The Use of Administrative Monetary Penalties in Consumer Protection

EXECUTIVE SUMMARY

The use of “Administrative Monetary Penalties”, otherwise known as “AMPs”, is a unique enforcement scheme that has gained significant attention from international regulators. AMPs are increasingly used to engender compliance and cooperation from the ‘regulated community’, to secure environmental or consumer protection, and to encourage the timely rectification of market problems. Regulators in Canada have used AMPs for some time; however, it is only relatively recently that they have become a favorite tool among regulators.
Generally, AMPs have been heralded by regulators as providing a more flexible and responsive regulatory structure that balances the competing interests of stakeholders. The use of AMPs, however, is not without controversy. Many critics argue that the use of AMPs represents a severe and unjust form of punishment on individuals and businesses that may have, whether intentionally or not, breached the law.
In this report, PIAC examines the use of AMPs in the Canadian regulatory field, with a particular emphasis on the use of AMPs in consumer protection. The Report examines the nature and scope of AMPs, as well as, the various theories that underscore the use of AMPs as a regulatory tool. The Report also addresses the objections to AMPs, as cited by AMP critics, and analyses the use and effectiveness of AMPs in Canada, and other countries that are actively engaged in their use. Finally, the Report draws conclusions, offers warnings, and proposes recommendations that PIAC believes will improve consumer protection regulation in Canada.
The Report finds that there are important constitutional and due process issues associated with the use of administrative penalties. Due to the fact that AMPs operate largely outside of the watchful eye of the courts, they are vulnerable to abuse. However, the Report does not agree with critics who suggest that AMPs are unconstitutional, in and of themselves.
The Report finds that the greater procedural flexibility and range of sanctions make AMPs the preferred mode of social control in situations where persuasion and negotiation can best secure compliance. However, the Report also finds that when it comes to regulating, regardless of the industry or sector, a multi-pronged enforcement approach is best. To be effective and efficient, regulators must rely on the ability to levy the most appropriate sanction or penalty to a particular violation of the law. As such, regulators need an array of enforcement tools, ranging from criminal to administrative, to best enforce the law and deter socially and economically harmful activities.
The use and appropriateness of AMPs will largely depend upon the nature of the unlawful activity and the aim of the regulatory intervention. AMPs may not be a suitable or effective penalty for perpetrators who commit unlawful activities with a malicious or fraudulent intent. Rather, such crimes may best be dealt with under the criminal law. On the other hand, AMPs have shown themselves to be particularly well suited to deal with issues of consumer protection. As such, PIAC advocates an increased use of AMPs in consumer protection. In particular, PIAC advocates for the adoption of an AMPs enforcement scheme for violations of federal privacy laws, such as PIPEDA, as well as the re-introduction of an augmented AMPs system under the Competition Act.
The Report further suggests that AMPs may be an effective enforcement tool in regulating e-commerce and online communications. Additionally, AMPs have the potential to be an effective and efficient means of enforcing Canada’s anti-spam measures.
The Report also examines the issue of enforcement, finding that the issues of jurisdiction and identification present a particularly difficult challenge in the online context. The global nature of the Internet means representations and transactions made online can attract liability under both domestic and foreign jurisdictions. Meanwhile, regulators and law enforcement officials are not always able to ascertain the identity of the violator.
Finally, in order to exploit the full potential and benefits of administrative monetary penalties, as well as ensure their legitimacy in the eyes of businesses and the public, PIAC advocates the adoption of a three-pronged strategy. When administrating an AMP scheme, regulatory agencies need: 1) increased cooperation with counterpart agencies in foreign jurisdictions; 2) more education and clearer guidelines for businesses and consumers; and 3) implementation of consistent and predictable rules.