Ontario Government Makes Move to Protect Vulnerable from Payday Loans

There’s been a lot of discussion in the last several years about payday loan and cheque cashing businesses, specifically about whether or not these businesses target the vulnerable, and exploit them due to their business model. Those issues may have taken on a new urgency because of the pandemic, as have all issues around finance and the social safety net, and the Provincial government has decided to make some changes.

“Our government remains committed to protecting Ontarians during these unprecedented times, now and in the future,” said Minister of Government and Consumer Services Lisa Thompson in a statement. “Throughout COVID-19, and beyond, our primary objective has been to ensure the people of Ontario have what they need to provide and care for their families and loved ones without additional stressors.”

The proposed changes include a maximum interest rate of 2.5 per cent per month (non-compounded) for borrowers who are in default, making lenders provide rate relief if borrowers can’t repay their loans on time, and establish a maximum fee of $25 for dishonoured or bounced cheques or pre-authorized debits.

“These proposed amendments to the Payday Loans Act, 2008, are intended to provide some much-needed relief to some of Ontario’s most vulnerable consumers,” Thompson added.

While these measures will be appreciated, there are some people who will think they do not go far enough.

Earlier this year, the Canadian Centre for Policy Alternatives (CCPA) released a study that showed 3.4 per cent of Canadian households have at least one family member who has used a payday loan business. Tenants are four-times more likely to get a payday loan than home-owners, single parents are also four-times as likely to get a payday loan than two-parent households, and single-parent households led by women are more likely to use them than single-parent households led by men.

“There are more branches of payday loan companies in Canada than there are Shopper’s Drug Mart stores,” said Ricardo Tranjan, CCPA’s political economist and senior researcher, in a statement. “These businesses are the last-ditch financial institutions for people who can least afford the exorbitant interest rates they charge, and it’s time for governments to rein them in.”

“For the sake of low-income households, provincial governments need to tighten regulations on these companies immediately,” Tranjan added.

In 2016, the Provincial government changed the Municipal Act to allow for cities to put a cap on the number of payday load and cheque cashing businesses that are allowed to operate at a time. Guelph has not taken up any changes to business licensing to limit the number of these businesses quite yet, but last summer Kitchener City Council set the number of payday loan businesses allowed in their city to 10 even though there were 18 at the time they passed the change. Guelph currently has about a dozen such businesses.

“Payday lenders prey on the most economically vulnerable households in Canada,” said Tranjan. “Ads like those that offer ‘$300 for $20’ for a two-week loan are concealing annual interest rates that can be as high as 391 per cent, or even 652 per cent. With COVID-19 slashing earnings and hundreds of thousands of Canadians falling through the cracks of new income support programs, or waiting weeks for help, more people will fall victim to predatory lending than ever before.

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