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Province Getting it Wrong on Payday Loans

August 31, 2016 Make Change

Earlier this week the Ontario Ministry of Government and Consumer Services proposed the following regulation change under the Payday Loans Act, 2008. “It is proposed that O.Reg 98/09 be amended to reduce the maximum total cost of borrowing from $21 per $100 advanced first to $18 per $100 advanced, effective January 1, 2017; and then to $15 per $100 advanced effective January 1, 2018.” To put this in perspective the government is proposing lowering the payday loan interest rates from 546% to 390% per annum. The Criminal Code limit is 60% but the predatory loan business is exempt from the Criminal Code.

You can find out more at http://www.ontariocanada.com/registry/view.do?postingId=22602&language=en 

The ministry is looking for comment.  We hope you will send in your comments to this outrageous proposed “reform.”

In light of this new development we thought it would be worth reprinting a story we did last December. It follows:

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What to do About Predatory Lending

December 15, 2015

Advocates have expressed disappointment with Ontario’s new legislation that deals with alternative financial services.

“Kinda feeble,” was what one advocate told us and pretty much summed up our view.

Laura Cattari, a Hamilton activist called it an “incredibly underwhelming response” to the payday lending issue. 

The Ontario government pretty much ignored the fact this industry relies on people who will not be able to get out of debt,” Ms. Cattari noted.

Our sense is that the end product is meagre given it has taken 2 years of consultation.

Consumer advocate Mel Fruitman put it better.

“I hate it when government does that. It says 'we're going to do something but it's going to be a year before we do something and we can't tell you anything until we do it,'" he told the CBC. http://www.cbc.ca/news/business/ontario-subprime-lenders-1.3359460

Clinic staff participated in Ministry of Government and Consumer Services consultations this past July.  This was part of lengthy process that included a 2014 “panel of volunteers with expertise in matters related to payday lending.”  That panel had concluded, not surprisingly since there were lenders involved, that everything was pretty much OK.  Some tightening of regulations and a little more education for consumers was all that was needed. 

To the government’s credit, they realized more had to be done.  We had high expectation; too high, it appears.

What happened, then?  

To be fair, there are good things in Bill 156 – An Act to amend various Acts with respect to financial services.  For example there will be:

• More information available to those cashing cheques at alternative financial service providers.

• A cap on the rate of cheque-cashing services.

• A grace period for repayment for those using rent-to-own services.

• Options for longer repayment periods for those people who are repeat payday loan borrowers.

• Expanded rules against unfair collection practices for businesses that purchase and collect overdue debts.

There was praise for the announcement.

ACORN Canada, an independent national organization of low- and moderate-income families, has done a lot of advocacy in this area.  Their spokesperson, Donna Borden, had this to say:

“This announcement is a great first step.  There are still countless ways the banking system could be made fair for low-to-middle income Canadians.” 

Bill 156 amends various other pieces of legislation. Specifically:

  • The Collection and Debt Settlement Services Act
  • The Courts of Justice Act
  • Budget Measures Act 2009
  • The Consumer Protection Act

A thorough analysis would require a look at all those acts to see how each amendment changed it.  That is a lot of work. So we have to fall back on the government’s characterization of this as good news.

Referencing Mel Fruitman again:  

“It is very difficult to comment on an announcement about an announcement about an announcement."

New Research Shows Impacts on Communities

Provincial governments have largely remained on the sidelines or brought in regulations that were as weak as the ninth batter in a National League lineup. Some municipal governments have stepped up.  But it appears that no new powers will be given to municipalities to deal with the problem as Howard Elliott noted in the Hamilton Spectator. http://www.thespec.com/opinion-story/6168980-the-spectator-s-view-payday-loan-changes-don-t-go-far-enough/

This “industry” hurts communities. Peter Kucherepa, an Ottawa lawyer, has researched payday loans. He argues that enabling cash transactions (the mainstay of how this industry functions) can contribute to the proliferation of the drug industry and other criminal activity in neighbourhoods.

There are health issue too. Kucherepa cites research from St. Michael’s Hospital in 2014. That study “clearly shows that the proliferation of cash based money lenders lowers community life expectancy and increases pre-mature deaths.”

You can read Kucherepa’s paper at https://www.dropbox.com/s/nxz716agspwnrgv/Pay%20day%20Loan%20Paper%20V10(CONSULTATION).pdf?dl=0

Kucherepa also compares interest rates for the two week loans that are legally permitted in each province. For example, if you borrow $300 in Nova Scotia, the payday loan company could legally recover $2,106 from you.  In Quebec, that $300 loan could result in a maximum repayment of $405.

If provinces won’t act and municipalities can’t, perhaps the solution lies with changing the Criminal Code of Canada.  About ten years ago, an exemption from criminal prosecution was made for Payday Loans so that they could exceed a 60% interest per annum. (Criminal Code of Canada 347.1)

That should change.

It is also important that real alternatives to payday loans be available so that all Ontarians can have access to financial services that assist rather than exploit.

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