On June 15, 2015, Ontario’s Ministry of Government and Consumer Services issued a consultation paper, offering discussion of possible new approaches to help improve protection for alternative financial services consumers.
Why is this happening? The government and major financial players are recognizing that more Canadians are requiring a variety of lending services beyond traditional banking. The demand for payday loans, in particular, is simply not going away, and due to the high risk nature of many of these services, including the amount of news “bad practices” make in the sector in the United States, U.K and even Australia, the Ministry is calling for an “open forum” of sorts to begin discussion with major stakeholders (municipalities, community agencies and businesses) and consumers.
One such stakeholder is the Canadian Payday Loan Association (CPLA), of which GoDay.ca is a proud member. The end result will hopefully be one of balance – adequate protection for the consumer and the businesses involved.
There are three major proposal categories being put forth, one of which surrounds payday loans.
Payday loans have been an alternative lending service in Ontario for almost twenty years. The average payday loan averages at roughly $460 for a two week period (most borrowers are paid bi-weekly). As of last year, Canada’s payday loan industry serves almost 2.5 million Canadians and loans out over two and a half billion in loan volume each year. 3% of payday loan customers in our country are from Ontario.
Payday loan legislation was introduced in 2009 under the Payday Loan Act. It’s purpose was to protect consumers by putting a cap on fees and interest, to require lenders to be licensed and to provide a means of enforcing punishment should a business break the pre-established code of conduct. Ontarians enjoy the second lowest fee system for payday loans, capped at $21 per $100 borrowed.
The purpose of this segment of the proposal is largely to ask consumers whether or not this type of lending is needed or if a complete overhaul of the industry is required. Specific review points include a review of the maximum total cost of borrowing based on certain factors, the time online payday lenders have to transfer funds to a borrower, a potential restriction of how consumers can use payday loans and requiring lenders to take into consideration (since many do not) the customer’s ability to repay into their lending decision.
Questions include:
1. How would you describe the impact of payday lending on individuals and on communities?
2. What other alternatives exist for consumers using payday loans?
3. Are there similar consumer protection concerns with potential substitutes?
4. Should the Act restrict borrowers from seeking simultaneous loans from multiple payday
5. Would a central tracking system strengthen protections for payday borrowers? What would
the impact be on the payday lending industry?
6. Is a proportion of net income an appropriate means of restricting the amount lent?
7. If general lending standards are set, what should they consider (e.g., rent, groceries, utilities)?
8. Should Ontario rely only on a waiting period between payday loans? If so, how long?
9. Should payday lenders be required to provide an extended payment plan to frequent
borrowers?
10. Should Ontario control the total cost of defaulting on loans?
If you’re a payday loan borrower and want to contribute your feedback to the Ministry, you can fill out their Consumer Financial Protection Survey here. It is suggested that you read the Strengthening Consumer Financial Protection discussion paper prior to submitting your responses.
