Businesses that issue loans to customers for $5,000 or less
should be aware that the Ontario Ministry of Consumer Services
(MCS) is proposing an amendment to the regulations under the
Payday Loans Act, 2008 which, read literally as drafted,
would result in those businesses being designated payday lenders.
That, in turn, carries registration requirements and imposes
significant restrictions on activities that surround such loans.
MCS is asking for submissions to be made on the proposed draft by
September 30, 2013.
The Ontario government passed the Act in 2008 to regulate small
principal, short-term, high-interest loans. It defined "payday
loans" in broad terms: "an advancement of money in
exchange for a post-dated cheque, a pre-authorized debit or a
future payment of a similar nature", but then it excluded
other types of loans such as lines of credit and credit cards.
Section 2(1) of the Act then provides that the Act applies in
respect of all payday loans if the borrower, lender or loan broker
is located in Ontario when the loan is made. Section 2(2) then says
that, except for one section, the Act applies for any other loans
"other than payday loans, that are prescribed". Until
now, the Ontario government had not prescribed any such
"other" loans. But under the Proposed Regulatory Amendments to the General
Regulation (O.Reg. 98/09) of the Payday Loans Act, the
Ontario government plans to do exactly that. They read, in
1.1 (1) A loan described in subsection (2) is prescribed for the
purposes of subsection 2 (2) of the Act.
(2) Subsection (1) applies to a loan under which a lender
extends credit to a borrower so that the borrower may make one or
more draws for up to an aggregate amount of principal and to which
one of the following criteria applies but does not apply to a loan
that is secured against real property:
1. The aggregate amount is $5,000 or less.
2. The borrower is not entitled to make a draw without first
obtaining authorization, approval or permission of any kind from
the lender or any other person, whether or not there is a charge
for obtaining the authorization, approval or permission.
3. The borrower is required to make repayments of the principal
amount of the loan or payments of any other amounts under the loan
on a schedule that corresponds to the days on which the borrower is
regularly due to receive income.
4. The amount that the borrower is required to pay in any 30-day
period under the loan, except for the last such period, includes
one or more repayments totalling at least 10 per cent of the
principal amount of the loan.
Therefore, to be captured by the Act, a lender needs only to
"extend credit" to a borrower where the borrower can make
"one or more draws" of the principal, and which satisfy
one of the criteria. The first criterion is that the loan is for
$5,000 or less. Other criteria would also be applicable for many
unsecured loans in excess of $5,000, such as any loan where
repayments correspond to the borrower's payday, or where
advanced authorization is required prior to making the first
The consequences of being captured by the Act are significant.
Among other things, the Act has registration requirements and
licensees are regulated by MCS. There are very specific disclosure
requirements that must be contained in loan agreements. There are
restrictions on default and prepayment charges. Rollover loans are
prohibited. The cost of borrowing cannot be demanded or received
until the end of the term of the agreement.
As drafted, and depending on how the phrase "extend
credit" is interpreted, it would appear that the proposed
amendments could capture a wide swath of business activity, from
computer financing to auto financing to any other form of
micro-lending. It is highly unlikely that MCS intended for its
proposed amendments to capture such a broad range of activities,
yet that may well be the import of the proposed amendments if they
are not fundamentally changed. The Regulation is scheduled to come
into force on October 31, 2013.
The Ontario government has posted its proposed regulations with
a call for public comment and submissions. Businesses in Ontario
that provide loans for less than $5,000 or who provide loans that
otherwise satisfy one of the criteria set out above are advised to
make submissions to the Ontario government via its website. Bennett
Jones has lawyers well-versed in this legislation who are able to
assist in formulating a response.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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