Ontario has launched a review of its laws for payday loan companies just five years after they were enacted in an effort to keep up with a changing industry.
The province's Ministry of Consumer Services said the review is designed to assess whether the 2008 Payday Loans Act can still protect consumers with the emergence of online transactions, smartphone-enabled loan approvals and new forms of high-cost, short-term loans.
The government introduced the legislation five years ago to protect people from predatory interest rates that turn short-term loans into rising debts for those who cannot pay off the loans quickly enough.
Since 2008, inquiries to the Ontario government about payday loans have increased tenfold, the ministry said.
As part of its review, the government will look at the cost of borrowing. It will also look at how well the law protects consumers when they use newer technologies, such as applying for their quick loan using a smartphone app.
Loan group says lower fees would drive business underground
John Redins of Ottawa said he was once stuck in a vicious cycle of trying to pay off a payday loan.
"You're always constantly trying to struggle — OK, which bill's not going to get paid. Because you want to get out of it," said Redins.
He said he would like to see the government cap fees even lower, and allow people to pay off loans in instalments so they can break the cycle.
The Canadian Payday Loan Association said it welcomes the review.
But a spokesman with the group warns if the government were to lower the fees companies are allowed to charge, it could drive licenced payday lenders out of business and send more consumers online and offshore.
About 750 payday loan storefronts are located in Ontario, according to the province.