Payday Loans – Ontario, Canada – Board Recommends $21 per $100 Loaned

An independent advisory board has determined that the Ontario Province of Canada should place a maximum interest rate on all payday loans conducted in Ontario, Canada at $21 per $100 loaned.

The Maximum Total Cost of Borrowing Advisory Board for the Ontario Payday Lending Industry was created by the province to recommend an upper limit that would be fair to consumers while preserving a competitive payday loan industry. The Maximum Total Cost of Borrowing Advisory Board for the Ontario Payday Lending Industry was created by the province to recommend an upper limit that would be fair to consumers while preserving a competitive payday loan industry.

Its 25-page report drew its findings from a number of sources, including consultations with key stakeholders and a study by consulting firm Ernst & Young.

The board also recommended payday loans only be offered to consumers who could pay them back! What a novelty. Do they really think we in the payday loan industry willingly make loans to payday loan consumers who cannot pay us back? We are not the federal government with access to printing presses!

Canadians borrow an estimated $2 billion a year through payday loans, with Ontario home to more than half of the 1,350 such businesses operating across the country.

Other provinces have already set limits on what payday lenders can charge their customers.

Nova Scotia companies can charge no more than $31 on $100 of borrowing, fees and interest included, while Manitoba caps the cost at $17 on $100 of borrowing for loans up to $500.

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island have all taken steps to regulate the industry after the federal government shifted the responsibility to them in 2007.

Quebec has effectively banned payday loan outlets by limiting the annual interest rate they can charge to 35 per cent.

Ontario: The Payday Loans Act, 2008

For a number of years, the practices of payday lenders have drawn the attention of poverty activists, consumer groups, politicians, and the media.  Federal Bill C-26, An Act to Amend the Criminal Code, was introduced in the context of the growth of the payday lending industry and the mounting concerns surrounding it.  In provinces designated under  Bill C-26, it is not the criminal interest rate that will apply to payday loan agreements  but the maximum total cost of borrowing set by the province.

On June 18, 2008, the Ontario Payday Loans Act, 2008 (the “Act”) received Royal Assent.  Under the Act, payday lenders and payday loan brokers would have to be licensed and operate within a consumer protection framework.   This framework prohibits the most controversial practices of some industry operators, such as rollovers and concurrent loans.  Borrowers  will have recourse if they have dealt with a non-compliant lender or broker and there are strong penalties for lenders and brokers operating in contravention of the Act.  Additionally, the Act provides for the establishment of a limit to the maximum total cost of borrowing.

Ontario’s new legislative/regulatory framework has been developed to adhere to the following three principles:

• To protect borrowers  who avail themselves of payday loans.
• To create public confidence in the integrity of the payday lending market.
• To develop a proportionate licensing regime that allows  payday lenders to continue to operate and serve a market that depends on their services.

Setting the Maximum Total Cost of Borrowing for Payday Loan Agreements

Federal Bill C-26 exempts payday loan agreements from the application of the criminal interest rate provision of the Criminal Code  where the principal amount is less than $1500 and the term is less than 62 days, providing that lenders are licensed and a province has received designation.  Once designated, a province sets the maximum total cost of borrowing for these payday loan agreements.  Ontario has elected to seek the advice of the Board before deciding what the appropriate maximum total cost of borrowing is for payday loan agreements in Ontario.

Under the Act, “cost of borrowing” includes the total of all amounts that a borrower is required to pay under, or as a condition of entering into, a payday loan agreement, but does not include default charges and the repayment of the advance.  This means that if someone  wishes to borrow $300, any and all amounts that they are required to pay  to receive the $300 is considered part of the cost of borrowing.  It does not matter if the charges are called interest, brokerage fees,  administration charges, or any other name; they are part of the cost of borrowing.

Payday loans have become increasingly popular since coming to Canada in the early 1990s. Though they offer quick cash when you need it, you may end up paying back more than you anticipated.

New regulations are offering stronger protections designed to provide you with the information you need to make informed decisions about short-term borrowing. These rules will help you develop a better understanding of the costs involved before entering into a credit agreement.

What is a Payday Loan?
A payday loan is a small value, unsecured loan made to a borrower who guarantees repayment with a post-dated cheque or pre-authorized debit. Lenders typically require borrowers to prove three months of continuous employment, produce a recent utility bill in their name to establish address, and have an active chequing account. No credit check is performed.

In Canada, loans typically reach a maximum advance of 50 per cent of the borrower’s net pay. The average loan in Canada is approximately $300 with a term of 10 days to two weeks.

There are approximately 1,350 stores operating in Canada, with 700 in Ontario.

New Ontario Regulations
On March 31, 2008 the Ontario government introduced the Payday Loans Act, 2008, which:

* Requires lenders and brokers to be licenced
* Provides authority to set a total cost of borrowing ceiling
* Prohibits back-to-back and concurrent loans
* Permits borrowers to cancel loan agreements without penalty within 48 hours
* Imposes serious penalties for lenders who break the act

Under the proposed Payday Loans Act, lenders will face significant penalties for non-compliance. An education fund to educate Ontario consumers in financial management and the dangers of high-cost credit would also be established under the act.

As of August 1, 2007, Ontario regulation require payday lenders to:

* Prominently display posters that disclose the cost of borrowing for payday loans.
* Use a standard form and content credit agreement disclosing the details of a borrower’s payday loan.
* Provide funds to the borrower immediately upon signing their credit agreement.

These measures will improve the consumer’s ability to compare rates before borrowing, fully understand the terms of their loan and ensure that all charges are included in the disclosed cost of borrowing.

Read more at: PDLIndustry.blogspot.com