Why is Ontario waiting so long to protect consumers from high-cost lenders?
New legislation is meant to regulate high interest alternative financing but why the delay?
It's listed as one of the "best sellers" on a popular, Canadian rent-to-own company's website.
- An HP laptop, 15.6 inch screen, 4GB of ram, 500GB hard disc drive, AMD E1-2100 processor. Yours for $19 per week. For 104 weeks.
Total cost, not including taxes, not including something called a "liability waiver", not including something called a "product performance provision": $1,976.
The same laptop can be bought at The Source or London Drugs for $399.99.
- Instalment loans the new high-interest danger for consumers
- City debates trying to crack down on payday loan places
At first blush, rent-to-own can sound like a good concept. After all, if you can't afford to pay the entire cost of something up front, it's certainly easier to pay, say, $19 a week.
But the true, long-term cost is often much, much more.
Rent-to-own contracts also often contain penalties that can be prohibitively expensive.
Penalties are harsh
Miss a payment, for instance, and the total cost that was supposed to be paid over two years could be due immediately.
Or the product could be repossessed, and the consumer could lose the right to buy, along with all the money they've already paid toward its cost.
These sorts of penalties are the types of things the Ontario government is trying to rein in with the introduction this week of Bill 156, the awkward sounding "Alternative Financial Services Statute Law Amendment Act, 2015."
Bill 156 would give consumers a grace period if they miss a payment on a rent-to-own contract. During that period, the company can't repossess the product, can't terminate the lease, can't levy any penalties.
Unfortunately, this is one of only a few specific details outlined in the legislation. The government says it plans to consult with stakeholders over the coming year before creating firm rules that will take effect in 2017.
"It's very difficult to comment on an announcement about an announcement about an announcement," consumer advocate Mel Fruitman told CBC News.
Few specifics to Ontario plan
"I hate it when government does that. It says 'we're going to do something but it's going to be a year before we do something and we can't tell you anything until we do it,'" he said.
That's pretty much what the Ontario government is doing with Bill 156.
"Our government is committed to protecting consumers, and that includes protecting Ontarians from a cycle of debt," David Orazietti, Ontario's minister of government and consumer services, said this week.
At that news conference, Orazietti said, along with that rent-to-own grace period, the new legislation would cap the cost of cheque-cashing services, crack down on unfair debt collection, and implement a waiting period between loans for payday lenders.
On that last point, Bill 156 says the government can make provisions "prohibiting a lender from entering into more than the prescribed number of payday loan agreements with the same borrower in a one-year period."
"Which is what we asked for," said John Lawford, executive director and general counsel of the Public Interest Advocacy Centre in Ottawa.
"People that go in [to get a payday loan] tend to go in eight, nine, 10, 11, 12 times a year. And that's the folks that make [payday lenders] the most money but also the folks who get into the most trouble."
Lawford said a couple of U.S. states have limited the number of loans someone can take out in a year, but Bill 156 doesn't say what the limit would be in Ontario: "If they make it 12 in one year, it won't matter. If they make it six, then we're probably talking."
Instalment loans a problem
There are also very few details on instalment loans.
We reported on these high interest, sub-prime loans last February. They're short term, usually three to five years, for up to $15,000, and paid back in monthly instalments.
According to two actuaries we consulted, alternative lenders are charging interest rates on instalment loans as high 57 per cent, just below the legal limit of 60 per cent.
Donna Borden, with the national anti-poverty group ACORN Canada (Association of Community Organizations for Reform Now), says any regulation of instalment loans should involve more than just the province.
"We'd like to see the federal government get involved because we'd like to see the criminal interest rate lowered from 60 per cent to 30 per cent." Borden said.
Borden has personal experience with instalment loans. Wanting to consolidate her debts, she borrowed $10,000 at 30 per cent to be paid back over five years.
Seven years later, after the loan period had been rolled over several times, she'd made more than $20,000 in payments and still owed $7,500. The experience led her to join Acorn.
There are no regulations governing instalment loans, beyond the interest rate provisions in the Criminal Code.
Good questions, no answers
At his news conference earlier this week, I asked Orazietti whether he planned to look at finding a way to cap interest rates on instalment loans.
"You know those are good questions and they will come up I'm sure that in the committee process. I'm not going to rule anything out at this point." he said, adding there "are not perhaps as many details as we would all like immediately right now" in Bill 156.
The Bill, which is scheduled to take effect in 2017, is in many ways like a Throne Speech; it's a list of things the government plans to address. This way, the government can spend the next year meeting with stakeholders and those in the industry to hash out the specifics.
Experts say there are some good reasons to do things this way. The alternative lending industry will have time to get ready to deal with more regulation and its likely effect on revenues.
And, not least, it means the government isn't seen — as one expert put it — as pulling the rug out from under the people who are using payday loans and other alternative financing.
At the same time, the concerns meant to be addressed in Bill 156 have been around for years.
And many will question why it's going to take at least another full year before Ontarians will get the benefit of government's commitment to protect consumers.