Ontario Consumers Benefit from Sensible Cash Advance Regulations

by Derek Campbell on December 21, 2011

Ontario residents have embraced the Canada cash advance, also known as a payday loan, as a source of emergency funds to carry them through a financial shortfall. In consultation with consumer advocates and the Canadian Payday Loan Association (CPLC), Ontario enacted legislation in 2008 to offer additional protection to residents seeking access to a Canada cash advance, making it one of the safest places anywhere to apply for a payday loan.

The Payday Loans Act, 2008 (the Act) prescribed standardized licensing for payday lenders and loan brokers; created consumer protection through enhanced disclosure requirements; and limited the maximum cost of borrowing for Canada cash advance loans.

“This cap is part of a package of key consumer protection measures we have introduced in this province – including requiring lenders and loan brokers to be licensed and prohibiting certain practices in the industry,” said Ted McMeekin, Minister of Consumer Services. “The bottom line is, if you need a payday loan in Ontario, you can count on some of the best consumer protection features available – and that’s a good thing.”

The Act also:

• Prohibits controversial industry practices, such as concurrent and “rollover” loans. “Rollover” loans occur when, before the current loan is paid off in full, the consumer receives another payday loan from the same lender.
• Creates a “cooling-off” period of two business days, during which borrowers can cancel Canada cash advance agreements without penalty.
• Enforces all regulations through prosecutions and/or suspension and revocation of lending licences.
• Establishes an Ontario Payday Lending Education Fund, paid for by licencees.

The Ontario Ministry of Consumer Services later amended the General Regulation to clarify the maximum borrowing limit, so that borrowers pay no more than the maximum of $21 per each $100 loaned. Under the amendment, borrowers could not be charged additional lender fees that might increase the total amount of a Canada cash advance beyond the legal limit. The amendment also clarified that borrowers must receive their entire cash advance, without deductions, at the time of entering into a payday loan agreement.

Nationwide, Canadians borrow an estimated $2 billion a year via payday loans, with Ontario home to roughly half of the 1,400 payday lenders in the country.

Other provinces also have set limits on payday lenders. Nova Scotia lenders can charge no more than $31 on $100 borrowed, fees and interest included, while Manitoba caps the cost at $17 on $100 borrowed for loans up to $500. Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island all have taken steps to regulate the payday loan industry as well. Quebec has essentially banned payday loans outright by limiting the annual interest rate to 35 percent, making the cost of lending too high to outweigh the average default rate of 20 percent.

Payday loan borrowers generally incur higher interest rates than banks customers or those of other traditional lenders. This is because a payday loan is unsecured and often does not require a credit score; therefore, the lender is incurring greater risk. However, Canada’s usury laws specify that any interest rate above 60 percent per annum is considered criminal, according to the Criminal Code of Canada.

For additional information on a Canada cash advance in Ontario, contact:

Ministry of Consumer Services
Consumer Policy and Liaison Branch
Consumer and Business Policy
777 Bay Street, 5th Floor
Toronto, ON M7A 2J3

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