Ontario has capped the interest changed by payday loan companies at $21 per $100 borrowed, will license lenders and has announced other rules it says are aimed at aiding consumers.
The provincial government said Friday that the interest rate was based on the recommendations from the Maximum Total Cost of Borrowing Advisory Board, set up to consult with the payday loan companies and users after the legislature passed an act to regulate the industry in June 2008.
The cap is more than Manitoba's, at $17 per $100 borrowed, but less than British Columbia's and Nova Scotia's, at $23 and $31, respectively.
As well as the cap and licensing of lenders, the province's Ministry of Small Business and Consumer Services said the new rules include:
- Prohibitions on certain industry practices, including "rollover" loans, which occur when a consumer gets a second loan from a lender before the first is repaid.
- Giving borrowers a two-day cooling off period to cancel a loan without giving a reason and without incurring a penalty.
- Establishing an Ontario Payday Lending Education Fund, paid for by licencees.
Licensing lenders means the province can discipline them by prosecuting violations, and taking away licences.
The new rules come into effect between April 1 and July 1.
"We believe these steps give consumers the protection they need when dealing with payday loans," Laurie Campbell, executive director of Credit Canada, said in the government news release.
The payday business has said its rates are high because of the risk it faces.
"A significant percentage of our clients take out loans here with the intent to never pay it back, and often times we cannot collect the money. In addition, there are some customers who are very adept at defrauding payday lenders — essentially stealing our money," an individual who identified himself as a payday loan store manager said on a posting on a CBC.ca story.
Ontario has about 750 of the 1,350 payday loan storefronts in Canada. Lenders also make loans through the Internet and by telephone.
The total payday loan volume in Canada is estimated at $2 billion a year. The average storefront lends about $1.5 million a year and makes 5,000 individual loans averaging $300 each.