The Ministry of Consumer Services (the "Ministry") has
issued proposed regulatory amendments to the Payday Loans
Act, 2008 (the "Act"), which are scheduled to come
into force on October 31, 2013. The effect of the amendments, as
currently drafted, will be to dramatically increase the scope of
the Act's application, including to all loans under $5,000.
Specifically, the amendment stipulates that the Act will apply
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, except where such loan is secured against real
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.
It would appear that the intention behind the proposed
amendments was to expand the scope of the Act to capture those
lenders who are, in effect, payday lenders but who have avoided the
Act's application by creatively structuring loans to fall
outside the Act's definition of "payday loan".
However, the proposed amendments, as currently drafted, are
incredibly far-reaching and would seem to apply to any loan that
meets the above criteria, regardless of the type of lender, the
interest rates charged, the scheduled dates of repayment, or the
whether the loan is already governed by, and compliant with the
terms of, the Consumer Protection Act, 2002.
The consequences of being governed by the Act are significant
for lenders of such loans as follows:
Lenders must be licensed by the Ministry.
Advances must be delivered to the borrower upon entering into
the agreement, or at an earlier date.
Lenders cannot receive or demand payment of any portion of the
cost of borrowing until the end of the term of the agreement.
Lenders cannot impose default charges against a borrower, other
than reasonable charges for legal costs in attempting to collect a
required payment or reasonable charges reflecting the costs that
the lender incurs because a cheque or other instrument of payment
provided by the borrower has been dishonoured.
Lenders cannot impose prepayment charges or penalties upon
borrowers for the prepayment of an outstanding balance.
Lenders cannot enter into concurrent or replacement loan
agreements unless at least 7 days have passed since the borrower
paid the full outstanding balance of the first agreement or the
lender has received proof from the borrower that the full
outstanding balance of the first agreement has been paid.
Failure to comply with any of the above requirements will result
in the borrower being liable for the principal amount of the loan
only and not for the cost of borrowing.
The Ministry will be receiving comments regarding the proposed
amendments until September 30, 2013. Comments can be submitted
Comment or by mail to:
Ministry of Consumer Services
Consumer Policy and Liaison Branch
Consumer and Business Policy Unit
777 Bay Street, 5th Floor
Toronto, ON M7A 2J3
Attention: Luisa Tmej, Team Lead
The members of the Financial Services group at Aird & Berlis
LLP have a wide array of knowledge and expertise to advise clients
on their submissions to the Ministry with respect to the proposed
amendments and related matters. For more information, please
contact any member of the Financial Services group. Details can be
found on our
Financial Services, Insolvency and Restructuring web page, by
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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