On June 14, 2015 the Ontario Ministry of Government and Consumer Services launched a consultation process seeking feedback on proposed approaches for consumer protection for services including alternative financial services, payday loans, money transfer services and debt collection. The feedback will be used by the Ministry to advise the Government of Ontario on legislative and regulatory reforms governing businesses that market and provide these types of services to consumers. The consultation paper outlines a number of potential reforms that impact, amongst others, payday lenders, loan brokers, purchasers of overdue debt and debt collectors.
The biggest impact to the commercial finance industry is the proposed changes to debt collection and settlement. In reviewing the proposed exemptions identified below, it would be helpful to advise us of any concerns you may have prior to the deadline for submitting feedback to the Ministry (August 14, 2015), particularly given that the proposed new licensing requirement may be onerous and costly for businesses that are not currently subject to the legislation.
Currently, the Collection and Debt Settlement Services Act does not apply to a purchaser of overdue debt. The Ministry proposes amendments to this Act so that it applies to the collection of purchased or assigned overdue debts resulting in a purchaser of such debts who wants to collect on them having to be registered as a collection agency. The Act would be reviewed to ensure that the expansion of businesses that are regulated under the Act does not result in onerous, inadvertent consequences. The Consultation Paper contemplates some exemptions to avoid capturing situations that arise in the course of ordinary business activities and is seeking commentary as to whether the following exemptions to the proposed reform would suffice:
- “exempting businesses who purchase debt through acquiring or merging with a business in a transaction that includes the transfer of accounts receivables”
- “exempting businesses who enter into contracts and assign payment rights to a third party, but continue to collect payments on behalf of that third party”
- “exempting businesses who acquire debt through seizure of accounts receivable under a security agreement”
- “exempting business who act as a billing service through which third parties bill for goods or services”
- “exempting a person to whom the agreement that gives rise to the debt was assigned for the purpose of financing the transaction”
While certain exemptions are broad and may cover most of the transactions entered into by our clients, such exemptions are somewhat vague as to their meaning and may need greater clarification.
Additional reforms proposed in the Consultation Paper include:
- requiring a debt collector to establish the correct contact information for a debtor prior to providing an initial collection notice
- allowing debtors to require subsequent communication by a collection agency to a debtor to continue only in writing
- the imposition of administrative penalties for failure to comply with the Collection and Debt Settlement Services Act
Alternative Financial Services
Alternative financial services are non-traditional financial services (i.e., those offered outside of a bank or credit union) and include instalment loans, payday loans, money transfers, cheque cashing, pawn-broking and rent-to-own. The proposed reform seeks to provide clarity to consumers as to the full costs of these services and how the services compare to traditional financial services. The inclusion of instalment loans is troubling because it imposes an additional regulatory regime applicable to the auto finance industry which is already regulated under various provincial legislation such as the Motor Vehicle Dealers Act. Proposals include:
- uniform disclosures of pricing
- establishing a price regulation for particular services (e.g., limiting the dispensing fee of cheque cashing services or limiting the price rent-to-own dealers can charge to a multiplier of the dealer’s wholesale cost)
- imposing a new licensing regime
The proposals in the Consultation Paper review a range of legislative and regulatory approaches to address specific matters in respect to payday lending, including:
- proposing a centralized transaction tracking system to record all payday loan transactions, such that if a payday loan to a borrower would violate specified criteria, then the payday loan will not be issued to the borrower
- restricting a borrower from seeking concurrent loans from multiple payday lenders
- requiring payday lenders to assess the credit worthiness of a borrower as to the borrower’s ability to repay the loan
- expanding inspection powers under the Payday Loans Act to include unlicensed payday lenders and loan brokers
- restricting the number of payday loans a borrower can take out per year
- prohibiting payday lenders from purchasing gift cards
The Consultation Paper proposes enhanced disclosure of fees payable by consumers who use money transferring and currency exchange services. Providers of money transferring services would be required to prominently post notices of the associated fees in their place of business using clear and plain language.