Ontario's Payday Lending Industry
A payday loan is a short-term loan for a small amount of money. The average payday loan in Canada is about $300 for a term of two weeks.
This money is advanced in exchange for a post-dated cheque or a pre-authorized debit.
Lenders typically require a borrower to provide proof of three months of continuous employment, supply proof of address, such as a recent utility bill and have an active chequing account.
A profile of Ontario's payday lending industry
Canada's payday lending industry has grown rapidly, first appearing in western Canada in the early 1990s and migrating eastward.
There are about 1,350 payday loan storefronts in Canada - with about 750 of these stores operating in Ontario. The payday lending industry also offers loans by internet and telephone.
The total payday loan volume in Canada is estimated at $2 billion per year. The average payday loan storefront lends about $1.5 million and makes 5,000 individual loans per year, based on an average loan of $300.
The Payday Loans Act, 2008
Licensing provisions under the Payday Loans Act, 2008, (the "Act") came into force on April 1, 2009 and as of that date all payday lenders and loan brokers in Ontario were licensed. As of July 1, 2009, most consumer protection provisions of the Act come into force.
- Creates a licensing regime for payday lenders and payday loan brokers
- Requires lenders to include in the total cost of borrowing all amounts the borrower is required to pay as a condition of entering into a payday loan agreement
- Prohibits certain industry practices, including "rollover" loans. "Rollover" loans occur when a consumer has a payday loan which they are unable to pay as it becomes due and the consumer then gets a second payday loan into which is rolled the unpaid balance of their first payday loan.
- Provides for enforcement through prosecutions and the ability, subject to appeal, to revoke the licenses of payday lenders and loan brokers
- Establishes the Ontario Payday Lending Education Fund to promote understanding of the Payday Loans Act, 2008 and general financial planning. The Fund will be made up of mandatory payments from licensees.
- Allows borrowers to cancel payday loan agreements - without penalty - during a two-day cooling-off period.
In addition, payday lenders and loan brokers must post a certificate of licence visible to persons immediately upon entering their offices.
The Maximum Total Cost of Borrowing Advisory Board
In April 2008, ntario established the Maximum Total Cost of Borrowing Advisory Board to recommend an upper limit to the maximum total cost of borrowing for payday loan agreements in Ontario. The board consulted and heard from over 20 community advocacy groups, industry representatives, along with experts from both the financial and academic communities.
The board recommended Ontario set a maximum total cost of borrowing cap for payday loan agreements at $21 per $100 borrowed and this is the limit set under the Act. This approach balances the need to ensure the competitiveness of the payday lending industry while making sure consumers who need to, may continue to access to this type of credit. The board's report is available on the Ministry Consumer Services website at http://www.gov.on.ca/mgs/graphics/264305.pdf
It is anticipated that the maximum total cost of borrowing cap for payday loan agreements in Ontario will come into force after the federal government designates Ontario under the Criminal Code of Canada.