New Laws Governing Payday Loans Take Effect for Saskatchewan

New Regulations Aim to Better Protect Canadian Consumers

by Jennifer Case on January 5, 2012

The Saskatchewan government announced the onset of new laws regulating the payday loans industry this week. The new laws took effect Jan. 1 and are intended to make the loan process more transparent and reduce costs for consumers. This marks the first time Saskatchewan has had legislation specific to the payday-loan industry.

Roger Sobotkiewicz, director of the payday-loans division of the Saskatchewan Financial Services Commission, commented to the The StarPhoenix: “It’s part of a cross-Canada trend. Several other provinces have just put in similar legislation or are putting in similar legislation. I think the [payday loan] industry jumped onto the radar screen across Canada at the same time and all the provinces have sort of worked together to move legislation ahead.”

Alberta, B.C., Manitoba, Nova Scotia, and Ontario already have regulations in place governing the payday loan industry.

Payday loans are short-term advances that usually need to be repaid with the borrower’s next paycheque. High interest rates and service fees usually accompany these types of loans. Payday loans were previously regulated under the Trust and Loans Corporation Act, but the new legislation is seen as more specific and comprehensive.

For example, the new laws specify that lenders must display “very large signs” that are visible upon entering the premises, which list all of the fees accompanying any payday loan. That is meant to “allow borrowers to shop around,” Sobotkiewicz said.

Also prominent in the new regulations is a tighter cap on loan fees. Beginning Jan. 1, loan fees must not amount to more than 23 percent of the principal amount borrowed; or $23 on every $100. Under the previous regulations, some lenders could go over the 23 percent cap by adjutsting the loan fees.

The new laws also specify that lenders and borrowers must enter into a written agreement, which includes written disclosure prominently indicating that the payday loan is a high-cost one. This information must be provided prior to documents being finalized, Sobotkiewicz said.

Payday lenders also must explain to the borrower that he or she has a right to cancel the loan within one business day of entering into the agreement, only needing to repay the principal amount in the process. Also significant among the new rules are restrictions on how many times lenders can try to make a pre-authorized debit, and prohibitions on rollover loans and concurrent loans.

Under the new licensing rules, lenders must pay an annual fee of $2,000 for each location they operate. Whether the new licensing fee will slow the proliferation of payday lending sites is yet to be seen.

Borrowers should do their research and become informed of their rights before seeking out a payday loan.

“What we encourage is for borrowers to go to our website, sfsc.gov.sk.ca, because we have information about things borrowers should consider before entering into payday loans,” Sobotkiewicz said. “If they feel their rights weren’t respected, by all means contact us. We would like to know about it.”

The proposed changes were announced in the summer of 2011, but first required a federal government exemption from a Criminal Code provision governing interest rate caps, before they could take effect.