The Ontario Government has posted the Proposed Regulatory Amendmentsto the
General Regulation (O. Reg 98/09) of the Payday Loans Act (the
"Act") to seek comments from the public. The present
draft provides that the Act would apply to several types of loans
not previously regulated, including loans of $5,000 or less.
Lenders caught by the Act face numerous obligations and
restrictions, including licensing requirements, disclosure
obligations, cooling off periods for borrowers, prohibitions on the
offering of other services in connection with the making of loans
and a prohibition against receiving any portion of cost of
borrowing until the end of the term of the loan agreement. The cap
on the cost of borrowing currently applicable to payday loans will
not apply to loans caught by the proposed amendments.
The proposed amendments extend application of the Act to the
following types of loans ("Prescribed Loans"):
"... 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:
The aggregate amount is $5,000 or less.
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.
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.
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."
Lenders making Prescribed Loans will be caught so long as either
the borrower or the lender is located in Ontario.
The current draft of the proposed regulatory amendments broadens
the scope of the Act to capture a wide range of loans not typically
considered to be payday loans, including the financing of low and
medium value items, such as used cars, computers, furniture, and
The Act is to apply, "with necessary modifications", to
Prescribed Loans in the same manner as it applies to other payday
loans. However, there is no suggestion as to what these
"necessary modifications" will be or what form they will
take. Accordingly, there will be uncertainty or a need for further
regulation given that the Act and current regulations are written
specifically for payday loans and not the types of loans
contemplated by the proposed amendments.
The Act was originally put in place in response to the Federal
Government's Bill C-26 passed in 2008. Bill C-26 amended the
Criminal Code (Canada) by exempting payday loans of $1,500
or less from the prohibition against charging a rate of interest in
excess of 60% per annum in circumstances where a province elected
to pass legislation regulating payday loans in a manner that
imposed a maximum total cost of borrowing and other consumer
protection provisions. Many in the industry never expected the Act
to be broadened in the manner contemplated by the proposed
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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