Ontario Payday Loan Providers Please Note: The Government of Ontario is seeking information on the implementation of new regulations aimed at strengthening consumer protection, which will have a broad impact on regulating the day-to-day operations of payday lenders.
Payday Loans and the Payday Loan Act of 2008
Payday lenders provide small amounts of money to short-term borrowers, often at a high cost, in exchange for future payments, such as a post-dated check or a pre-authorized debit. Payday loans are typically the most expensive form of consumer credit, with the cost of borrowing in Ontario currently capped at $ 18 per $ 100 borrowed pursuant to the Payday Loan Act of 2008 (PLA). This cost will be reduced to $ 15 on January 1, 2018. The annual percentage rate for a 16-day payday loan at a rate of $ 15 per $ 100 borrowed is 342 percent.
Although payday loans can be an important source of credit in certain circumstances, the Ontario Government perceives that their high costs and short terms create financial risks for vulnerable consumers. The PLA was implemented in order to address the risks inherent to payday loan consumers, regulating, among other things, the risks of repeat loans, the costs of payday loans and the disclosure of information to the consumers. the Put consumers first (Amendment to the Consumer Protection Statute Law), 2017 modifies the PLA to provide stronger authority to further address these risks. To assist in the implementation of the Putting Consumers First (Amendment to the Consumer Protection Statute Law), 2017, the Government of Ontario has released a consultation document seeking input on the proposed amendments.
Strengthening Consumer Protection for Alternative Financial Services – Phase One
The Ministry of Government and Consumer Services published “Strengthening the protection for consumers of alternative financial services – Phase one” on July 7, 2017. The document describes the proposed amendments to the PLA aimed at: i) improving the information provided to the consumers; ii) improve the affordability of payday loans; and iii) directly address the frequency of loans. If effective, these amendments will have a significant impact on regulating the operations of payday lenders throughout Ontario. Specifically, the proposals include:
- Extending installment plans in which a payday loan company lends money to a borrower for the third time in 100 days.
- Require payday lenders to take into account the individual circumstances of the borrower when determining the size of the payday loan. The proposed limit will be set at 40 percent of the borrower’s net payment over the life of the loan.
- Establish a mandatory 6-day waiting period between payroll loans.
- Add APR to the existing cost of borrowing disclosures and using a sample loan of $ 500 over a 14-day term for illustration purposes.
- Provide information to potential consumers about credit counseling services provided by non-profit counselors.
It is proposed that the first phase of the regulations take effect in early 2018, and the second phase, which deals with disclosure, will take effect in early 2019. In the face of impending change, payday lenders they would do well to re-evaluate internal loan procedures. and prepare for impending changes in the regulation of its operations.