In the fall of 2013, the Ontario government sought comments on a proposed new regulation under the Payday Loans Act, 2008 (the “Act”) that was largely aimed at the use of short repayment term lines of credit by those seeking to avoid being regulated under that Act. As we reported previously, the language used in that draft was so broad that it caught many others who would not be thought to be payday lenders, such as those making micro loans on a not-for-profit basis as part of a charitable microfinance program. This author and others made submissions to the government about the problems created by this draft.
On December 17th, 2013, Ontario published the final version as Regulation 351/13 made under the Act, which goes into effect 60 days from December 17th. This version exempts not-for-profit loans made to consumers. The Regulation can be found here.
Of note for not-for-profit lenders are the following sections of this Regulation:
- These changes apply to consumer credit transactions:
The Act will now apply to the following loans which are now classed as “payday loans”:
2(2) …, a loan is prescribed for the purposes of subsection 2 (2) of the Act if it is a loan under which a lender, except an entity or individual described in subsection (3), extends credit to a borrower who is a consumer so that the borrower may take one or more advances for up to an aggregate amount of principal and to which at least one of the following criteria applies: ….. [specific loan terms].
The definition of “consumer” is the same one we use today under the Consumer Protection Act, 2002 (Ontario), as follows:
“consumer” means an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.
- Not-for-profit lenders are fully exempted from the Regulation:
The Ministry listened to the submissions and has sought to exempt from the Act persons, including people and other non-incorporated bodies, which make not-for-profit loans. This exemption reads as follows:
2(3) The following are the entities and individuals to which the exception mentioned in subsection (2) applies:
- A corporation without share capital to which Part III of the Corporations Act, the Not-for-Profit Corporations Act, 2010, Part II of the Canada Corporations Act, the Canada Not-for-Profit Corporations Act or comparable legislation of another province or territory of Canada applies.
- A registered charity within the meaning of the Income Tax Act (Canada).
- An individual, partnership, trust or an unincorporated body or association that does not carry on his, her or its activities for the purpose of gain or profit.
Regulated financial institutions (banks, credit unions, stock brokers and insurers) are exempted from the application of these changes as well under section 2(3), whether they make micro loans in partnership with not-for-profit lenders, or engage in other consumer credit transactions.
These exemptions are good news to charitable and not-for-profit lenders who may continue to make their micro loans to consumers outside of this new regime.