Ontario Payday Loan Restrictions Coming into Force
But Nanny State Leanings Make it All Ridiculous
When it comes to short-term consumer lending, few products are as quick and convenient as a payday loan. The bulk of payday loan companies in Canada operate within the bounds of established governmental guidelines into order to provide consumers with a safe, affordable product while businesses collect profits that offset operating costs. Yet there are an unfortunate few who attempt to operate “beneath the radar,” charging overly inflated rates and enforcing abusive loan terms. Section 347 of the Canadian criminal code attempts to regulate this with a limit of 60 percent interest that can be charged per annum, but further intervention has been necessary in order to protect consumers.
The Payday Loans Act of 2008
Here’s a prime example of an attempt to make things right. In June of 2008, the Ontario Legislature devised the Payday Loans Act in order to require that all payday lenders and pawnbrokers:
- Become licensed
- Clearly spell out all costs of borrowing
- Prohibit loan rollover by instituting a database
- Allow borrowers to cancel their payday loan contract during an initial cooling-off period (within the first two days)
Furthermore, the Payday Loans Act was to make it easier for offending payday loan companies to have their licenses suspended and establish the Ontario Payday Lending Education Fund to promote consumer understanding of and confidence in the product.
Capping the Numbers
By the time additional provisions were in place by April 1, 2009, the Payday Loan Act was also altered by Ontario’s Maximum Total Cost of Borrowing Advisory Board so the most money that could be charged per $100 borrowed is $21. For a standard two-week payday loan, that’s 21 percent, which is not out of the realm of feasibility.
However, there was little or no penalty in place for consumers who defaulted on their loans. It seems unconscionable for there not to be consequences when a consumer makes a promise to repay a debt and doesn’t follow through. Such a lack of safeguarding damages payday lenders severely, just as it would any business that exposed itself to financial risk but didn’t have the tools to protect itself in the event of default. This is definitely an example of the nanny state at work, absolving others of taking responsibility for themselves.
Now Ontario has an Order Dealing with “Criminal Interest Rates”
Specifically, “Order Designating Ontario for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code P.C. 2009-1628 October 1, 2009” has taken a big step toward expunging out-of-control interest rates. Payday loan companies that fail to toe the line will no longer be able to escape notice. This is an order “DESIGNATING ONTARIO FOR THE PURPOSES OF THE CRIMINAL INTEREST RATE PROVISIONS OF THE CRIMINAL CODE.” It appears in large, capital letters because Ontario wants it known that from this point forward, all payday loan stores in the province are required by section 347.1 of the Criminal Code. Once the following two provisions are in effect:
- The Payday Loans Act, 2008, S.O. 2008, c. 9, except for sections 52 and 66 to 74; and
- Ontario Regulation 98/09, except for sections 37 and 38.
The $21 per $100 loaned will definitely be in effect, without exemption. But what will happen to the lack of protection afforded payday loan companies for customers who don’t pay? What does Nanny Ontario plan to do about that? This isn’t a game of jacks among five-year-olds; these are adults who should have learned to take responsibility for their actions a decade or more before. It would be in the best interests of its citizens if Ontario (and Canada as a whole) reconsidered this ridiculous lack of penalty for default.