Payday loans have become increasingly popular since coming to Canada in the early 1990s. Though they offer quick cash when you need it, you may end up paying back more than you anticipated.
New regulations are offering stronger protections designed to provide you with the information you need to make informed decisions about short-term borrowing. These rules will help you develop a better understanding of the costs involved before entering into a credit agreement.
What is a Payday Loan?
A payday loan is a small value, unsecured loan made to a borrower who guarantees repayment with a post-dated cheque or pre-authorized debit. Lenders typically require borrowers to prove three months of continuous employment, produce a recent utility bill in their name to establish address, and have an active chequing account. No credit check is performed.
In Canada, loans typically reach a maximum advance of 50 per cent of the borrower’s net pay. The average loan in Canada is approximately $300 with a term of 10 days to two weeks.
There are approximately 1,350 stores operating in Canada, with 700 in Ontario.
New Ontario Regulations
On March 31, 2008 the Ontario government introduced the Payday Loans Act, 2008, which:
- Requires lenders and brokers to be licenced
- Provides authority to set a total cost of borrowing ceiling
- Prohibits back-to-back and concurrent loans
- Permits borrowers to cancel loan agreements without penalty within 48 hours
- Imposes serious penalties for lenders who break the act
Under the proposed Payday Loans Act, lenders will face significant penalties for non-compliance. An education fund to educate Ontario consumers in financial management and the dangers of high-cost credit would also be established under the act.
As of August 1, 2007, Ontario regulation require payday lenders to:
- Prominently display posters that disclose the cost of borrowing for payday loans.
- Use a standard form and content credit agreement disclosing the details of a borrower’s payday loan.
- Provide funds to the borrower immediately upon signing their credit agreement.
These measures will improve the consumer’s ability to compare rates before borrowing, fully understand the terms of their loan and ensure that all charges are included in the disclosed cost of borrowing.
