Ontario wants to revoke licence of payday cash stores
CBC News has learned that the Ontario government will try to revoke the licence of Cash Store Financial Services, one of the biggest cash advance stores in the country.
The Ontario Ministry of Consumer Services alleges the company broke Ontario's Payday Loans Act, which limits the fees that can be charged by payday loan companies.
Cash Store Financial Services has 200 outlets in Ontario alone: branded as InstaLoans and The Cash Store.
They operate in 19 different communities in the province.
The Ministry of Consumer Services alleges the company is guilty of "several violations" the Act. It says Cash Store has charged customers fees higher than the maximum allowed — no more than $21 for every $100 borrowed — or charged prohibited fees.
Anyone who tried to take out a payday loan at their locations in the province were required to take out the money, not in cash, but on a prepaid debit card. Cash Store allegedly charged additional fees — up to $18 to activate the card, $8 a month to keep it active and $10 to load it again — on top of the $21 fee per $100.
The ministry is asking a provincial tribunal to revoke the company's licence.
Company seeking a hearing
Cash Store Financial Services issued a statement requesting a hearing into the matter. The company also says it’s changed the way it does business in Ontario, and says it no longer offers payday loans in the province, so any move to revoke those services won’t disrupt its operations.
The company also says the government has tried to force it to deliver payday loans in cash rather than on prepaid debit cards and has tried to stop it from selling products other than payday loans.
Executives at Cash Store's head office in Edmonton did not return calls from CBC News seeking comment.
Government officials are calling this a "major consumer protection enforcement action" and say they will release more information on Wednesday.
Incoming Premier Kathleen Wynne said Wednesday the Liberals brought in the Payday Loans Act to stop companies from gouging consumers.
"There were vulnerabilities for people who were using those services, and we want to make sure they're protected," she said in a press conference, but but she declined to comment on this specific case.
More regulation needed, says NDP MPP
The province brought in the Payday Loans Act in 2008 — designed to stop companies from charging exorbitant or hidden fees when lending money to the working poor.
Among the regulations in the act is a limit on the total cost of borrowing — a maximum $21 on every $100 borrowed.
But NDP MPP Cheri Di Novo says this rate is exorbitant, and that $21 charged for a two-week pay day loan actually translates to hundreds of per cent interest when calculated over a full year, similar to other loans such as a mortgage.
She says the provincial government needs to do more to protect consumers, and that the current act does not go far enough. In 2007, Di Novo tried to pass a private member's bill to cap the interest rate at 35 per cent, but it was unsuccessful.
"If you ask most Ontarians, is charging more than 35 per cent interest in this day an age, when interest rates are around the one per cent to three per cent range, is that reasonable?" Di Novo said.
"I would say that's more than reasonable in terms of making a profit. Most banks would be doing handstands if they could charge that kind of interest rate."
Loan contract has layers of fees, user says
Other than the fee cap, there is no maximum interest rate that these companies can charge, according to the Ministry of Consumer Services.
One payday loans user, who asked only to be identified as Joe, said these financial transactions were a scam.
But, he said he and his partner had no choice but to use them. Last week, they borrowed $500 from a Cash Store location —a loan that he says will cost him $650 to pay back.
He told CBC News he is being charged 17 per cent interest, on top of all the other costs. The loan contract comes with much fine print, and many layers of fees, Joe says.
"They're taking advantage of people who don't have any other options," he said.
With files from the CBC's Dave Seglins and Nil Koksal