Lenders of payday loans should be aware of the Government of Ontario's recent amendments to the Payday Loans Act, 20081 to ensure their fees, and their practices with respect to such fees, are in compliance with the amended regulations.
Payday Loans and the Payday Lending Industry
A payday loan provides a borrower with an unsecured short-term loan for a small amount of money, which is advanced in exchange for a post-dated cheque, pre-authorized debit or other form of future payment. The loan is typically disbursed by way of cash, direct deposit to the borrower's account, or by way of a pre-funded debit card.
In Ontario, the size of a payday loan typically ranges from a very low percentage to up to 60 percent of a borrower's net income, with a maximum of $1,500 per loan and a maximum term of 62 days. However, the average payday loan in Canada is approximately $300 for a term of 2 weeks.2
The payday lending industry emerged first in Western Canada in the early 1990s and has expanded quickly, both in geography and in the number of loans accessed by Canadians each year. According to Statistics Canada, almost three percent of all Canadian families (353,300 families) reported in 2005 that they had obtained a payday loan within the previous three years.3 As of February 2009, the payday loan volume generated by the payday loan industry in Canada was estimated to be approximately $2 billion annually.4
Legislative History Surrounding Payday Loans
In May 2007, the Canadian federal government enacted Bill C-26, which amended section 347 of the Criminal Code,5 the section that renders it a criminal offence for a lender to charge more than 60 percent interest per year.6 The amendment exempted payday lenders from criminal prosecution under section 347 where (a) the loan is for $1,500 or less and for a term of 62 days or less; (b) the lender is licensed under the law of a province to enter into the agreement; and (c) the province is designated by the federal government.7 To receive designation under this section, a province must have in place legislative measures which act to protect recipients of payday loans and provide for limits on the total cost of borrowing under payday loan agreements.8
The Ontario government urged the federal government to regulate payday loans at the national level to promote uniformity across the country, however, when this did not occur, the Ontario government decided to seek federal designation under section 347.1(3) of the Criminal Code.9
In June 2008, the Ontario government passed the Payday Loans Act, 2008 to enable the province to meet the requirements for designation under the Criminal Code and created and commissioned the Maximum Total Cost of Borrowing Advisory Board for the Ontario Payday Lending Industry (the "Advisory Board") to recommend the upper limit for the cost of borrowing under payday loans in Ontario. The Advisory Board prepared and delivered its report on February 6, 2009, wherein it recommended that the Ontario government set the upper limit on the total cost of borrowing for payday loans in Ontario at $21 per $100 borrowed.10 This recommendation was accepted and implemented by the Ontario government in 2009.
The Issue
In June of this year, CBC News reported that some payday lenders in Ontario were 'skirting' the Payday Loans Act, 2008 by charging additional fees in lieu of higher interest rates.11 The report confirmed that the Ontario government had received more than 80 complaints since 2010 regarding payday lenders charging "excess loan fees." More specifically, John Garretsen, the Consumer Services Minister, was reported to have said that some payday lenders were charging exorbitant fees, some as high as $18, for borrowers to activate and/or access the debit card they received to access the proceeds of their loan.
A report from Canada Payday Review stated that some payday lenders even required borrowers to open up a bank account in order to access the funds they had borrowed. According to the report:
"Their argument is essentially that the debit card isn't an absolute necessity so it doesn't count as a mandatory fee which would be covered by the existing legislation."12
The Amendments
In response to this report and to the various complaints received by the Consumer Services Minister from consumers, the Ontario government recently amended the General Regulation to the Payday Loans Act, 2008 to clarify what is included in the maximum total cost of borrowing limit, among other things. The following are some of the more notable amendments included in the regulation, which was enacted and effective as of September 1, 2011:
- A lender must inform a borrower of all the means available for obtaining the payday loan from the lender.13
- The following amounts are now prescribed as included in the
total cost of borrowing:
- Any amount payable by the borrower, upon entering into the agreement, to process a payment provided by the borrower under the agreement.
- Any other amount that is connected directly or indirectly to
the payday loan agreement, and
- that the borrower has paid upon entering into the agreement, or
- for which the borrower's obligation to pay exists upon
entering into the agreement
- Upon the borrower's request, the lender must, immediately and at no charge to the borrower, provide in cash to the borrower the balance of the advance that is on a device or that is accessible by the device at the time of the request.16
- A lender shall not refuse to disclose the balance on a device to a borrower when requested by the borrower or charge the borrower a fee for disclosing the balance.17
Conclusion
Payday lenders should review their fees and practices against the new regulation to ensure they are in compliance with the new requirements, and that their total fees, when taken together with interest payments, do not exceed the maximum total cost of borrowing of $21 per $100 borrowed. Failure to comply with the regulations could result in the borrower's right to cancel the agreement or the lender's obligation to refund the total cost of borrowing or to pay an administrative penalty pursuant to the terms of the applicable regulation.18
Footnotes
1 Payday Loans Act, 2008, SO 2008, c 9
2 Ontario. Maximum Total Cost of Borrowing Advisory Board for the Ontario Payday Lending Industry. Capping Borrowing Costs – A Balanced Approach to Payday Loans in Ontario. (Online). Ontario, 2009. Available: (http://www.sse.gov.on.ca/mcs/Documents/264305.pdf).
3 Perspectives, Apr. 2007, Statistics Canada – Catalogue no. 75-001- XIE, p.3.
4 Supra note 2 at p. 7.
5 Criminal Code, RSC 1985, c C-46
6 Ibid. at section 347.
7 Ibid. at subsection 347.1(2).
8 Ibid. at subsection 347.1(3).
9 Supra note 2 at p. 5.
10 Ibid. at p. 19.
11 "Payday Lenders Skirt Loan Charge Limits", CBC News Online (14 June 2011), Online: CBC News Online http://www.cbc.ca/news/canada/toronto/story/2011/06/13/tor-payday-loan-fees.html.
12 "Toronto Payday Loans are under new Government Scrutiny", Canada Payday Review Online (22 June 2011), Online: Canada Payday Review http://www.canadapaydayreview.com/toronto-payday-loans-are-under-new-government-scrutiny/
13 O. Reg. 316/11, amending O. Reg. 98/09 at s. 2.
14 The definition of "Device" is amended at section 1 of O. Reg. 316/11 so that the amended definition reads "...an instrument, including a debit card or a cheque, that the lender under a payday loan agreement uses to deliver or provide access to all or part of the advance to the borrower in a form other than cash."
15 Supra note 13at s. 3.
16 Ibid. at ss. 5(2).
17 Ibid. at s. 7.
18 O. Reg. 209-09.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
