Policies require licenses
Ontario has added some new provisions to its Payday Loan Act that will be effective on April 1. The new piece of legislation will require payday lenders and other loan brokers to be licensed. All payday loan lenders must get licenses before April 1.
No loan for a loan
The new laws also prohibit what are commonly called “rollover loans.” That’s when a borrower uses one payday loan to pay off another payday loan. That means Ontario will need some sort of system for tracking all of the payday loans given through all of the province’s 750 payday loan companies.
Cool down time
The new laws also allow what they call a “cooling off” period of two days. Payday loan borrowers can cancel their loans without reason or penalty within two days of taking out the loan, and they will get their money back in full without paying any fees.
Sure enough, rate caps
Ontario’s Maximum Total Cost of Borrowing Advisory Board advised that Ontario put a fees and interest cap on all payday loans of $21 per $100 borrowed. That effectively caps interest rates at 21 percent. It also means that there is little or no penalty for borrowers who default on their loans.
This could be devastating for payday lenders. It also sends a message to consumers that it’s OK, and in fact sanctioned by the government, to be irresponsible. Having no consequences for late payments teaches irresponsible borrowing practices.
Financial education
Ontario is also requiring that payday lenders establish a Payday Lending Education Fund. The lenders must pay for the fund themselves. I certainly think it’s good for payday loan companies to educate their customers about how their loans work. It might make more sense for each business to do so on an individual basis instead of having a central fund. But I think the sentiment is commendable.
Licensing seems fair enough, but unreasonable rate caps can run business completely out of an area, i.e. New Hampshire, Ohio, etc, and the academic studies that have been done indicate that running payday lending out has more detrimental facts than benefits.