On September 12, 2013, the Ontario Ministry of Consumer Services
(MCS) announced that it is reviewing the Payday Loans Act, 2008 (the Act) to
keep up with the "rapidly evolving payday loan industry".
The review overlaps with a consultation period already underway in
respect of proposed amendments to the General Regulations under the
Act, which, if implemented, will extend the reach of the Act far
beyond what its "Payday Loans" title suggests. While the
MCS has not indicated whether the review will address the proposed
amendments, there is speculation that issues with the amendments
raised during the consultation period may inform the larger
revision of the Act and related regulations.
The Act was originally passed by the Ontario government in 2008,
purportedly to regulate short-term loans for small amounts of
money. Subsection 2(1) of the Act states 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 or to be
made". "Payday loans" is defined broadly under the
Act as "an advancement of money in exchange for a post-dated
cheque, a pre-authorized debit or a future payment of a similar
nature but not for any guarantee, suretyship, overdraft protection
or security on property and not through a margin loan, pawnbroking,
a line of credit or a credit card". Those who offer payday
loans are required to be licensed and provide specified disclosure
to borrowers, are subject to restrictions on default charges and
are prohibited from offering rollover loans, among other
Subsection 2(2) of the Act provides that the Act also applies
"... to those loans, other than payday loans, that are
prescribed and in that case the references to payday loans in this
Act shall be read as references to those other loans". The
Proposed Regulatory Amendments to the General Regulation (O. Reg.
98/09) of the Payday Loans Act, 2008 (the Amendments) prescribe
"other loans" to which the Act will apply.
"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:
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 ten per cent of the
principal amount of the loan."
The Amendments may come into force as early as October 31, 2013.
If they come into force as currently drafted, they will bring a
wide variety of lenders within the scope of the Act. For example,
those offering financing for consumer goods, micro loans to
not-for-profits and credit unions offering personal loans may find
themselves subject to extensive regulation.
In response to the concerns raised by this proposed expansion of
the Act, the MCS has taken the position that the broad sweep of the
Amendments is intentional. In order to temper the Amendments, the
MCS is choosing to exempt a list of specified industries and
specific types of loans. Therefore, the purpose of the consultation
period is to gather information about what exemptions should be
allowed. Given the breadth of the Amendments, there is concern
whether a list of exemptions can be sufficiently comprehensive.
Whether or not the review of the statute will be shaped by
comments made during the consultation period for the Amendments
remains to be seen. The consultation period for the Amendments ends
September 30, 2013. Interested entities are encouraged to make
their submissions to the MCS before such date.
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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