Ontario forces payday lenders to disclose all fees, considering more regulation
- PUBLICATION: Canadian Press
- AUTHOR: Michelle McQuigge
- DATE: April 30, 2007
TORONTO (CP) _ Customers looking to take out a payday loan in Ontario will soon have a clear picture of the interest rates and fees they are handing over, according to new regulations released Monday.
Ontario introduced measures that will force lenders to disclose all fees and interest rates they charge less than a week after a federal bill empowered provinces to rein in business practices at unlicensed payday lenders across the country.
Lenders will be required to post a 61-by-76-centimetre sign inside their retail outlets clearly spelling out the interest rates, brokerage fees, cheque-cashing fees and additional costs incurred when a customer borrows $100, Ontario's Government Services Minister Gerry Phillips said Monday.
Currently, there are no standards regulating the interest rates or fees that payday loan providers charge.
According to an online calculator at www.moneymart.ca, for instance, a $200 loan would incur $36.81 worth of fees over 14 days. Money Mart's annual percentage rate of interest is 46.44 per cent, according to the company's online loan agreement.
In some other cases, however, the fees can sometimes be several hundred times higher than those charged by banks or credit cards, Phillips said.
"None of the provinces that I'm aware of yet have done this clear disclosure of the borrowing cost in the retail outlets," he said in an interview.
"I think the consumer needs to know what it's costing. This will give them an absolutely clear idea."
The new rules also state that customers will now sign standardized contracts regardless of which lender they use and will receive their loan right away after signing the agreement.
Stan Keyes, president of the Canadian Payday Loan Association which represents 24 payday loan companies, acknowledged that Ontario's new measures are a first in Canada, but challenged the province to implement even tougher rules.
"Ontario should be applauded for bringing forward measures to protect the consumer of Canadian payday loans, but at the same time we're also hopeful that the Ontario government will go further," Keyes said.
Manitoba and Nova Scotia have already passed legislation enforcing caps on the interest rates and fees lenders can charge.
New Brunswick, Saskatchewan, Alberta and British Columbia are in the process of enacting similar legislation and are setting a standard that Ontario should uphold, Keyes added.
"We're hopeful that ... they will have a look at some of the content of that legislation and mirror some of the solid consumer protection issues," he said.
Phillips said the Ontario government is considering similar steps, but added no firm plans will be made until the public have had a say.
The ministry issued a consultation report designed to provide background information and determine whether consumers are in favour of tougher measures.
Joe Tascona, government services critic for the provincial Conservatives, said he was disappointed that Phillips did not bring the issue before the legislature and instead implemented regulations that were not subject to scrutiny by the opposition.
"Manitoba brought in stand-alone legislation, and that's what I would have expected Ontario to do, but they obviously don't want to do that. They just want to tinker with it," Tascona said.
He also criticized the new measures for failing to protect consumers from sky-high interest rates.
"It's nice to have signage, the question is whether they're reading it," he said. "I think what's more important is to make sure that the loan arrangements they're allowed to get into are where they're protected."
Phillips anticipates that the new disclosure rules, which take effect on Aug. 1, will have a positive impact on consumers by introducing competition into an industry dominated by two lenders.
"One of the advantages of what we're doing right here in requiring these people to disclose clear costs, maybe some competition will come in and the costs will come down as people compete for business," he said.