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Ontario Shows the Way in Payday Loan Reforms Process

More than half of the payday loan stores in Canada are situated in Ontario. In 2007, a federal government directive allowed the state/provincial governments to take steps to regulate these businesses in a better way. The rising consumer dissatisfaction with the payday loan companies has led the Ontario government to take certain concrete measures to regulate these businesses. Some of these measures incorporated in the Payday Loans Act, 2008 gives better protection to the consumers. Some of its key provisions are:

1. Compulsory licensing: The lenders and the brokers of payday loans need to take license for doing the business. The lender must provide the license information online as well on the very first contact. Similarly, the license must be clearly visible on the store.

2. Put a ban on the practice of ‘rollovers’. Roll over of loans meant taking of new loans even when the earlier ones have not yet been paid.

3. Assignment of wages requirement dispensed off. The lender cannot ask for the same now.

4. Strong-arm collection tactics not allowed: Lenders cannot use threatening language, put excessive pressure or contact you more than three times a week.

5. Full amount given: Lenders are no longer allowed to deduct the fees upfront from the amount they give.

6. 1 hour maximum time limit for extending the loan, in case the deal is struck via internet or phone.

7. Cooling off period provision: When you took a Canada payday loan before this enactment and wanted to cancel the same, you were imposed penalties. With the new Act coming into force, the borrowers will have a two day time to return or cancel the loan without attracting any penalty and without giving any reason for the same.

8. Education fund: This is a noble feature of this act. It will require the licensed lenders of payday loans to contribute to the Ontario Payday Lending Education Fund whose proceeds will be used to educate the customers on all the aspects of payday loans. This was felt necessary because many studies pointed out that customers take to these loans since they are not aware of the alternative channels of taking loans.

9. Caps on cost of borrowing: For all payday loan agreements entered in Ontario, there will be a maximum cap on the cost of borrowing, placed at $21 per $100 borrowed.

Apart from these measures, the website of the Ministry of Consumer Services in Canada informs about the all relevant aspects of these loans to payday loan consumers.

 

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Canadian Government Initiatives to Regulate Payday Loan Industry

A significant trend has been noticed in the mushrooming of Canada payday loan industry. Wherever the banks have not been giving the small amount loans to the needy people, the payday loan shops have come up sensing the requirements of the people. However, the consumer protection groups and even the government have been quite critical of the way these organizations carry on with their works. Therefore, the state and province governments have been bringing in legislation wherein the borrowers are given some respite from the high interest rates enabling them to come out of the spiral of debt.

Some of the main focus areas of regulations by the federal and State governments are:

1. Capping Interest rates: Some States have fixed the upper limits of the interest that can be charged from the customers. For example, Manitoba has a regulation for not charging more than $17per $100 of lending. Earlier, even the cheap payday loan came at $40 for every $100.

2. Ending the roll-overs and Extensions: Once you get into the debt trap, there is no room to escape because the interest is very high. So, you end up seeking more extensions or taking one more loan after paying off the earlier one. The government serious about ending this continued misery of the borrowers. It proposes a cooling off period between the back to back loans and this has to be longer than one pay cycle so that the borrower can try and pay off his debt with his pay.

3. Limits on amount of lending depending on the person’s ability to pay back. This can be fixed at a percentage of his salary. Say, a person will be able to get only 25% of his salary as a payday loan. Further, there might be stricter adherence for the verification check by the Canada Payday loan lenders in order to ascertain that the person has does not have other credit liabilities.

4. Tougher licensing norms: Licensing shall be made mandatory for this billion dollar industry. The government may ask for publication of complaints history, making public the corporate structure and ownership and regular reporting to the designated regulator.

With ever increased focus on the need of regulating this industry, it has become pertinent for the provincial governments to take concrete steps in this direction for the better protection of the consumers. It is time for the Canada payday loan industry to change the way business is being done.

 

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