The Ministry of Government and Consumer Services (the “Ministry“) is looking for input on whether to reduce the cost of borrowing for a payday loan and, if the cost of borrowing is reduced, input as to what the maximum total cost of borrowing should be. The Payday Loans Act (in effect since 2009) (the “Act“) regulates the cost of borrowing for payday loans in Ontario. Ontario has the second lowest cost of borrowing in Canada (Manitoba is first). Under the Act, $21 is the maximum amount that can be charged per $100 lent to the borrower for payday loans that are $1,500 or less and 62 days or less.
Four options are proposed by the Ministry as to the maximum total cost of borrowing: (1) $15 per $100 lent, (2) $17 per $100 lent, (3) $19 per $100 lent, and (4) keep the status quo at $21 per $100 lent.
There are over 200 lenders in the payday lending industry in Ontario and online lending has grown as consumers continue to access loans outside of banks and credit unions. Payday loans are often considered to be accessed by consumers with issues of cash flow or credit who seek financing from alternative sources. However, finance companies should be cognizant of the requirements of the Act when structuring loans to consumers, as certain provisions in their documentation may trigger the application of the Act. For instance, the Act applies to lines of credit that meet prescribed criteria.
Members of the public, including the alternative financial services industry, are invited to submit comments to the Ministry on the proposed cost of borrowing reduction. Additional information can be found by clicking this link: http://www.ontariocanada.com/registry/view.do?postingId=21304&language=en