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Payday Lending Regulations

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Payday Lending in Canada in a Global Context

Abstract

Since the late 2000s, Canadian provinces have regulated the payday loan industry. Most provincial governments initiated a regulatory response in an attempt to protect consumers while allowing the payday lending market to continue operating, but Québec effectively disallowed payday lending through a usury law. This chapter examines the roots of small loan regulation in Canada, considers its contemporary application to payday lending in Canada, and compares this with the situation in the United States. There are similarities in payday loan regulation in Canada but also variation so that it appears regulators have not agreed on a unified regulatory model.

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Notes

  1. 1.

    For example, in Manitoba, the maximum allowable cost of credit is 17% of the amount borrowed regardless of term, which yields an Annual Percentage Rate of 621% for a ten-day loan.

  2. 2.

    The lack of enforcement of usury laws was likely due to the laws being meant to apply to loan sharking.

  3. 3.

    The 1907 and 1939 laws represented Parliament’s exercise of its constitutional right to regulate national interest rates. The Small Loans Act defined a small loan as a loan at or below $1500, with legislated maximum rates of interest being 24% to $300, 12% on sums between $301 and $1000, and 6% on sums between $1001 and $1500.

  4. 4.

    Section 3(2) stated that: The cost of the loan mentioned in subsection one of this section shall, for a loan for a period of fifteen months or less, not exceed two per centum per month on the amount actually advanced to the borrower and monthly balances thereof from time to time outstanding, and, for a loan for a period greater than fifteen months, the cost of the loan shall not exceed one per centum per month on the amount actually advanced to the borrower and monthly balances thereof from time to time outstanding and in addition thereto such proportion of one per centum per month on said amount and balances thereof from time to time outstanding and in addition thereto such proportion of one per centum per month on the said amount and balances as fifteen is of the period of the loan expressed in months.

  5. 5.

    Section 347(1) provides that: Despite any other Act of Parliament, everyone who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate, is

    • guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or

    • guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

    Section 347(2) provides the following definition:

    criminal rate means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement. [emphasis added]

  6. 6.

    Payday loans are defined as “…an advancement of money in exchange for a post-dated cheque, a preauthorized debit or a future payment of similar nature but not for any guarantee, suretyship, overdraft protection or security on property and not through a margin loan, pawn broking, a line of credit or a credit card.”

  7. 7.

    While Manitoba was the first province to amend its Consumer Protection Act to include provisions regarding payday loans, which were assented to in 2007, regulations on price caps for payday loans came into effect in 2010. Nova Scotia’s Consumer Protection Act was amended in 2006 to include provisions relating to payday lending, which were proclaimed and took effect in 2007 and 2009. Payday lending regulation in Nova Scotia came into effect in 2009.

  8. 8.

    The formula to determine a borrower’s net pay is found in section 2.2(1) of the Regulation: Net pay = (MNI × 12)/26, where MNI consists of the person’s net income for the most recent previous calendar month where the person received income. This is calculated by adding all incomes received by a person from all sources during that month, minus all compulsory and voluntary deductions.

  9. 9.

    See the Consumer Protection Act at section 137 and the Payday Loan Regulation at section 2.1: A replacement loan is defined as “a payday loan arranged or provided by a payday lender as part of a series of transactions or events that results in the borrower’s debt under another payday loan previously arranged or provided by that payday lender being repaid in whole or in part” and “a transaction or series of transactions specified in the regulation.” The Regulation specifies that in addition to what is stipulated under the Act, a replacement loan is a payday loan “that advances an amount in excess of the borrower’s debt under the payday loan previously arranged or provided by that payday lender.”

  10. 10.

    Tourism, Culture, Heritage, Sport and Consumer Protection Annual Reports 2014–2015 and 2013–2014: In the past two years, the Fund has contributed to the following projects: the Legal Help Centre received a grant toward financial literacy programming; the Manitoba Financial Literacy Forum received a grant to conduct a baseline study on financial literacy in Manitoba; a grant was provided toward the financial literacy calendar through the Manitoba Financial Literacy Forum.

  11. 11.

    Given its status as a charitable trust, it may be argued that it has a stronger level of objectivity as compared with industry associations and advocacy agencies.

  12. 12.

    This includes, for example, accepting a check or pre-authorized or other negotiable instrument unless it is made payable to the high-cost credit grantor, making any unauthorized withdrawal from a borrower’s account, disclosing information about the agreement, and giving inaccurate information about improving the borrower’s personal credit rating.

  13. 13.

    Practical benefits associated with public participation in decision-making include, but are not limited to, enhancing the credibility and legitimacy of proposed projects by increasing the transparency of decision-making, helping define problems and identify solutions, helping identify alternative options, permuting a more comprehensive consideration of factors upon which decisions are based, ensuring that projects meet the needs of the public in terms of both purpose and design, bringing alternative ethical perspectives into the decision-making process, increasing accountability for decisions made, facilitating challenges to illegal or invalid decisions before they are implemented, assisting in developing public expertise and creativity, assisting in gaining public support for a particular decision, increasing ease of implementation, providing avenues for conflict resolution for affected parties and stakeholders helping to avoid costly and time-consuming litigation, and reducing the level of controversy associated with a problem or issue.

  14. 14.

    This review had to consider the meaning of “cost of credit” for the purposes of the Act, the maximum cost of credit that may be charged, required, or accepted in respect of a payday loan and the maximum amounts, or the rates, tariffs, or formulas for determining the maximum amounts, that may be charged, required, or accepted for any component of the cost of credit for a payday loan, for the extension of renewal of a payday loan, for a replacement loan, or for a default by the borrower under a payday loan.

  15. 15.

    The organizations involved in the intervention in 2016 were Winnipeg Harvest, Community Financial Counselling Services, and the Manitoba Branch of the Consumers’ Association of Canada.

  16. 16.

    One example is Vancity Credit Union out of Vancouver, British Columbia, offers a Fair and Fast Loan, which shares some characteristics with payday loans, such as convenience and the ability to borrow small amounts, but charges an interest rate of 19% APR, online: https://www.vancity.com/Loans/TypesOfLoans/FairAndFastLoan/?xcid=pers_megamenu_fairfast

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Authors and Affiliations

  1. Public Interest Law Centre, Winnipeg, MB, Canada

    Katrine Dilay & Byron Williams

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  1. Katrine Dilay
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  2. Byron Williams
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Editors and Affiliations

  1. Menno Simons College, Canadian Mennonite University Affiliated with the University of Winnipeg, Winnipeg, MB, Canada

    Jerry Buckland

  2. Faculty of Liberal Arts and Professional Studies School of Administrative Studies, York University, Toronto, ON, Canada

    Chris Robinson

  3. Faculty of Liberal Arts and Professional Studies Department of Economics School of Public Policy and Administration, York University, Toronto, ON, Canada

    Brenda Spotton Visano

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Dilay, K., Williams, B. (2018). Payday Lending Regulations. In: Buckland, J., Robinson, C., Spotton Visano, B. (eds) Payday Lending in Canada in a Global Context. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-71213-0_7

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  • DOI: https://doi.org/10.1007/978-3-319-71213-0_7

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-71212-3

  • Online ISBN: 978-3-319-71213-0

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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