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Proposed technical amendments

Bill 25 -- Consumer Protection Amendment Act (Payday Loans)

Purpose

The purpose of this paper is to provide the Minister of Finance and Consumer Affairs and the Office of Consumer and Corporate Affairs, Manitoba Finance, with proposed technical amendments to Bill 25, the Consumer Protection Amendment Act (Payday Loans), introduced in the Manitoba Legislature, March 13, 2006.

The Canadian Payday Loan Association (CPLA) is in principle supportive of Bill 25.

The proposed technical amendments outlined in this paper will, in the opinion of the CPLA, better ensure that the legislation meets its primary objectives, which are to ensure a viable industry and to protect consumers.

A summary of the CPLA’s position is outlined below, followed by specific proposed amendments detailed on a clause-by-clause basis. Where warranted, supporting rationale is also provided.

Summary of CPLA position

The CPLA represents the majority of payday lenders in Canada. The CPLA has been calling on provincial governments to introduce regulations that will allow for a viable payday loan industry and protect consumers.

To enable provinces to implement such measures, we have also called on the federal government to amend s. 347 of the Criminal Code of Canada, thus allowing provinces to establish maximum fee levels for payday loans.

On this basis, we support the principal objectives of Bill 25 which we believe to be the following:

• To recognize the high demand for payday loans and the need for a viable industry fairly constrained by measures to protect consumers;
• To implement a comprehensive regulatory framework that includes a licensing framework;
• To enable the province to regulate the charges associated with payday loans.

In respect of the latter, we are supportive of the province’s formal request to the federal government to amend the Criminal Code of Canada, notice of which was given to the public upon tabling of Bill 25.

A stable industry is a fundamental component of an effective consumer protection regime. In general, the proposed technical amendments are designed to provide industry with an appropriate degree of certainty in respect of the regulator’s mandate and under Bill 25.

Principle areas of concern

• “Payday loans” must be defined in the Act, and not subject to change through regulation. As the entire Act governs payday loans, the definition of the subject of the Act must be certain.
• In several areas the legislation provides a level of discretion to the Director which in the opinion of the CPLA is too broad. This broad discretion could open the way for unnecessary interference in the business of payday lenders and, potentially, an unequal treatment by the Director of each lender.
• In some cases, the penalties for non-compliance contemplated by Bill 25 appear to be too onerous and unnecessarily expensive.
• The establishment of maximum lending rates for competing financial institutions falls outside of the traditional mandate of the Manitoba Public Utilities Board (PUB), which has been to set rates for regulated monopolies.
• Bill 25 should explicitly charge the PUB with determining a rate structure that will have as its principle objective to maintain a viable and competitive payday loan industry.
• The Public Utilities Board Act, Part I grants powers to the Board to require the doing of certain acts by payday lenders which could include publicly divulging corporate information of a sensitive nature. While these powers are appropriate for the regulation of public monopolies, they are inappropriate for privately held corporations.
• In keeping with the intent of Bill 25, the PUB’s powers in respect of payday lenders must be restricted exclusively to the setting of rates for the industry. In some areas, the Public Utilities Board Act, Part I, extends powers to the Board that are not within the jurisdiction of the Act, as determined by Bill 25.

Specific proposed amendments are outlined below on a clause-by-clause basis.

Proposed technical amendments

Preamble

Definition of “person” in subsection 1 (1) should include “corporation.”

This specificity is required to provide clear direction to the industry regarding the applicability of the legislation.

Definitions

137

The definition of a payday loan must not be “subject to the regulations.” This reference must be removed from the existing definition. More specifically, the definition of “payday loan” must be defined in the Act, and subject to change only through an amendment to the Act.

As the entire Act governs payday loans the definition should be certain. If by regulation one can change the subject of the Act and its regulations, and the object of the hearings of the public utilities board hearings, then the effect and purpose of the legislation changes. Any change to the definition of payday loan is so fundamental that it should be done through changes to the Act, rather than regulation.

More than one licence required

140 (2)

This requirement is too onerous and serves no business purpose and, further, it is inconsistent with licensing provisions for other industry sectors operating in other Canadian jurisdictions.

This clause should be amended to require that the licensee hold only one license with specific terms, with a requirement to provide notification of any locations that will open to operate under those same terms and conditions.

Terms and conditions of licence

141 (2)

The industry would like to see consistent and standard terms and conditions of license. 141(2) allows the Director to set different terms and conditions for every applicant which defeats one of the objectives of the legislation which is certainty for the industry and consumers. Terms and conditions of license should be set by regulation.

Under the wording of this Act the discretionary powers of the director are so broad and subjective that it potentially allows for a significant change in the application of the Act from one Director to another.

Refusal to issue licence

141 (2) (a) (ii)

“Opinion of the director” provides too broad of a discretion, as does “any other Act.” 141 (2) (a) (ii) should restrict its reference to the Criminal Code of Canada and possibly reference to breaches of financial institutions related statutes.

Applicability of the clause should be restricted to a reasonable time limit. A limit of 3 or 5 years would be appropriate.

142 (1) (c)

Clause should only use the terms “false or misleading.” The terms “incomplete” or “inaccurate” should be removed.

In instances where “incomplete” or “inaccurate” information has been provided, the Director should request further information, rather than refusing the application.

142 (1) (d) (i) and 142 (1) (d) (ii)

The applicability of sub-clauses i and ii should be restricted to a reasonable time limit. A limit of 3 or 5 years would be appropriate.

142 (1) (f)

“In the director’s opinion” provides too broad a discretion. 142 (1) (f) should be removed as the Director cannot reasonably predetermine whether an applicant will carry on business according to law or with integrity and honesty.

These determinations can only be made after the fact, based on actual evidence.

142 (1) (g)

This clause should be removed, as in “the public interest” is too broad of a reference.

Refusal to renew, cancellation or suspension

143(1) (b)

The terms “incomplete” or “inaccurate” should be removed from this clause.

In instances where “incomplete” or “inaccurate” information has been provided, the Director should request further information, rather than refusing the application.

Notice required

143 (2) (b)

To allow sufficient time to make a decision whether to appeal, 14 days should be changed to 30 days.

Extension of time

143 (3)

To reflect the proposed amendment to 143 (2) (b), 14 days should be changed to 30 days.

How to appeal

144 (2)

To allow sufficient time for proper consideration of the Director’s decision, 14 days should be changed to 30 days

Consequences of failure to comply

147 (2) (b)

“Immediately upon demand by the borrower or the director” should be removed. Obligation to repay will arise upon determination of the director, following expiry of the appeal period, or if appealed, a determination of the court.

“This is in addition to any penalty that the lender may be subject to under any other provision of this Act or the regulations” is a very onerous clause. There already is a provision to add a penalty. For example, if a lender inadvertently charges an additional 1 cent, on a $50 charge, then the $50 total is payable.

The lender must be given the opportunity to appeal to the Director if the lender feels that the penalty is too harsh. The Director must have discretion to mitigate the penalty if circumstances warrant.

Documents to be given at time of initial advance

148 (1) (a) (iii)

This clause should be amended to provide greater specificity and to include a rescission period more appropriate to the payday loan product.

Amended clause should read as follows: “gives notice of the borrower's right to rescind a payday loan at no cost before the close of the next business day from the premises at which the loan was obtained after receiving the initial advance or the card or other device.”

The purpose of a right to rescind is to provide "sober second thought". Some jurisdictions provide a rescission period for long-term loans of more substantive amounts, such as mortgages or large consumer loans. Relative to a payday loans, these long-term products are more substantial and far more complex and involve a significant commitment by the consumer. Payday loan customers have a very clear understanding of the payday loan product, the cost associated with it and the terms under which it is lent.

Payday loans are for small sums of on average $280. The loan period typically does not exceed 14 days, and is often for a much shorter period. The 48 hour rescission period contemplated by Bill 25 provides significant opportunity for borrowers to exploit the legislation to obtain free credit.

148 (1) (a) (iv)

If the intention of this clause is to provide notice of right to rescind, this requirement is already satisfied though 148(1) (iii). It creates excessive paperwork and it appears to serve no purpose in respect of consumer protection.

Borrower may cancel within 48 hours

149(1)

This clause requires greater specificity and must reflect requisite amendments to 148 (1) (a) (iii). Remove “payday loan within 48 hours — excluding Sundays and other holidays” and replace with “before the close of the next business day from the premises at which the loan was obtained.”

Procedure for canceling loan

149 (4) (a)

For greater specificity add “at the premises where the loan was obtained”

149 (4) (b)

For greater specificity add “at the premises where the loan was obtained”

Payday lender to give receipt

149 (6)

As we have recommended that 148 (1) (a) (v) be removed, reference to this sub-clause must be removed from 149 (6).

“In the form referred to in sub-clause 148(1)(a)(v), for what the borrower paid or returned to the payday lender upon canceling the loan” should be removed and replaced with “in the form prescribed in the regulations”

Consequences of failure to comply

152 (2) (b)

“Immediately upon demand by the borrower or the director” should be removed. Obligation to repay will arise upon determination of the director, following expiry of the appeal period, or if appealed, a determination of the court.

Consequences of failure to comply

153 (2) (b)

“Immediately upon demand by the borrower or the director” should be removed. Obligation to repay will arise upon determination of the director, following expiry of the appeal period, or if appealed, a determination of the court.

Consequences of failure to comply

154 (2) (b)

“Immediately upon demand by the borrower or the director” should be removed. Obligation to repay will arise upon determination of the director, following expiry of the appeal period, or if appealed, a determination of the court.

Information to be posted

156

The Act defines "payday lender" to include a "person who offers, arranges or provides a payday loan" and so in a loan transaction where for example there is a broker there can be more than one "payday lender" as defined under the Act being the broker who arranges the loan and the lender whose money is advanced. Sec 156 is an example (as are sections 148 and 149) of an action a Payday lender must take i.e. post a sign, provide a document or receipt. It does not make sense for each "payday lender" to post the same signage in a location or to provide duplicate documentation. Therefore 156 for example should be amended to state "Signs must be posted at each location at which the lender is licenced..." rather than "A (which means each) payday lender must post signs..."

Records to be made available for inspection, etc

158

For greater specificity, “Records” should be defined as “records related to a payday loan transaction”.

Sub clause (a) should therefore be amended as follows: (a) make the “records related to a payday loan transaction” that he or she is required to maintain …

Sub clause (b) should therefore be amended as follows: (b) if the “records related to a payday loan transaction” are not maintained in Manitoba …

Warrant to enter and inspect

161 (1)

Add sub clause (c), as follows: “The inspector has reasonable grounds to believe that there are records relevant to the administration or enforcement of this Part are kept on the premises”

Regulations

163 (1) (a)

The definition of a payday loan must not be “subject to the regulations.” This reference must be removed from the existing definition. More specifically, the definition of “payday loan” must be defined in the Act, and subject to change only through an amendment to the Act.

As the entire Act governs payday loans the definition should be certain. If by regulation one can change the subject of the Act and its regulations, and the object of the hearings of the public utilities board hearings, then the effect and purpose of the legislation changes. Any change to the definition of payday loan is so fundamental that it should be done through changes to the Act, rather than regulation.

What the Board may consider

164 (4)

Clause to be amended as follows: “in making an order under this section, the Board shall have as its objective, maintaining a viable and competitive payday loan industry.”

The establishment of maximum lending rates for competing financial institutions falls outside of the traditional mandate of the Manitoba Public Utilities Board (PUB), which has been to set rates for regulated monopolies.

Bill 25 should explicitly charge the PUB with determining a rate structure that will have as its principle objective to maintain a viable and competitive payday loan industry. We believe that this additional guidance will ensure that the PUB takes an appropriate approach both in the Public Hearings proves and during the actual design phase of the rate structure.

The CPLA considers this a priority amendment to Bill 25.

Application of Public Utilities Board Act

164 (13)

This clause should be amended to also exclude from the application of Part I of the Public Utilities Board Act the following sections: 28 and 57.

In addition, section 34 of Part 1 of the Public Utilities Board Act, must be amended.

The specific rationale for these recommended changes to application of Part 1 of the PUB Act is as follows:

Section 28

This section grants powers to the Board to require the doing of certain acts by payday lenders which could include publicly divulging corporate information of a sensitive nature. This power is too broad. While these powers are appropriate for the regulation of public monopolies, they are inappropriate for privately held corporations.

Section 34

Section should be amended to delete “and the board may order by whom the fees and expenses of the person so appointed shall be paid.

These costs are incidental to proceedings before the board, and should be excluded as was done by excluding the applicability of 56 (1).

Section 57

This section should apply in respect of the jurisdiction extended by Bill 25, as the section applies specifically and exclusively to regulated monopolies. In respect of payday lenders, the PUB’s mandate is exclusively to set rates for the industry and the Board has no jurisdiction to set tariffs or to conduct investigations or audits.