Ontario needs to curb payday loan sector MPP

Ontario "has pulled the covers up over its head and has not acted in this area," Hudak said. "Unfortunately, many fly-by-night payday loan operators get away with scamming hundreds of thousands of citizens across Canada."

The Toronto Star
September 9, 2006

Ontario needs to curb payday loan sector MPP
Draft law would force provinces to regulate. May shut down sector or set rate maximums.
Tara Perkins

Ontario should be taking steps to prepare to regulate its payday loan industry, says Tim Hudak, a Conservative MPP and former consumer minister.

His comments come as a source in Ottawa said the federal government has circulated draft legislation that would force the provinces to regulate the payday loan industry, or they might wind up having to shut it down.

Officials in the departments of industry and justice could not confirm that.

A federal government official said there are ongoing discussions with the provinces on payday loan regulation, but that many issues are not settled including whether new legislation would apply to all of the provinces.

The proposed legislation would give the provinces the option of regulating their payday loan industries by themselves by setting a maximum interest rate for the short-term loans, and drafting their own consumer protection legislation, said the source.

Otherwise, the provinces might have to close down their payday loan industries, said the source. The Criminal Code says lenders can't charge annual interest rates more than 60 per cent.

The legislation would exempt the provinces from applying that rule in the Criminal Code, but provinces could set any maximum they want, the source said. It could be a percentage - like 60 per cent - or a dollar amount, like charging $20 to borrow $100.

Rumours of new federal legislation surfaced earlier this year. Manitoba has already prepared legislation to regulate the industry while other provinces have confirmed they would regulate once the federal legislation is final.

Hudak said the federal government is doing the right thing by enabling the provinces to regulate. "The provinces should play that regulatory role, because to date that federal role has been unsuccessful," he said.

Ontario "has pulled the covers up over its head and has not acted in this area," Hudak said. "Unfortunately, many fly-by-night payday loan operators get away with scamming hundreds of thousands of citizens across Canada."

A source with an interest in seeing the legislation passed said the Ontario government appears to fear that if it regulates - and sets a new allowable interest rate for borrowing - the opposition will cry out that the province is allowing payday loan operators to charge massive amounts of interest.

"My advice to the government would be to start constructing a bill along the lines of (Manitoba's) to be prepared to step in, regulate and clean up this industry as soon as possible," said Hudak.

"I'll be working on a private member's bill. However, our private member's bills from the opposition often have the proverbial snowball's chance of getting the debate time necessary to become law," he said. "We can certainly use that to push the government into action, (but) the most efficient way would be for the government itself to act."

Gordon Smith, a spokesman for Ontario's Ministry of Government Services, said he's looking forward to seeing what's proposed, but jurisdiction over interest is now a federal responsibility. "Anything we would put forward would be subject to federal government amendments to the Criminal Code." He notes the province introduced a new Consumer Protection Act last summer that makes payday lenders clearly state the cost of borrowing. "Basically, if they don't put it out in writing quite clearly what those charges and fees are going to be, the borrower doesn't have to pay for those," he said.

There has been an increase in the number of complaints about the industry, but it's not one of the top 10 complaints, he said. Since 2004, the ministry has received 43 written complaints and 276 telephone inquiries about payday loans, he said. "Some compliance actions have been initiated in this area, but it isn't a big area yet," he said. "It's a matter, maybe, of the public not being aware of their rights."

Large segments of the payday loan industry have lobbied for regulation to clean up the industry and ensure its future.

This month, a B.C. judge ruled in a class-action suit that a payday loan company charged criminal interest rates, and its late fees and processing fees count as interest. That ruling is expected to influence the outcome of dozens of similar suits across Canada.

"For some time, the provinces were trying to forge a consensus position on what type of sanctions, regulations and fee limits should exist. However, that consensus was not achieved," Hudak said.

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