Payday loans in Canada

Payday loans in Canada are permitted under section 347.1 of the Criminal Code of Canada, so long as the province of the borrower has enacted sufficient provincial legislation concerning the provisioning of payday loans. In the event that no such provincial legislation exists (as is the case in New Brunswick, Quebec and Newfoundland and Labrador) payday loans are limited by usury laws, with any effective (compound) rate of interest charged above 60% per annum considered criminal.

On August 14, 2006, the Supreme Court of British Columbia issued its decision in a class action lawsuit against A OK Payday Loans.^[1] A OK charged its customers 21% interest, as well as a "processing" fee of C$9.50 for every $50.00 borrowed.^[1] In addition a "deferral" fee of $25.00 for every $100.00 was charged if a customer wanted to delay payment. The judge ruled that the processing and deferral fees were interest, and that A OK was charging its customers a criminal rate of interest. The payout as a result of this decision is expected to be several million dollars.^[2] The British Columbia Court of Appeal unanimously affirmed this decision.^[3]

Provincial regulations

24 Hour Payday Loan Outlet on Yonge St. Toronto, ON

In 2006, the Criminal Code of Canada was amended to allow for Provinces to regulate the payday loan industry.^[4]

Every province other than Quebec and Newfoundland and Labrador has enacted some legislation to deal with payday loan restrictions since 2006, although New Brunswick is still incomplete.

British Columbia

Since November 1, 2009, the Payday Loans Regulation (under the Business Practices and Consumer Protection Act)^[5] have been in force in British Columbia. The maximum charges for short term loans have been capped at 23% of the principal (including interests and fees), the borrower can cancel the loan by the end of the following day of signing the agreement without paying any charge, only 1 loan per borrower at a time is permitted, and the lenders ability to access the borrower's bank or employer has been restricted. In addition, lenders are prohibited from lending more than 50 percent of a borrower's take-home pay or requiring repayment before the borrower's next payday. All lenders are required to register and are regulated under the Business Practices and Consumer Protection Authority (also known as Consumer Protection BC).^[6]

Alberta

Alberta allows payday loans at rates up to 23%.

Saskatchewan

In June 2010, the government of Saskatchewan announced regulations on payday loans similar to those in British Columbia. They include an interest rate cap of 23% of the principal, a cap of 30% on a defaulted loan, and a borrowing limit of 50% of the net amount of the individual's next pay. Companies offering payday loans will be charged a licensing fee of $2,000 per location.^[7]

On January 1, 2012, The Payday Loans Act 2012 came into effect in Saskatchewan.^[8]

Manitoba

Manitoba has the most restrictive rates of any province (other than Quebec and Newfoundland and Labrador that prohibit all payday loans) at 17% per 2 weeks.^[9] Additionally, any subsequent loans taken out by the same customer within a certain time period are limited to 5%.^[9]

Ontario

Ontario enacted the Payday Loans Act, 2008 ^[10] to limit the fees charged on loans in Ontario to $21 per $100 borrowed for a period of two weeks.^[11] The effective annual interest rate is 14,299%((1.21^(365/14)-1)*100), while the equivalent annual simple interest rate is 548% ((0.21*(365/14))*100).

In February 2013 the province is attempting to revoke the license of Edmonton-based The Cash Store to operate in the province due to violations of the Act.^[12]

New Brunswick

In 2008, the province of New Brunswick laid out a regulatory framework for licensing payday lenders but has not yet determined the maximum interest rates. Until this occurs, the federal government is unable to issue an exemption to the province under Criminal Code section 347.1 making payday loans effectively illegal at any rate over 60% per annum.

Nova Scotia

Nova Scotia initially permitted payday loans at 31%, but has since reduced the maximum rate to 25%.

Prince Edward Island

Prince Edward Island has imposed a limit of fees charged on loans to $25 per $100 borrowed for a period of two weeks.^[13] The effective annual interest rate is 33,519%((1.25^(365/14)-1)*100), while the equivalent annual simple interest rate is 652% ((0.25*(365/14))*100).

Quebec and Newfoundland and Labrador

Quebec and Newfoundland and Labrador have opted to prohibit payday loans outright. Quebec has chosen to limit interest on all loans to 30% annual interest, whereas Newfoundland and Labrador has chosen to enact no legislation on the matter, thereby leaving any restrictions up to the federal government's cap of 60%. Since the effective annual interest rates on payday loans are typically over 5,000% (Manitoba with the lowest rate of $17 per $100 borrowed, (1.17^(365/14)-1)* 100)), this makes payday loans effectively illegal in both provinces. However, it appears that a payday loan industry exists in Newfoundland and Labrador, with the provincial prosecutors determining "the prosecution of those offences was not in the public interest."^[14]

References