On September 12, 2013, the Ontario Ministry of Consumer Services (MCS) announced that it is reviewing the Payday Loans Act, 2008 (the Act) to keep up with the "rapidly evolving payday loan industry". The review overlaps with a consultation period already underway in respect of proposed amendments to the General Regulations under the Act, which, if implemented, will extend the reach of the Act far beyond what its "Payday Loans" title suggests. While the MCS has not indicated whether the review will address the proposed amendments, there is speculation that issues with the amendments raised during the consultation period may inform the larger revision of the Act and related regulations.
The Act was originally passed by the Ontario government in 2008, purportedly to regulate short-term loans for small amounts of money. Subsection 2(1) of the Act states that the Act "applies in respect of all payday loans if the borrower, lender or loan broker is located in Ontario when the loan is made or to be made". "Payday loans" is defined broadly under the Act as "an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security on property and not through a margin loan, pawnbroking, a line of credit or a credit card". Those who offer payday loans are required to be licensed and provide specified disclosure to borrowers, are subject to restrictions on default charges and are prohibited from offering rollover loans, among other things.
Subsection 2(2) of the Act provides that the Act also applies "... to those loans, other than payday loans, that are prescribed and in that case the references to payday loans in this Act shall be read as references to those other loans". The Proposed Regulatory Amendments to the General Regulation (O. Reg. 98/09) of the Payday Loans Act, 2008 (the Amendments) prescribe "other loans" to which the Act will apply. Specifically:
"1.1(1) A loan described in subsection (2) is prescribed for the purposes of subsection 2(2) of the Act.
(2) Subsection (1) applies to a loan under which a lender extends credit to a borrower so that the borrower may make one or more draws for up to an aggregate amount of principal and to which one of the following criteria applies but does not apply to a loan that is secured against real property:
1. The aggregate amount is $5,000 or less.
2. The borrower is not entitled to make a draw without first obtaining authorization, approval or permission of any kind from the lender or any other person, whether or not there is a charge for obtaining the authorization, approval or permission.
3. The borrower is required to make repayments of the principal amount of the loan or payments of any other amounts under the loan on a schedule that corresponds to the days on which the borrower is regularly due to receive income.
4. The amount that the borrower is required to pay in any 30-day period under the loan, except for the last such period, includes one or more repayments totalling at least ten per cent of the principal amount of the loan."
The Amendments may come into force as early as October 31, 2013. If they come into force as currently drafted, they will bring a wide variety of lenders within the scope of the Act. For example, those offering financing for consumer goods, micro loans to not-for-profits and credit unions offering personal loans may find themselves subject to extensive regulation.
In response to the concerns raised by this proposed expansion of the Act, the MCS has taken the position that the broad sweep of the Amendments is intentional. In order to temper the Amendments, the MCS is choosing to exempt a list of specified industries and specific types of loans. Therefore, the purpose of the consultation period is to gather information about what exemptions should be allowed. Given the breadth of the Amendments, there is concern whether a list of exemptions can be sufficiently comprehensive.
Whether or not the review of the statute will be shaped by comments made during the consultation period for the Amendments remains to be seen. The consultation period for the Amendments ends September 30, 2013. Interested entities are encouraged to make their submissions to the MCS before such date.