On August 29, 2016, the Ministry of Government and Consumer Services (the “Ministry”) proposed an amendment to the regulations made under the Payday Loans Act, 2008 (Ontario) (the “Act“) to reduce the maximum total cost of borrowing for payday loans. The proposed regulation follows the consultation launched by the Ministry earlier this year, seeking comments from the public as to whether the cost of borrowing for a payday loan in Ontario should be reduced and, if so, what the maximum should be. The amendment proposes to:
- reduce the cost of borrowing from $21 per $100 advanced to $18 per $100 advanced, effective January 1, 2017; and
- to further reduce the cost of borrowing to $15 per $100 advanced, effective January 1, 2018.
Manitoba currently has the lowest maximum total cost of borrowing at $17 per $100. If the proposed amendment takes effect, Ontario will have the lowest maximum total cost of borrowing effective January 1, 2018.
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. 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.