Earlier this year, the government of Ontario passed legislation that would reduce the maximum total cost to borrow payday loans to $18 per every $100 borrowed. This change comes into effect January 1, 2017.
This week, the Ontario government proposed a new set of rules that would apply to payday loans.
Under the Putting Consumers First Act, new regulations would be applied against alternative financial services, particularly payday loans. Some of the preliminary suggestions consist of extending repayment periods, offering more time between loans and expanding rules against an array of debt collection practices. These rules are aimed at shielding consumers from fraudulent and unfair activities.
Ontario currently has more than 800 payday lenders and loan brokers.
Also under the submitted legislation, Queen’s Park would have the ability to prohibit unsolicited, door-to-door sales (yes, these still happen). Ontario would reserve the right to ban door-to-door sales of furnaces, air conditioners, water heaters, water filters and so on.
Moreover, the provincial government wants to increase regulations for the home inspection industry. Ontario Liberal Members of Provincial Parliament (MPPs) are looking to implement licensing, proper qualifications and minimum standards for contracts for home inspection professionals.
Marie-France Lalonde, minister of government and consumer services, said that protection Ontario consumers is the government’s No. 1 priority in addition to growing the economy and creating jobs.
“Our government is committed to protecting consumers at home and in the marketplace,” said Lalonde. “This proposed legislation will strengthen consumer protections in Ontario, and we will continue to work to inform consumers of their rights and make government work better for all Ontarians.”
Jurisdictions across Canada are looking to prohibit or restrict payday loan stores from operating. Provinces, like British Columbia, have reduced origination fees, while municipalities want to invoke ordinance laws to limit the rise of payday loan businesses in the most vulnerable of neighborhoods.
This comes one week after a new report by the Financial Consumer Agency of Canada (FCAC), a federal consumer watchdog agency, said that more Canadians are using payday loans than ever before.
According to the study, four percent of Canadian households have taken out a short-term, high-interest loan in the last 12 months. This is up from around two percent in 2009, when the economic collapse was unfolding. The report also found that most borrowers were unaware that cash advances from credit cards are a far more affordable option than taking out a payday loan.
Meanwhile, a different report by the Conference Board of Canada, which was commissioned by the Canadian Consumer Finance Association, concluded payday loans are essential for low- and middle-income households that rely on these alternative financial products for unforeseen events. The report also stated that more regulations are not needed but rather better education and awareness.
Critics of payday loans say that they create an endless debt trap for the impecunious and that the government needs to limit their reach. Proponents of payday loans say they are vital to those who do not have conventional access to credit and banking options.