # [xxxxxxxxxxxxx]
To whom it may concern;
It has been brought to my attention that BANK OF MONTREAL MasterCard ("the bank") has
apparently deceived me into participating in one or more schemes operated by the bank, which
scheme or schemes may be classified enterprise crime offences under the Criminal Code of
Canada. Pending a satisfactory explanation from the bank, the aforementioned account is
accordingly suspended. I will not knowingly be a party to unlawful activity.
The alleged/apparent offences are sub-classified as follows:
1. Misrepresentation of the substance of a transaction, pursuant/contrary to one or more of s.
51 of the Combines Investigation (Competition) Act, s. 380(1) and s. 397(1)(b) of the
Criminal Code, s. 15, s. 450, s. 451, and s. 452(2) of the Bank Act, s.4 of the Canada
Interest Act, and, inter alia, s. 190 and s. 192 of the Bills of Exchange Act.
2. Agency fraud, contrary to one or more of s. 380(1), s. 336, and s. 426 of the Criminal
3. Forgery and offences resembling forgery, pursuant/contrary to one of more of s. 321, s.
363, s. 366, s. 367, s. 368, s. 375, s. 388, s. 390, and s. 397(1)(a) of the Criminal Code,
and s. 15 and s. 238(2)(c) of the Bank Act.
4. Criminal interest rate offences, contrary to s. 347 of the Criminal Code.
5. Enterprise crime/racketeering offences, pursuant/contrary to s. 15, s. 238(2), s. 450, s.
451, s. 452(2), and s. 488, of the Bank Act, and s. 206(1)(e), s. 321, s. 366, s. 368, s.
380(1), s. 426, s. 462.3(c), and s. 462.31, of the Criminal Code.
The evidence against the bank is credible, substantial, and objective/prima facie in nature.
Accordingly, the onus is henceforth on the bank to disprove the allegations made herein. If the
evidence is as it appears, then the alleged contract is a "false document" and wholly inoperative
except as evidence of mens rea (criminal intent) on the part of the bank (a person-in-law).
In order to resolve, in good faith, the conflicting information that I have received from various
parties, it is necessary for the bank to first affirm the substance of its consideration under the
purported credit card Agreement. As and when I entered into the purported Agreement I believed
that the bank undertook to act as my financial agent, in accordance with the following:
In the case of a purchase transaction the primary function of the charge/credit card company is to
act as the financial agent of the card user in paying money from the card user’s account to that of
a given merchant. In some cases the amount of money in a card user’s account will be
insufficient for the card company to execute the card user’s instructions. In these cases the card
company agrees to perform a secondary, or collateral, function; that of making a loan to the card
user sufficient to cover the shortfall. The proceeds of such loan are credited to the card user’s
account accordingly, and the card company then carries out the card user’s instructions by
paying the card user’s money as indicated to the merchant as indicated.
Summarizing from the position of the card company:
1. Receive order/directive from card user to pay card user’s funds in the amount indicated to
the merchant so indicated.
2. Is there a sufficient credit balance to carry out the card user’s instructions?
3. If yes, then carry out the instructions.
4. If no, then make loan to card user to increase the financial credit balance of the card
user’s account sufficient to carry out the card user’s instructions.
5. Carry out the instructions.
Again, the above represents my understanding of the bank’s undertaking, at the time I entered
into the purported Agreement.
Firstly, my beliefs in this respect are consistent with various publications of dominant entities in
this business. By way of example, Your Money Matters, A Public Information Service from The
Royal Bank [of Canada], states as follows (underlining added):
Any credit card transaction is actually an invisible form of cash borrowing:...
When you make a purchase with a credit card and sign the sales slip you are, in effect,
instructing the company or bank to pay your bill to the merchant. You are also promising,
at the same time and with the same signature, to repay the organization that has paid for
your purchases. (p. 29)
By way of clarification, the above is not strictly accurate. In a non-trivial proportion of cases the
card user will have an existing credit balance such that there will not even be the appearance of a
loan. Otherwise, however, the information is consistent with what I understood the Agreement to
be at the time I entered into it.
On the same page of its consumer advisory the Royal Bank also provides a pictorial CREDIT
CARD PURCHASE AND PAYMENT CYCLE. For future reference, the Royal’s explanation of
process precludes the existence of any separate "merchant bank" and/or "Visa International",
"MasterCard International" or similar organization. It states that the merchant sends the sales
draft to the card issuer, and not to some other bank or intermediary, for payment (emphasis
The customer’s credit card is used to imprint all the information necessary to precisely
identify the user on a sales draft. Once the merchant has filled in the purchase details and
the customer has signed, the transaction is under way. The store then sends a copy of the
sales draft to the card issuing company, who make payment. The customer receives a
statement summarizing all of his credit card purchases for the month.
Likewise with our own purported credit card Agreement – there is no express or implied
provision for the bank to receive a commission from a Merchant in respect of a purchase
transaction initiated by myself. Nor is there any mention of the involvement, per se, of
MasterCard International in a purchase transaction.
Secondly, I rely on the principle of contra proferentem to estop, or preclude, the bank from
asserting the represented substance of its consideration as other than as I have interpreted it.
Thirdly, I have been led to believe, and formerly did believe, that the bank receives no
compensation in respect of a purchase transaction, per se, other than annual fees and/or fixed per
transaction fees, both knowingly paid by myself, and that the bank compensates for same by
charging otherwise excessive interest rates to purported "interest payers" who carry an
outstanding balance from month to month. Further, I have recently been informed that such
former belief is entirely consistent with certain evidence given under oath by authorized
representatives of the bank (Canadian Bankers Association) and/or MasterCard (Access)
International before the formal House of Commons investigations into the workings of the credit
card business in Canada, in 1986-7, 1989, and 1992.
Bills of exchange
The most immediate problem is that, according to information I have recently received, the bank
obtains possession of my promissory note/bill of exchange (MasterCard sales slip/voucher) as a
holder in due course by purchasing it at a discount from MasterCard International. In fact a
typical purchase transaction will involve at least three such holders, as follows:
1. The Merchant is issued my bill of exchange in exchange for his/her goods and/or
services, and is the payee of the bill of exchange;
2. The Merchant sells/endorses the bill at a discount to the Merchant’s Bank, which bank
becomes the first holder in due course;
3. The Merchant’s Bank sells/endorses the bill at a discount to MasterCard International,
which entity becomes the second holder in due course;
4. MasterCard International sells/endorses the bill to the bank (BANK OF MONTREAL) at
a discount, making the bank the third holder in due course; and finally
5. The bank presents the bill to me for payment while simultaneously asserting that the bill
is a promissory note issued by myself as a de facto receipt for a loan made by BANK OF
MONTREAL to myself.
And so we reach a logical impasse. Either the Merchant’s Bank and MasterCard International are
agents of my agent, the bank, in which case all three are prima facie, and inter alia, receiving
secret commissions while acting as an agent, contrary to s. 426 of the Criminal Code; or else
each of the aforementioned parties is operating at arm’s length to one another, in which case the
operation is prima facie at least a constructive fraud against the Bills of Exchange Act (and
therefore against the note/bill issuer/card user, as well as the public generally).
And in either case the bank receives a non-trivial, and even substantial, proportion of its gross
revenue at an effective rate in excess of 60% per annum, contrary to s. 347(1)(b) of the Criminal
Code (i.e., even if the bank were advancing credit – more on this below).
The core obfuscation of substance appears to stem from the use by the MasterCard Triad (i.e.,
the bank, the Merchant’s Bank, and MasterCard International) of my "valuable security" (the
MasterCard sales slip – as defined by s. 2 and 4(a) of the Criminal Code) as alternatively a bill of
exchange and a promissory note. While the Bills of Exchange Act anticipates that a single
instrument can be both a bill of exchange and a promissory note, there is no provision for a party
to arbitrarily mix and match the rules respecting same.
If the bank purports to obtain the card user’s bill of exchange at a discount, and as a holder in
due course, from MasterCard International, so as to avoid disclosure of the bank’s gross profit as
interest or commission (rate and amount) to the card user, it cannot then turn around and assert
the same instrument as a promissory note to collect on a purported loan to the card user.
Assume that the Merchant’s bank is the MBNA, and that the card user’s bank is BANK OF
MONTREAL. In respect of a given purchase transaction, who makes the "loan" to the card user?
On its face the purported loan emanates from MBNA – unless MBNA is merely acting as the
agent of BANK OF MONTREAL. Otherwise, if the transaction is asserted as a loan, then the
bank could never sue to recover, in the absence of a fraud upon the court, because there exists no
contract between MBNA and the card user, nor between MasterCard International and the card
According to the nominal MasterCard Cardholder Agreement, the bank's professed consideration
in respect of a purchase transaction is as follows:
2. During the validity period embossed thereon, the MasterCard card allows its
Cardholder to obtain advances of money from the Issuer by means of payment by the
latter, to a merchant honouring the MasterCard card, of the price of purchases or services,
Thus the contract is, in any event, objectively false on its face. In a very much non-trial
proportion of all purchase transactions the purported "money" is paid to the merchant by some
other bank and not by the Bank of Montreal. Further, the amount so paid is not the amount of the
purchase or services but of a lesser amount determined by the application of the merchant's
bank's discount rate to the amount of the purchase or services. Prima facie "the price" means
100% of the price.
Why would the bank make such a false statement on the face of the purported contract? The
most obvious answer to this question, in addition to the concealment of the secret commission, is
that the bank does not advance any credit under a purchase transaction. Nor does the Merchant’s
bank, nor MasterCard International. The transaction is funded by the bill of exchange/promissory
note/valuable security, and which is issued by, and brought to the transaction by, the card user,
typically as follows:
1. The card user issues his or her bill for, say, $100.00 to the Merchant.
2. The Merchant sells/assigns the bill to the Merchant’s Bank for a $97.00 account credit,
which is balanced by that bank’s acquisition of property interest in the $100.00 bill.
3. The Merchant’s Bank then sells/assigns the bill to MasterCard International for an
account credit of $98.25, balanced by MasterCard International’s acquisition of property
interest in the $100.00 bill, and yielding a financial profit of $1.25 to the Merchant’s
4. MasterCard International then sells/assigns the bill to Bank of Montreal for an account
credit of $98.75, balanced by Bank of Montreal’s acquisition of property interest in the
$100.00 bill, and yielding a financial profit of $0.50 to MasterCard International.
5. Bank of Montreal then presents the bill for payment to the card user, which balances
Bank of Montreal’s $98.75 account credit to MasterCard International, and leaves a $1.25
financial profit to BANK OF MONTREAL.
In all the MasterCard Triad obtains a gross 3.093% ($3 on $97) in exchange for a potential
minimum 23-day "grace period" for an apparent effective return of 62% per annum. Between
them, in fiscal 2000 the MasterCard banks and the Visa banks ran $110 billion
($110,000,000,000), more or less, of purchase transactions through this discount mechanism,
skimming some $3 billion off the top of the Canadian economy, and on the active public
representation that it is making "free loans" to card users - and that those card users should take
advantage of these banks, who, in turn, exploit/victimize "interest payers" who cannot afford to
pay their balances "in full" each month. The apparent average rate of return is on the order of
40% per annum, even before publicly acknowledged "interest" is taken into account.
The actual rate of return to the Triad, however, is infinity because no member of the Triad puts
any money into the transaction – the $100.00 bill of exchange is the money and it enters the
transaction as the property of the card user. At that moment there is a net $100.00 increase in the
financial assets of the Triad. Neither the Triad nor any purported depositor of a Triad
member-bank is precluded from the use of their funds by virtue of those funds having been
"loaned" to the card user. The transaction is funded directly and indirectly, in form and in
substance, by the card user’s bill of exchange/promissory note/valuable security.
To be strictly accurate the Agreement would have to state to the effect:
You may issue promissory notes/bills of exchange to purchase goods or services from
persons who honor the card. We have undertaken to guarantee payment to such persons
by agreeing to purchase your note/bill at a discount (and which we conceal from you),
but, technically speaking, the transaction is financed by your note/bill and there is no
By contrast, in the case of a cash advance the bank is arguably entitled to a certain level of
interest charges because it is both supplying the financial capital and incurring the risk of
non-payment. Typically 2/3 or more of the total interest charge is for the use of the money and
1/3 or less is to cover the default risk. Yet the financial return received by the bank is typically
five to ten times greater on a relatively low-cost purchase transaction, than on a relatively
high-cost cash advance.
In the result, and at the very least, the MasterCard Triad provides for its own unearned and unjust
enrichment through material non-disclosure of an essential and material element of a purchase
transaction. Such is sufficient, of itself, to establish the offence of fraud under s. 380(1) of the
Criminal Code (R. v. Théroux,  2 S.C.R. 5; R. v. Olan, (1978), 41 C.C.C. (2d) 145, 86
D.L.R. (3d) 212,  2 S.C.R. 1175, R. v. Armstrong  17 C.C.C. (2d) 212 (B.C.C.A.);
R. v. Émond  117 C.C.C. (3d) 275 (Que. C.A.)).
In more precise terms, the core deceptive act of the Triad is to misrepresent the card user's bill of
exchange, which funds the transaction, as a promissory note given in exchange for a (fictitious)
advance of credit from the Triad. There is no loan and it is a fraud for any member of the Triad
to pretend otherwise.
There is also a significant problem in this respect under s. 238(2)(c) of the Bank Act, which
requires the bank to maintain records on a daily basis for each customer of the bank.
Notwithstanding any other issue, the bank typically does not acquire the bill/note/valuable
security of a cardholder, nor take any action pursuant to it, for several days following a purchase
transaction. That is, even if the bank were deemed to be advancing credit through its purchase of
the instrument, such deemed advance normally does not take place on the date of the transaction.
Yet if the account balance is not paid "in full" then the bank will charge interest on the deemed
advance plus the discount retroactively to the date of the purchase. Prima facie such constitutes
the falsification of an accounting record contrary to, inter alia, one or both of s. 380 and s. 397 of
the Criminal Code, where mens rea is objectively established through the direct violation of the
aforementioned s. 238(2)(c) of the Bank Act.
Assume that a transaction occurs on the 1st of a given month, that the merchant sells/assigns the
MasterCard payment order to MBNA on the 3rd, and that the bank (Montreal) purchases the
instrument from MasterCard International two days after that on the 5th of the month. Assuming
payment "in full" is not made at the end of the corresponding statement period, can the bank or
its accountants explain to me how Bank of Montreal can concurrently charge interest on the
transaction from the 1st - and comply with s. 238(2)(c) of the Bank Act? I cannot see how it can
be done without the bank deeming MBNA to be the agent of Bank of Montreal, in which case a
further problem arises because then both Bank of Montreal and MBNA would be concurrently
carrying the same "advance" on their books.
Rate contrary to s. 347
With respect to the Triad’s infinite rate of return, and to continue the above example transaction,
under the aggregate arrangement the card user’s conveyance of property interest in their note/bill
as a condition of access represents the payment of a $100.00 "commitment fee", and/or a
"required deposit balance" under s. 347(2) of the Criminal Code, such that the "credit advanced"
is defined as zero or less than zero. Alternatively and/or concurrently, the instantaneous
conversion of the purported "discount" at the Merchant’s Bank will always define an infinite and
therefore criminal rate of interest.
This reality was brought to the attention of the Senate Standing Committee on Banking, Trade
and Commerce (SSCBTC) during hearings in November/December of 1980 on the then
proposed amendment to the Criminal Code. Witnesses from both the Department of Justice and
the Department of Consumer and Corporate Affairs conceded that mainstream financial
institutions would routinely violate the new law due to these purported technicalities. The
solution adopted is as follows:
Senator Buckwold: Then looking at the reverse aspect, the bank, theoretically, could be
prosecuted for charging a criminal rate of interest for a standby fee [i.e., for receiving
interest in advance and/or on the basis of no actual credit advanced.]...
Mr. Paul-Emile Wong, Consumer Research Branch Department of Consumer and
Corporate Affairs: ...theoretically, yes. That is one of the reasons this section is unusual,
in that it requires the consent of the provincial Attorney General before prosecutions are
initiated, thus preventing the application of the section to commercial practices to which
it was not intended that it apply. It then becomes a question of the Attorney General's
discretion. (SSCBTC 18-11-80 24:28)
What the Committee failed to deal with, and which is of critical importance, is the fact that s.
347 is an "enterprise crime" or racketeering offence, the consequences of which are deterministic
and not subject to the Attorney-General's discretion. In the result, MasterCard International is, in
form and in substance, a "criminal organization" under s. 2 of the Criminal Code and I will not
be a party to the activities of any such organization.
Free loan story does not bear close scrutiny
With respect to the free loan story, it is just that - a story. Notwithstanding any other issue, every
bank is required to acknowledge that so-called merchant fees are in fact "interest income"
received from card users and not merchants. If the card user does not pay then the bank never
receives the "merchant fee". Amex Bank of Canada, for example, declares under its "Prescribed
Accounting Principles" (underlining added):
Financial statements of banks in Canada follow accounting principles prescribed by the
Loans, principally Cardmember receivables [i.e., charge card loans] and lines of credit,
are stated net of an allowance for credit losses. Interest income is capitalized into the
[charge card] loan balance in accordance with the terms of the Cardmember agreements.
Accounting for defaults and other credit-related contingencies and expenses out of interest
revenue collected from good accounts is central to what a bank does. Attempting to run a bank
while claiming that your revenues are officially tied to a side business said to be in the provision
of clerical and administrative services to merchants would lead to all manner of problems. In fact
it would be impossible. Accordingly, for internal purposes it is expedient for Amex Bank to
simply acknowledge the reality of its banking/lending business - that it makes nominal loans to
its Cardholders (i.e., notwithstanding that those loans are directly and equitably financed by the
cardholder's note/bill) and collects back the deemed-credit advanced plus interest from its
Cardholders. The free loan fiction is for public relations purposes only.
With respect to the Cardholders’ purported agreement to capitalize the interest charges into the
loan balance, what Amex Bank appears to desire is the Cardholders’ legal consent (due to certain
US SEC regulations vis a vis the New York bond markets where its parent company raises
nominal off-setting deposit balances) but without their full knowledge and understanding (only
underlining added, bolding and capitals are Bank’s):
As you read this Agreement, remember that the words you and your mean the person
named on the Card. The words we, our and us refer to Amex Bank of Canada,...
LIABILITY FOR CHARGES - IMMEDIATE PAYMENT
ALL CHARGES ARE DUE AND PAYABLE IN FULL IMMEDIATELY UPON
RECEIPT OF OUR MONTHLY STATEMENT UNLESS OTHERWISE PROVIDED
IN THIS AGREEMENT
All amounts charged to the account, including purchases, the annual Basic Card fee
and...other fees will be called Charges in this Agreement.
Taking the Agreement and annual report together, the Bank recognises its added fees (and...other
fees) as "interest" and that "the Charges" are inclusive of such "interest". Direct substitution into
the Cardholder Agreement yields:
LIABILITY FOR [Principal plus Interest] - IMMEDIATE PAYMENT
The substance of the multi-party relationship is such that what Amex calls a "merchant discount"
is more correctly a "concealed cardholder price discount". Amex requires its Merchant/agents to
sell any given item of merchandise to a card user at a lower real price (i.e., at a stipulated
"discount") than to a cash customer which allows the credit card company to conceal its credit
charge within the apparent selling price while leading its card user to believe that they are
receiving cost-free credit. There are material costs associated with the nominal service and the
credit companies stipulate that the merchants’ only option is to recover the amounts through a
uniform pricing mechanism (contrary to, inter alia, s. 52 of the Combines Investigation
(Competition) Act). The essence of the Merchant Agent Agreement is that, whatever price
increase the merchant settles on, they must apply it equally to cash customers who neither
consume nor desire to consume any service provided by the credit card company.
Cash and other non-credit-card customers are thus a major source (about 80%) of involuntary
subsidies to the credit card companies. This is why the credit card companies can give cash
kickbacks and other "membership rewards" to cardholders. The extremely high fee rates applied
to the approximate one-fifth of sales run through credit card accounts are directly subsidized by
the approximate four-fifths of sales to non-credit-card customers. This is one of several reasons it
was made illegal in the UK in 1990 for purported lenders to require merchants to conceal these
This loan/interest relationship has been understood and commercially exploited as such from the
beginning. In The Credit Card Industry - A History, (1990, p. 2) author Lewis Mandell describes
the birth of the charge card in 1949 at a luncheon between the principals of what would
eventually become Diner’s Club (underlining added):
While the components of this transaction were hardly novel - both charge accounts and
installment credit were widespread - the involvement of a middleman, who used his own
creditworthiness to obtain credit from a store, extend that credit to an individual who
might not otherwise be able to obtain it, and then collect the principal and interest
from the party who had needed the credit, was an intriguing twist on the normal
process of extending credit.
It remains today that the business is conducted internally, in fact and in law, as a deemed credit
business. Amex Bank of Canada is a good example of process as making purported free loans
was (at that time) substantially its sole business in this area.
For its part, Bank of Montreal appears to have simply falsified its stated consideration and/or
omitted the detail of the rebate/kick-back from the merchant under the terms of the nominal
Agreement. With respect to the former, the result in law and in equity is self-evident (see R. v.
With respect to the latter, the B.C. Court of Appeal decision in R. v. Armstrong  17 C.C.C.
(2d) 212, holds that the willful omission of a material particular causes a document to fall within
the ambit of a "false document", as defined by what is now s. 321 of the Criminal Code. The
offence of forgery-in-law then becomes one of essentially strict liability under what is now s.
366, as per the decision of the Supreme Court of Canada in R. v. Gaysek  S.C.R. 888.
I do not in fact receive any credit under the operation of the scheme, because, again, the Triad
employs the promissory-note function of my note/bill to fund the transaction (and/or the
bill-of-exchange function if there is an existing credit balance). By way of comparison, the CIBC
states in certain of its so-called line of credit agreements:
6. Should the Bank from time to time take from the undersigned [the purported borrower]
[promissory] notes representing any advances by way of [this account], such notes shall
not extinguish or pay such advances but shall represent the same only. (Canadian
Imperial Bank of Commerce (CIBC) Overdraft Lending Agreement (A), form 4274-87,
The above para. 6 is prima facie evidence that the CIBC, at least, is fully aware that the
purported borrower's promissory note is money, or at least that the bank employs the equitable
substance of the note as a money substitute.
MasterCard and Visa operate in Canada on the basis of an approximate average 36-day account
roll-over period (i.e., the average purchase is made on or about the 15th of any given month, plus
the typical 21-day purported "grace period", equals 36 days.) There are approximately ten 36-day
periods in a year, such that at any given moment there will be approximately $11 billion worth of
"valuable securities/bills of exchange/promissory notes" circulating in the MasterCard/Visa
system in Canada, to generate $110 billion of nominal gross annual throughput. The equitable
substance of substantially the entire operation is embodied in the financial value of those
instruments and the banks put up no money of their own or of their depositors. All expenses and
purported losses are taken from the aggregate annual and per transaction fees, purported
discounts, and acknowledged interest charges. This is well known in certain circles and is
precisely why chartered banks are required to write-off non-performing accounts after 180 days.
The fraud against the Bills of Exchange Act occurs, inter alia, when the bank fails to make
formal protest of dishonourment of a card user's bill of exchange upon default. Suddenly the bill,
acquired by the bank as a holder in due course from MasterCard International, becomes a
promissory note evidencing a loan made by Bank of Montreal to the card user. And, again, the
only way the bank can argue otherwise is to assert both MasterCard International and MBNA
(continuing the example given above) as members of a single agency in the employ of the card
user. In this case the business becomes functionally indistinguishable from a sophisticated secret
commission/organized crime/racketeering operation. (See the Supreme Court of Canada decision
in R. v. Kelly  2 S.C.R. 170, for a discussion of the criminal consequences, and Boardman
and Another v. Phipps [House of Lords]  3 All E.R. 720, for a discussion of the civil
The Supreme Court summarized the issue as follows, in Kelly, supra (emphasis added):
THE DUTIES OF AN AGENT
The agent is obligated to perform those duties which he or she has undertaken to perform
[i.e., deliver the loan proceeds to the Merchant on behalf of the Cardholder]. The primary
consideration in performing the duties of the agent must be to always act in the best
interests of the principal. However, in performing them the agent must not exceed the
authority which was delegated by the principal.
In the context of the "secret commission" cases, the fundamental duties of the agent are
those arising from the fiduciary nature of the agency relationship. The relationship of
trust focuses on the principal [Cardholders] with the result that agents [banks] must not
let their own personal interests conflict with the obligations owing to their principals. A
conflict of interest exists when an agent is faced with a choice between the agent’s
personal interest and the agent’s duty to the principal. Fridman put it this way (at p. 153):
Where the agent is in a position in which his own interest may affect the
performance of his duty to the principal, the agent [Bank] is obliged to make a full
disclosure of all the material circumstances, so that the principal [Cardholder],
with such full knowledge, can choose whether to consent to the agent’s acting.
The policy of the courts has been stringent in seeking to prohibit not just actual fraud
perpetrated by agents on their principles but also in prohibiting the creation of a situation
where agents could be tempted into fraud. The text, Bowstead on Agency, 14th ed.
(1976), provides several examples where the agent has a personal interest and, therefore,
must make full disclosure (at p. 130) [underlining added]:
...an agent may not buy his principal’s property or sell his property to his
principal because in such a case his interest will be in conflict with his duty. He is
not allowed to receive a commission from both parties to a transaction; he
may not make any secret profits by exploiting his position or the property of
his principal; he [the Bank] may not acquire a benefit [fees] for himself by
dealing with a third party [the Merchant] in breach of his relationship with his
principal [the Cardholder], nor may he compete with his principal.
The agency relationship is extremely important to the functioning of our society. It is a
relationship based on trust and it is fiduciary in nature. It is essential that the integrity of
that relationship be preserved.
It is thus inconceivable that any competent solicitor could have advised the bank that this
business is legal.
The free-loan story before the House of Commons
Even if they have ready cash the Canadian public has been conditioned to believe that it is to a
card holder’s advantage to run a purchase through a credit card account so as to exploit the
"grace period". Those who do so are called "free riders" by both the card companies and the
government regulators. These people are said to receive "free loans" at the expense of the
"interest payers" who carry an outstanding balance from month to month. According to the most
recent (1992) Commons’ report (emphasis added):
Most of the credit cards [Visa & MasterCard] included in Table 1 or discussed in the
Consumer and Corporate Affairs’ publication offer a grace period (a certain number of
days during which the bill may be paid in full with no interest charges accruing). Card
users, at first glance, appear to fall into two broad categories - those who use their cards
as charge cards and pay the total balance before the end of the grace period and those
who use their cards as credit cards and pay interest on the outstanding balance. The
categories are not watertight, however, as some people who usually pay on time may
occasionally run an interest-bearing balance, while others who usually roll their balances
occasionally pay off the entire balance. There is thus a third category of those who use
their card sometimes as a charge card and sometimes as a credit card.
The profitability of card operations depends on the relative size of each of the three
categories. As the Vice-Chairman of the Bank of Montreal explained:
Every month about 50% of our customers pay in full, and about 50% borrow.
Now, its not the same 50% every month. But as we look at the information, it’s
clear that about 30% of the customers usually pay off in full. About 30% of the
customers seldom pay off; they usually borrow. About 40% of the customers are
in the middle, who are in and out.
The president of the Royal Bank presented similar numbers, although in a slightly
different fashion: 20 per cent of their accounts do not borrow (that is, they always use the
Royal Visa card as a charge card), about 30 per cent borrow occasionally and the
remaining 50 per cent include those who borrow regularly, but occasionally pay the total
outstanding balance, and those who almost always borrow. Because not everyone who
uses a card uses it as a credit card, the effective yield to card issuers is below the
posted rate on credit cards.
In each of the three investigations the respective Committee has concluded that the banks’ public
relations explanation of the nature of the business is correct; that advertised credit card interest
rates have to be very high because the approximate half of all card users who carry a balance are
subsidising the other half who are "free riders" by paying off their balances in full each month so
as to incur no interest charges. The 1992 report both confirmed and built on the 1989 report
which had itself confirmed and built upon the conclusions of the 1987 investigation (underlining
The [interest rate] confusion arises probably because users have become accustomed to a
grace period during which they could pay the amount due in full and avoid any interest
charges.... The financial institution provides an interest-free loan to all card users who
pay off their balances before the end of the grace period. These users are actually using
their cards as convenience cards, not as credit cards.....Card users might find the
payment of interest charges less frustrating if they had better information about how
interest-bearing balances are calculated and if they understood that someone is
financing credit card balances that are repaid before the end of the grace
period....That some card users receive what is in effect a free loan should not lead
other card users to think that they too deserve a free loan. One useful result of the
Committee’s work will be to make more information on the calculation of interest
charges available to Canadians.
This is likewise the position taken by the commercial media, apparently to sell the public on
keeping government regulation out of the credit card business. According to the Globe and Mail,
reporting on the 1989 investigation (underlining added):
[Canadian Bankers’ Association president] Mr. [Robert] MacIntosh also said that about
50% of all 13 million bank credit card holders in Canada pay off the monthly balances on
their 20 million credit cards each month and thus never incur interest. "This is the one
instrument that I am aware of that the interest rate does not start on Day 1 (the purchase
date)," Mr. MacIntosh said, referring to the 21-day grace period offered by the
banks....Later, John Evans, president of the Trust Companies Association of Canada, told
the committee that there is "no justification for government intervention in the pricing of
credit cards." He said the credit card market was evolving rapidly with new features
being developed...[and that government intervention] would impede further evolution and
"prevent market forces from providing consumers with the most appropriate products at
the least cost."
This attitude continued to prevail such that following the 1992 investigation the media reported
and appeared to endorse the Committee’s conclusion that if the government were to limit interest
rates on credit cards, or to otherwise interfere, the banks would be forced to cancel the accounts
of marginal cases. The result given as an example was that of a single mother who would then be
unable to buy snowsuits for her children were the weather to suddenly turn cold. The
sophisticated business media did not mention that the primary reason banks issue credit cards
with $500 credit limits to marginal cases such as stereotypical single mothers (and students) is so
that they will run the snowsuit purchase through the credit card fee mechanism generating an
apparent average return to the purported lender that is three to five times the posted interest rate
on the credit card.
The chart referred to by the 1992 Committee, above, is as follows, in part (larger figures in bold
in the last two rows are discussed in the text which follows):
MASTERCARD AND MASTERCARD STATISTICS
Date Number of Cards Net Retail Outstanding Dollars Net Dollar Sales Slips Avera
in Circulation Volume ($Billions) Volume Processed Sale
Year end: (Millions) ($Billions) (Billions) (Millions)
(1) (2) (2)(4) (2)
30-Sep-77 8.2 3.6 1.4 4 118.8 30.5
30-Sep-78 9 4.9 1.8 5.4 150.8 32.5
30-Sep-79 9.9 6.6 2.4 7.3 185.8 35.7
30-Sep-80 10.8 8.8 2.9 9.4 218.4 39.5
30-Sep-81 12 10.6 3.4 11.5 249.6 42.4
31-Oct-82 11.6 13.8 3.7 13.4 274.9 50.3
31-Oct-83 12.1 14.8 3.7 14.9 297.6 49.9
31-Oct-84 13.1 16.9 4.4 17.1 325.2 52.1
31-Oct-85 14 19.4 5.1 20.4 372.9 51.9
31-Oct-86 15.5 23 5.8 23.6 417.2 55.1
31-Oct-87 17.6 26.4 6.8 26.9 450.7 58.5
31-Oct-88 19.4 30.3 7.8 31.2 490 61.9
31-Oct-89 20.4 36.1 9.3 36.9 546.7 66
31-Oct-90 23.2 38.6 10.8 42.5 591.8 67.2
31-Oct-91 24.3 40.4 11.2 44.1 617.8 67.4
Source: Canadian Bankers Association
(1) As at last day of year end.
(2) Reported total at year end
(3) Percentage of outstanding as at year end.
According to the figures, above, supplied by the Bankers Association to the 1992 Committee,
total Visa and MasterCard debt as of October 31, 1990 was $10.8 billion. Over the following
year to October 31, 1991 a new $40.4 billion (i.e., $40,400 millions) was charged to these
accounts. If 50% are paying in full each month and 50% carry the balance forward then total
credit card debt would be expected to rise by about half the new charges or $20 billion to a total
of just over $30 billion even before advertised monthly interest charges. As Mr. McIntosh had
explained to an earlier (1980) investigation (emphasis):
Mr. McIntosh:...And you must also remember that half the people who use credit cards
never borrow on the card at all, they use it as a payment convenience card;.... The other
50 per cent, they are always in; they keep rolling it all the time.
Yet total outstanding balances as of October 31, 1991 are indicated as $11.2 billion - an increase
of only $400 million or just under 1% of the new charge volume of $40,400 millions. At an
approximate average posted interest rate of 1.5% per month the $10.8 billion would have
increased to about $13 billion even if no new purchases had been made. In other words, although
there had been $40.4 billion worth of new charges these banks clearly received a greater amount
back in total payments otherwise the total outstanding at year-end would have been much greater
than it was. Using more recently published figures, over the five year period from October 1990
to October 1995 the total gross charge volume had been over $250 billion (i.e., one quarter
trillion dollars). Over the same period the total outstanding balances had increased by only about
$6 billion from $10.8 billion in 1990 to about $17 billion as of the banks’ fiscal year end on
October 31, 1995.
In any given year, 1991 for example, in order for the claim of a 50-50 split to be true the 50%
who carry a balance would have to make $0 in new purchases and in fact pay down their existing
balances at the rate of about 1.3% per month - and the other 50% who are "free riders" would
have to charge 100% of the new $40.4 billion annual volume and pay it in full on a month to
month basis (about $3.4 billion (including transaction credit fees) charged and repaid (rolled
over) every month). But that gives rise to an anomaly. Since principal debt must be declining for
the 50% who carry a balance from month to month (there is in any case a minimum 3% to 5%
monthly payment required depending on the bank) and therefore eventually hit zero this cannot
represent a natural state.
Nor are the figures for 1990-91 themselves an anomaly - the annual growth of total outstanding
debt and total dollar charge volume is fairly consistent over the whole period from 1977 forward.
It is clearly the given explanation of the process - that the interest payers carry the free riders -
which is at variance with the facts. In fact the banks collect far more interest revenue and at a
much higher rate from those labeled "free riders" than they do from those labeled "interest
payers". As long as any given card user is running new purchases through the account they are
generating interest to the banks on the (apparent) funds employed at rates up to 180% per annum.
The moment the deemed-credit limit is reached such that new purchases stop and the account
bears only month to month interest on the total balance forward the yield to the bank drops down
to the 15% - 20% per annum range.
These banks started with $10,800 millions outstanding and then ran over $40,000 millions of
new purchases through their credit card fee mechanisms in fiscal 1991. The official story is that
about half pay in full and half carry the new balance forward ("they keep rolling it all the time") -
and that is why the total debt after $40,400 millions of new purchases increased by $400 million
(1%) to $11,200 millions. It simply doesn’t wash. It is not even close. In the long run 98%-plus
of Cardholder purchases are made by "free riders" because that is the essential business the credit
card companies are in - skimming the equivalent of a private 3% sales tax off transactions in the
economy through monopoly control of the credit/money system.
The fact that three consecutive federal parliamentary committees, specifically charged with
investigating this business and backed by the resources of the Dominion of Canada and the
lawful mandate of its Peoples, could remain oblivious to this reality is mind-boggling. At best it
represents willful blindness to the point of criminal incompetence. The English appeal courts
explained the concept in 1889 (underlining added):
In my opinion making a false statement through want of care falls far short of, and is a
very different thing from, fraud, and the same may be said of a false representation
honestly believed though on insufficient grounds...
At the same time I desire to say distinctly that when a false statement has been made the
question whether there were reasonable grounds for believing it, and what were the
means of knowledge in the possession of the person making it, are most weighty
matters for consideration. The ground upon which an alleged belief was founded is a
most important test of its reality. I can conceive many cases where the fact that an alleged
belief was destitute of all reasonable foundation would suffice of itself to convince the
Court that it was not really entertained, and that the representation was a fraudulent one.
So, too, although means of knowledge are...a very different thing from knowledge, if I
thought that a person making a false statement had shut his eyes to the facts, or
purposely abstained from inquiring into them, I should hold that honest belief was
absent, and that he was just as fraudulent as if he had knowingly stated that which
How can the federal government claim any competence whatever in managing the economic
affairs of the Canadian state when, charged with the specific task of investigating what is literally
the credit card fee business, not only failed to note the significance of "handling fees", often 200
or more times as great as actual expenses, on a $40 billion annual cash flow, but also accepted, at
face value, a preposterous explanation from the entity itself being investigated, and that it did so
on three separate occasions, and, on the most recent, oblivious to a white paper investigation,
conducted at the highest level of the British Government, which had concluded that an average
rate of 1.8% was proof of a de facto monopoly, meaning at least a tacit conspiracy to defraud the
public, and which had just resulted in a nation-wide prohibition against organized concealment
of the same credit card transaction fees in the UK?
Many of the committee members undoubtedly had their future careers with the chartered banks
foremost in mind, but it is wholly inappropriate to do so while purporting to represent the
interests of the majority of Canadians who exist in manifest economic subservience to these
same wholly non-productive institutions - a subservience that has been accomplished by
carefully orchestrated criminal means.
On the further issue of the story that the credit card companies stimulate the economy by
accommodating impulse buying, it too is just that - a story. The $3,000 millions a year taken out
of the Canadian economy by all credit card companies in the form of credit card transaction fees
represents $3,000 millions a year that is not spent on the purchase (nor therefore the production)
of real goods and services. Yet in contrast to the average British rate of 1.8% the individuals
appointed by former CIBC director Mr. Mulroney in Canada to investigate his former employer
(among others) and carefully watched by Mr. Wilson, now a director of the Royal Bank Group,
were working with an average in excess of 3% with an upper limit of 5.75% (on Mastercard &
Visa) and concluded that the banks were operating a free loan business and that Canadians could,
and should, take advantage of these private corporations by running purchases through the card
account mechanism even if they did not need the deemed-credit facility.
In the stock markets the practice is called churning and it is a well recognised fraud. It occurs
when a middleman/broker induces a client to make unnecessary trades where the real purpose is
to generate the middleman’s commission or transaction fee. And it is a crime even though the
client is aware of the transaction fees and there are no statutory limits on the amount. As of 2001
the chartered banks alone are essentially churning the same $11 billion of card user bills/notes
every statement period (i.e., 10 times a year) to generate gross charge volume of $110 billion a
year and, at 3%, over $3 billion of fees while making express representation to the card users that
they are in fact costing the companies money by taking advantage of the nominal grace period.
As argued and presented by various players to the various committees:
...the effective yield to card issuers is below the posted rate on credit cards
...someone ["interest payers"] is financing credit card balances that are repaid before
the end of the grace period
What this discussion does highlight is that the grace period is costly to the card issuer -
someone must be paid for the funds used to finance a purchase made with a credit card
This practice is obviously costly for financial institutions. The bonus card users receive
by taking advantage of the grace period is a cost to the card issuer.
So, how do card issuers allow for the cost - the lost potential revenue - from those card
users who take advantage of the grace period?
It is this fundamental, organised misrepresentation of process which makes the business morally,
financially and legally fraudulent, of itself, and which causes it to be in violation of many
Criminal Code sections even if the transaction fees were not also legally defined as interest.
Merchant fee equally absurd
In 1991 the chartered banks collected nearly $1 billion in monthly interest charges on
outstanding deemed loans which had been sold over a period of years to "interest payers"
through a network of thousands of retail distributors (MasterCard and Visa merchants) of the
banks' deemed service. Theoretically the banks' greatest expense is the retail margin meaning the
retailers' mark-up on the products they sell. When manufacturers sell their products through
retail distributors the retailer generally gets up to 50%, and occasionally more, of the total paid
by the final consumer. From this the retailer has to pay rent, carry inventory, pay employee
wages, electricity, heat, water, taxes, etc., etc.
The merchant further performs various value-added functions on behalf of the banks. They check
for stolen cards, they advertise the banks' commercial (payment/loan) services, they prepare the
banks' deemed-loan documentation, they do the physical recording, totaling, balancing and
cross-checking of figures - and, finally, they physically deliver the banks' customer deemed-loan
documentation to the bank. Then and only then will the bank deliver on the agreement it has
made with its card users, and for which it has already been paid in the form of annual fees,
monthly fees and/or often fixed per transaction fees, etc. But merchants do not receive any of this
revenue as the banks' retail distributor.
And, as mentioned, the banks then collected a further approximate $1 billion of monthly interest
charges from the "interest payers" who purchased their deemed-loans from one or more of these
thousands upon thousands of retailers across Canada which act as outlets of the chartered banks.
But the merchants did not get any of this revenue either.
In fact the chartered banks purport to have charged merchants a further $1.5 billion (in 1991) of
merchant fees for the privilege of incurring some substantial portion of the banks' overhead and
variable costs. This above all is what makes the free loan story so preposterous.
In text-book economic terms the Visa/MasterCard banks constitute a de facto (and legislated)
monopoly of an essential service extracting grossly excessive and often criminal rates of return
through the threat of denial of access for non-acquiescence where the relative cost of such denial
is far greater to any given merchant than to the deemed-credit providers. This unearned and
coercive advantage possessed by these banks is manifest in the contractual provision that a
merchant must give a stipulated concealed price discount to a card user so that the Triad banks
can advance less deemed-credit than the card user understands so as to deceive the card user into
believing that they have received a free loan for the duration of the so-called grace period. And
this would remain true even if the banks used their own money to finance the transactions instead
of that of the card users.
The banks even rubbed Parliament's collective noses in it, so to speak. On the one hand they
claimed that the purported revenue received from merchants was solely between the purported
merchant's bank and the merchant and did not in any way involve the card user's bank. In
essentially the same breath they then explained the existence of a further concealed arrangement
whereby the purported merchant's bank kicks-back approximately half of the purported revenue
to the card user's bank! The Bankers' Association explained the rebate process to the House of
Commons Standing Committee on Finance and Economic Affairs in 1987:
The interchange system [e.g. MasterCard International] co-ordinates the activities of the
merchant bank and the card user's bank. It is similar to the cheque clearing system,... The
interchange system also allows the splitting of the merchant discount. The splitting is
complicated and varies for the different bank cards. The complications arise because the split
cannot be a constant proportion of the discount (say, a 50/50 split) or each financial institution
would quickly learn the discounts that all other financial institutions charge. Discounts and
changes in discounts are proprietary information. The split can take the form of a fixed
percentage of the purchase price less a fixed interchange fee (say 1.75 per cent less 25¢ per
transaction) going to the card user's bank; the merchant's bank receives the 25¢ per transaction
and the remainder of the discount.
In the example of a $100 purchase, the card user's bank receives $1.50 (($100 x 1.75%) - 25¢)
and the merchant's bank receives $1.50 (($100 x (3% - 1.75%) + 25¢). This is a 50/50 split, but
the proportion could differ with a different purchase price and a different merchant discount.
With this method of splitting the merchant discount, only the merchant's bank knows the
At the high end of the Visa/MasterCard range given to Parliament (5.75%) on a $1,000 apparent
sale the deemed-credit advanced would be $942.50 for which the card user would agree to pay
$1,000 ($942.50 + $57.50) twenty-one days later. From this, according to the banks' official
story, the merchant's bank would keep $28.50 and pay $29.00 to MasterCard International which
would, in turn, keep $0.50 and pay $28.50 to the card user's bank.
Firstly, note the core absurdity of the credit providers' argument. The "merchant fee" is
nominally justified as an "administrative" expense; that it is by definition expensive to handle
money in the form of credit because the credit itself is defined by the administrative function of
making a record of it. With respect to the card user's bank's share of the merchant fee, so-called,
the implicit position of the banks is that they incur six additional transactions: (1) the card user's
bank advances its own share of the fee to the clearing house so that (2) the clearing house can
pass it on to the merchant's bank so that (3) the merchant's bank can pass it on to the merchant so
that (4) the merchant can pay it back to the merchant's bank so that (5) the merchant's bank can
pay it back to the clearing house so that (6) the clearing house can pay it back to the card user's
bank from whence it originally came. Six additional transactions in respect of a fee purportedly
charged to cover the administrative expenses inherent to a single transaction.
And in approximately 20% of all transactions in Canada a given bank will be both the card user's
bank and the merchant's bank. Here it is necessarily asserted that such bank incurs six additional
transactions in respect of one transaction. Utterly preposterous.
The further suggestion, where two banks are involved, that the above process is to prevent the
card user's bank from discovering the "discount rate" charged by the merchant's bank is equally
absurd. Both banks are joint-owners of the clearinghouse mechanism and there are countless
statistical analysis techniques by which one bank can determine the rates of the others.
The larger anomaly is that the even if the physical process is ignored - even if the merchant did
physically pay the purported "discount fee" to its own bank - the fact that such bank then
kicks-back half the revenue to the card user's bank is prima facie proof that the banks' official
story is overwhelmingly false - a total fabrication.
The observations quoted above, of the English appeal court respecting knowledge and means of
knowledge apply equally to myself. I have acquired certain information - objective in both form
and substance - and which information exhibits such internal consistency as to constitute
As a result, I possess a bona fide belief that our purported account Agreement is a "false
document" within the meaning of s. 321 of the Criminal Code, and that such is established by
several independent means, some of which are positive false statements, and some of which are
I further understand by the Supreme Court of Canada decision in R. v. Gaysek, supra, that once a
given document is established as a false document, the offence of forgery-in-law follows as a
matter of strict liability, requiring only that the accused act, or intend to act, on the document
with knowledge of its falseness. Accordingly, for me to do anything the bank asks me to do
pursuant to said document, will constitute an offence on my part. This I will not do.
This correspondence should not be interpreted as an unconditional refusal to comply with the
bank's requests, directives, etc. It is merely notice of a suspension of the account pending a
resolution of the issues discussed above.
Accordingly, please provide the following:
1. A definitive, unambiguous affirmation of the bank's consideration under the terms of our
purported Agreement. For example:
"The bank undertakes, as the agent of the card holder, to pay the amount shown as total
on a payment order/sales draft, from the account of the card holder, to the
merchant/payee so indicated on the order.
In the event that the credit balance of the account of the card holder is insufficient to
make payment as aforesaid, the bank undertakes to make a loan of money to the card
holder, up to the authorized limit, sufficient to make payment as aforesaid."
2. The accounting explanation/information mentioned above in respect of s. 238(2)(c) of the
3. The name and business address of the solicitor and the firm of solicitors who drafted the
4. The names and business address of each member of the bank's board of directors and its
executive officers, for purposes related to s. 676 of the Bank Act.
5. A certified copy of any contract or agreement, between the bank and the organization
referred to as MasterCard International, which affects, directly or indirectly, the
disposition of ownership of my bills of exchange/promissory notes/valuable securities
issued under the operation of my account at the bank.
6. A certified copy of any contract or agreement, between the bank and any merchant and/or
merchant agent authorized to accept MasterCard, which affects, directly or indirectly, the
disposition of ownership of my bills of exchange/promissory notes/valuable securities
issued under the operation of my account at the bank.
7. An itemized accounting of all transactions since the inception of the account detailing the
discounts taken by any member of the transaction-specific MasterCard Triad, including
discounts taken against any provincial sales taxes or federal GST.
Upon receipt of the above information I will be in a position to better evaluate the apparent
illegitimacy of the bank's operation in this area. Given the nature of the allegations made herein,
I will grant the bank a reasonable time - ten (10) days - to comply. If the bank requires additional
time I will consider granting an extension to thirty (30) days upon receipt of a written request for
Cc: The Honourable Chris Bentley, Attorney General of Ontario
Cc: The Honourable Rob Nicholson, Minister of Justice and Attorney General of Canada
Cc: The Superintendent of Financial Institutions
The Honourable Geoff Plant, Attorney General of British Columbia
232, Parliament Buildings
The Honourable Rob Nicholson, Minister of Justice and Attorney General of Canada
The Honourable Robert Douglas Nicholson
Minister of Justice and Attorney General of Canada
284 Wellington Street
Canada K1A 0H8
Office of the Superintendent of Financial Institutions
255 Albert Street
The Honourable David Hancock, Attorney General of Alberta
c/o Government of Alberta,
PO Box 1333,
The Hon. Chris Axworthy, Q.C., Attorney-General of Saskatchewan
CANADA S4S 0B3
The Hon. Gord MacKintosh, Attorney-General of Manitoba
104 Legislative Building
The Hon. Chris Bentley, Attorney-General of Ontario
Ministry of the Attorney General
720 Bay Street, 11th Floor
The Hon. Bradley Green, Q.C., Attorney-General of New Brunswick
Legislative Assembly of New Brunswick
P.O. Box 6000 (706 Queen Street)
The Hon. Michael G. Baker, Attorney General of Nova Scotia
5151 Terminal Road
P.O. Box 7
Halifax, Nova Scotia
The Hon. Jeffrey E. Lantz, Attorney-General of Prince Edward Island
Fourth Floor, Shaw Building
95 Rochford Street
P.O. Box 2000
The Hon. Paul Bégin, Ministère de la Justice
Palais de justice de Montréal
1, rue Notre-Dame Est
11e étage, bureau 11.39
Montréal (Québec) H2Y 1B6