New rules may aid payday loan clients

Bob Whitelaw, chief executive officer of the CACFS, said that punishments for breaking the regulations, which include fines and expulsion from the association, will be enforced, and he denied that the rules are an attempt to stop the government from stepping in.

The Toronto Star
December 1, 2004

New rules may aid payday loan clients
Consumer group pushes for regulator. Province applauds ‘good first step’.
Jordan Heath-Rawlings

An association that represents many of the high-interest, short-term lending companies in Ontario has announced new rules that are intended to protect customers who use their "payday loan" services.

But at least one consumer group says that the new rules don't address the real problems with payday lending, won't be enforced strictly and are merely an attempt by the companies to avoid government intervention in their industry.

The Code of Best Business Practices, laid out yesterday by the Canadian Association of Community Financial Service Providers (CACFS), "establishes standards in the areas of disclosure of information, business practices and consumer education."

Among the new rules is the end of the "rollover" practice used by some companies — extending an outstanding loan to a customer's next paycheque for an added fee — taking effect Jan. 1.

While the new rules are a step in the right direction, said John Young of the Canadian branch of the Association of Community Organizations for Reform Now (ACORN), "they're not regulations until there is a regulator."

The regulations cover 90 companies that operate about 900 of the estimated 1,200 payday loan outlets in the province.

Thousands of Ontarians use the loan services — usually borrowing a couple of hundred dollars to cover shortfalls — every week.

The announcement comes months after the Toronto Star published its investigation into the unregulated payday loan industry in Canada.

Shortly after the series was published, the province vowed to probe the industry following opposition calls for government action on what one critic described as "nothing more than loansharking with a quasi-legal face."

Interest rates on the loans are often staggeringly high — when calculated as annual interest, they can run between 300 to 1,000 per cent — and since the services began to spring up in Ontario a decade ago, they have been unregulated by the government.

The CACFS doesn't plan to change the interest rates on loans, but their rules do include provisions for customer education and credit counselling referral as well as a complaints hotline that will be posted in all member outlets.

Young points out that the prohibition on "rollover" loans doesn't prohibit "back-to-back" or consecutive loans, in which a customer simply pays back a loan and then takes out a new one, paying the fees without touching the principle. He also doesn't believe that the CACFS will properly enforce regulations against its own membership.

"It's long overdue, but I think it's a good first step," said Minister of Consumer and Business Services Jim Watson yesterday, pointing out that the Ontario government passed legislation last Thursday that, when it takes effect early next year, will require all loan companies to clearly detail the terms of the loan.

A working group of consumer ministers from across the country has been assembled to study the industry and its problems, Watson said.

The group will meet again next June to decide what sort of further regulations, if any, to introduce to the industry.

Bob Whitelaw, chief executive officer of the CACFS, said that punishments for breaking the regulations, which include fines and expulsion from the association, will be enforced, and he denied that the rules are an attempt to stop the government from stepping in.

"These are real regulations. They are tough and they have teeth and they will be enforced," he said.

"We're told by interest groups, stakeholders and the government that we're heading in the right direction with our work toward self-regulation."


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