On June 15, 2015, the Ontario Ministry of Government and Consumer Services published a consultation paper entitled “Strengthening Consumer Financial Protection” (the “Paper”). The Paper makes proposals and asks for input with respect to what are referred to in the Paper as “alternative financial services” and with respect to certain issues respecting debt collection. The purpose of these proposals is to strengthen consumer protection measures for individuals who do not have access to the mainstream banking system and are considered vulnerable because of a lack of understanding or financial pressures.
Alternative Financial Services
“Alternative financial services” are described as products and services directed to consumers who, because of lower income levels, have limited access to traditional credit sources and who may also be at risk because of language barriers and general lack of awareness with respect to financial matters. The Paper gives as examples: payday loans, cheque cashing, instalment loans, pawnbroking, rent-to-own arrangements and money transfer services.
The Paper asks whether the Government of Ontario should enact specific reforms directed to these alternative financial services, including to require uniform disclosure, price caps, and/or the introduction of a licensing regime (such as the Quebec licensing regime for money lenders or the Manitoba licensing regime for high-cost lenders) where none currently exists.
The Paper focuses primarily on payday lending, and makes a number of specific proposals, including:
- The establishment of a central tracking system which lenders would have to consult before making a loan to prevent simultaneous loans from multiple lenders and to enforce possible waiting periods between loans in an effort to break the cycle of payday loan dependency.
- The imposition of limits on the amount of debt that a single borrower may incur based on the borrower’s financial circumstances.
- Limiting the number of loans that a borrower can take out in a year and/or requiring lenders to provide extended repayment terms to deter repeat borrowing.
- Requiring more or less disclosure and prescribing how the information is presented to increase the effectiveness of that disclosure.
- Limiting increases in the cost of sequential loans to restrict promotional “teaser” rates.
- Restricting or prohibiting payday lenders from purchasing “gift cards” from consumers, often at steep discounts.
Money transfer services
“Money services business” must be licensed under Quebec law and registered under the federal Proceeds of Crime (Money Laundering) and Terrorist Act, but there are currently no requirements under Ontario law for prior disclosure of charges for money transfer services (unless possibly for agreements that are conducted over the internet). Particularly for the members of the public who use services frequently, the cost of transferring funds (usually overseas) is important information and without such information the consumer is not able to compare the costs of different providers. For this reason, the Paper proposes enhanced disclosure of fees, including conspicuous disclosure in establishments where these services are provided.
The Paper makes certain proposals with respect to debt collection, including:
- The extension of the rules respecting debt collection practices to third parties who purchase overdue debts and then collect the debts on their own behalf. Unlike in British Columbia, for example, the current rules under Ontario’s Collection and Debt Settlement Services Act against harassment and other unfair practices do not apply to creditors who collect their own debts (sometimes referred to as “first party collectors”). Given the high percentage of complaints against purchasers of debt, the Paper proposes that such purchasers be made subject to the Act, although certain exceptions are proposed, such as for the purchase of a business, financing arrangements, purchasers from a secured creditor and parties providing billing services on behalf of third parties, such as Enbridge and certain wireless suppliers.
- Collection agents be given the right to make limited initial contact with a debtor before sending out the prescribed initial written notice in order to verify the debtor’s contact information. As well, it is proposed that the written notice identify the original creditor if different from the current creditor and include information as to a debtor’s rights, as initial written notices are often sent to the wrong address, do not contain enough information about the debt and so are confusing when the debt has been sold, and do not include information about a debtor’s basic rights.
- Giving a debtor the right to require that further contact from a collection agency be in writing after a certain number of telephone calls have been made or a certain period of time has passed, to protect a debtor from receiving repeated phone calls.
Comments on the Paper are due by August 14, 2015