Consumers Can Make Better Decisions When Considering Short-Term Loans
QUEEN'S PARK, Aug. 1 /CNW/ - The McGuinty government is following through
on its commitment to provide greater protections for consumers with new rules
which come into effect today that make the cost of payday loans clearer and
easier to understand, Government Services Minister Gerry Phillips announced
"Our government introduced new protections to offer Ontarians who use
payday loans more transparency and fairness," said Phillips. "Starting today,
payday lenders are required to display the cost per hundred dollars of their
loans so their customers understand exactly what's involved."
Stronger protections for users of payday loans are designed to provide
consumers with the information they need to make informed decisions about
short-term borrowing. The new rules will help them develop a better
understanding of the costs involved before entering into a credit agreement.
Provisions of the new payday lending regulations, created under the
Consumer Protection Act, include the following topics:
- A clear definition of a payday loan
- The requirement for all payday lenders to display a highly visible
poster, with rules governing its format and information to be
disclosed on it, such as the cost per hundred dollars borrowed and
- The specific, required form and contents for all payday credit
agreements, including a standardized disclosure box that includes
the loan term and principal amount.
Payday lending businesses across Ontario are urged to become familiar with
these new provisions and ensure that their business operations and processes
comply with all requirements. Ministry of Government Services staff will be
visiting payday lending offices and outlets to monitor compliance and will act
promptly in response to any complaints from the public.
"We believe all Ontarians have the right to know exactly what's involved
in any credit agreement they may want to enter into, and our government is
acting to protect that right when it comes to payday loans," said Phillips.
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PAYDAY LENDING IN ONTARIO
The payday lending industry has grown rapidly since coming to Canada in
the early 1990s. A payday loan is a small principal, unsecured loan made to
the borrower upon the guarantee of a post-dated cheque or pre-authorized
debit. 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. 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
As of August 1, 2007, Ontario regulations come into force that will
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 and
- Provide funds to the borrower immediately upon signing their
These measures will improve the consumer's ability to compare rates prior
to borrowing, fully understand the terms of their loan, and ensure that all
charges are included in the disclosed cost of borrowing.
The federal government passed legislation (Bill C-26) that allows
provinces to apply to be designated to limit the cost of borrowing for payday
loans. This would include unsecured loans of $1,500 or less with the term of
the agreement 62 days or less.
Provinces that are granted the right to regulate the payday lending
industry would, through enhanced consumer protection legislation, be able to
regulate the maximum rate chargeable by payday lenders. The cost of borrowing
could be lower or higher than the current 60 per cent annual interest rate
limit allowable under the Criminal Code of Canada. Cost of borrowing includes
the interest rate applied and all other related fees and charges to provide
Under the new federal legislation, a province would enforce its own
consumer protection legislation, including licensing and setting limits on the
total cost of borrowing for payday loans.
Provinces that do not apply and become designated to regulate payday
lending in their jurisdiction would continue to be governed by the Criminal
Ontario is the first jurisdiction in Canada to implement new and stronger
protections for users of payday loans.
Manitoba, Nova Scotia, and Saskatchewan have passed payday loan
legislation and a British Columbia bill has passed first reading. With this
legislation, these jurisdictions will be able to apply for designation to
limit the cost of borrowing for payday loans. They have not yet implemented
protections under this legislation.
Quebec will not license lenders whose loans exceed an annual rate of
35 per cent; there are no payday lenders legally operating in Quebec.
Ontario Government Consultations
In addition to new rules around transparency and disclosure that came
into force on August 1, 2007, the government recently asked Ontarians for
input on an appropriate payday loan regulatory framework for Ontario. The
deadline for submissions was July 6, 2007. Review of submissions is ongoing.
Public response to the following questions will help to build a framework
for any further legislation in Ontario:
- Are additional consumer protections needed?
- Should Ontario consider a licensing regime in addition to a
stronger regulatory framework for payday lenders?
- If Ontario were to regulate, what would be an appropriate loan
- Should Ontario seek designation under Federal Bill C-26?
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For further information:
For further information: Paul de Zara, Minister's Office, Office: (416)
327-3072, Cell: (647) 388-9671; Ciaran Ganley, Communications Branch, (416)