Board Recommends Limit On Costs Of Payday Loans



    Government To Determine Final Maximum Rate

    TORONTO, Feb. 6 /CNW/ -

    NEWS

    The Maximum Total Cost of Borrowing Advisory Board has recommended an
upper limit to the total cost of borrowing for payday loan agreements in
Ontario.
    Following months of consultations and research, the Board recommends that
an upper limit of $21 per $100 borrowed be set as the maximum total cost to
borrowers under a payday loan agreement. The Board states this recommendation
strikes an appropriate balance between the interests of consumers and the
long-term competitiveness of the payday lending industry across the province.
    Board members Paul Vessey and Brady Irwin submitted their report to
Harinder Takhar, Minister of Small Business and Consumer Services. The report
further recommends that the government should not establish different upper
limits on the total cost of borrowing for different classes of borrowers.
    Minister Takhar will review the Board's report and consult with cabinet
colleagues on the Government's final decision.

    QUOTES

    "We consulted with a broad range of experts and interested parties to
ensure that we heard and understood the concerns of the community and the
industry," said Board member Paul Vessey.
    "I am satisfied that our recommendation accurately reflects the mandate
we were given," said Board member Brady Irwin. "Payday loan consumers would be
protected and the industry would remain competitive, especially within the
more stable regulatory environment to come."

    
    QUICK FACTS

    -   There are approximately 750 payday loan store fronts in Ontario.

    -   In 2007 the federal government passed Bill C-26, allowing provinces
        to apply for designation to limit the total cost of borrowing for
        payday loans. Prior to this decision, the payday lending industry was
        largely unregulated at the provincial level.

    LEARN MORE

    About the advisory board report and recommendations at
http://www.gov.on.ca/mgs/graphics/264303.pdf along with an independent
industry cost study at http://www.gov.on.ca/mgs/graphics/264305.pdf.

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                                                                BACKGROUNDER
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                          PAYDAY LENDING IN ONTARIO
    

    Ontario's Approach

    The payday lending industry has grown rapidly since coming to Canada in
the early 1990s. A payday loan is a short-term, small principal loan made to
the borrower in exchange for a post-dated cheque or pre-authorized debit.
    Payday lenders typically require the borrower to prove three months
continuous employment, produce a recent utility bill in their name to
establish address, and have an active chequing account. There are
approximately 750 payday lending storefronts currently operating in Ontario.

    Ontario's Existing Regulation

    Ontario amended its regulation under the Consumer Protection Act, 2002,
(CPA) to create protections tailored to users of payday loans. The amended
regulation made under the CPA came into force on August 1, 2007. It requires
lenders to post information that enables borrowers to compare lending costs;
requires specific information to be clearly set out on the first page of the
payday credit agreement; and requires the payday credit agreement to be
delivered to the borrower upon entering into the agreement.

    
    The Payday Loans Act, 2008

    In June, 2008, the Ontario Legislature enacted new legislation to:
    -   Create a licensing regime for payday lenders and payday loan brokers
    -   Require lenders to include in the total cost of borrowing all amounts
        the borrower is required to pay as a condition of entering into a
        payday loan agreement
    -   Prohibit certain industry practices, including "rollover" loans
    -   Provide for enforcement through prosecutions and the ability to
        revoke the licenses of payday lenders and loan brokers
    -   Establish the Ontario Payday Lending Education Fund, made up of
        mandatory financial contributions from the industry, to promote
        understanding of the Payday Loans Act, 2008 and general financial
        planning
    -   Increase public confidence in the payday lending market
    -   Allow borrowers to cancel agreements during a cooling-off period
    

    Federal Bill C-26 amended the Criminal Code to provide provinces with the
opportunity to set the maximum total cost of borrowing for payday loan
agreements. The Payday Loans Act, 2008 provided for the setting of limits on
the total cost of borrowing for payday loan agreements.
    Ontario has been working in close cooperation with other provinces for
several years to ensure a harmonized approach to credit agreements and the
protection of borrowers.

    The Maximum Total Cost of Borrowing Advisory Board

    Ontario established a Maximum Total Cost of Borrowing Advisory Board in
April 2008 to recommend an upper limit to the maximum total cost of borrowing
for payday loan agreements in Ontario.
    The Board consulted and heard from over 20 community advocacy groups,
industry representatives, along with experts from both the financial and
academic communities. The recommendations found in their report are those of
the Advisory Board members, and represent independent conclusions and advice
for consideration by the government of Ontario.

    
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                                                                  FACT SHEET
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                         JURISDICTIONAL COMPARISONS

         MAXIMUM TOTAL COST OF BORROWING FOR PAYDAY LOAN AGREEMENTS


    Manitoba                  Ontario                            Nova Scotia
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    $17 per $100 for      Expert Advisory                       $31 per $100
      Loans up to             Board's                               Loan
          $500            Recommendation
                           $21 per $100
                               Loan

    -   Almost half of all payday lending locations in Ontario are currently
        lending near or below the maximum recommended by the Maximum Total
        Cost of Borrowing Advisory Board.

    -   Payday loan businesses representing more than 325 storefronts in
        Ontario are currently lending near or below the maximum recommended
        by the Board.

    -   Lenders currently lending near or below the maximum recommended by
        the Board have broad geographic distribution across Ontario.
    





For further information:

For further information: Board members are available for phone
interviews between 9:00-10:00 AM, and 2:00-5:00 PM on Friday, February 6. To
book an interview, contact: Stephen Puddister, (416) 326-7304

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Ontario Ministry of Consumer Services

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