The Ontario government introduced a proposal for providing stronger regulatory protection to users of alternative financial services, such as instalment loans. Payday loans were not considered under this proposal. In our comments, we indicated support for any measures that limit the total cost of borrowing of such high-cost credit agreements. We also made recommendations on how such agreements should be defined, and indicated support for measures such as, mandating licensing requirements, introducing new disclosure requirements, and providing more clarity and transparency. See our submission for more details.
PIAC commented on Ontario Alternative Financial Services: High-Cost Credit Consultation
The Ontario government introduced a proposal for providing stronger regulatory protection to users of alternative financial services, such as instalment loans. Payday loans were not considered under this proposal. We strongly support any measures to protect borrowers who use high-cost credit agreements. These agreements often place borrowers in continuous cycles of debt and lead to significant debt accumulation, which takes a long time to pay off.
We strongly supported any measures that limit the total cost of borrowing of such high-cost credit agreements. The proposal defined a high-cost credit agreement as one with an annual percentage rate (APR) that exceeds the Bank Rate of the Bank of Canada by 25 percent. We recommended that high-cost credit agreements should be defined as credit agreements with an APR that exceed the lesser of a) 25% + the Bank Rate set by the Bank of Canada or b) 30%. Identifying a floor would ensure that an agreement charging an interest rate of 30% would automatically be defined as a high-cost credit agreement. This would provide clarity and ensure that borrowers understand that in all cases, an agreement charging an interest of 30% and beyond is high-cost credit and that the protections associated with these high-cost credit agreements would apply. Notably, we suggested that the lesser of the two options a) and b) noted above, should amount to high-cost credit agreement. The 30% floor is intended to ensure agreements are defined as high cost even when interest rates rise substantially.
We also supported other measures such as mandating licensing requirements, introducing new disclosure requirements, providing more clarity and transparency regarding optional products and services from a lender, having a cooling-off period longer than that was recommended by the ministry and other measures.
Read our full submission here