The Ontario Government has posted the Proposed Regulatory Amendments to the General Regulation (O. Reg 98/09) of the Payday Loans Act (the "Act") to seek comments from the public. The present draft provides that the Act would apply to several types of loans not previously regulated, including loans of $5,000 or less. Lenders caught by the Act face numerous obligations and restrictions, including licensing requirements, disclosure obligations, cooling off periods for borrowers, prohibitions on the offering of other services in connection with the making of loans and a prohibition against receiving any portion of cost of borrowing until the end of the term of the loan agreement. The cap on the cost of borrowing currently applicable to payday loans will not apply to loans caught by the proposed amendments.

The proposed amendments extend application of the Act to the following types of loans ("Prescribed Loans"):

"... 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 10 per cent of the principal amount of the loan."

Lenders making Prescribed Loans will be caught so long as either the borrower or the lender is located in Ontario.

The current draft of the proposed regulatory amendments broadens the scope of the Act to capture a wide range of loans not typically considered to be payday loans, including the financing of low and medium value items, such as used cars, computers, furniture, and electronics.

The Act is to apply, "with necessary modifications", to Prescribed Loans in the same manner as it applies to other payday loans. However, there is no suggestion as to what these "necessary modifications" will be or what form they will take. Accordingly, there will be uncertainty or a need for further regulation given that the Act and current regulations are written specifically for payday loans and not the types of loans contemplated by the proposed amendments.

The Act was originally put in place in response to the Federal Government's Bill C-26 passed in 2008. Bill C-26 amended the Criminal Code (Canada) by exempting payday loans of $1,500 or less from the prohibition against charging a rate of interest in excess of 60% per annum in circumstances where a province elected to pass legislation regulating payday loans in a manner that imposed a maximum total cost of borrowing and other consumer protection provisions. Many in the industry never expected the Act to be broadened in the manner contemplated by the proposed regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.