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Summer 2016 Newsletter: Financially Uncertain

Payday Loans

PIAC has long advocated for strong legislation in dealing with certain aspects of the financial world: namely, the payday loan and financial planner/advisor industries. In recent months, there has been much discussion in government regarding some safeguards for payday loan users and potentially some order brought to planners/advisors.

Payday loan storefronts have become nearly as plentiful as Tim Hortons’. The industry has become increasingly widespread and  it hasn’t shown any signs of slowing down.  Rough financial patches can obviously come upon people unexpectedly. The problem with taking out a payday loan is that the interest rate often leaves those customers needing to take out another loan to afford their first loan, and then another and another.

“The maximum rate of borrowing is problematic in any jurisdiction. You’re looking at financial products that are charging consumers, if you took the interest and made it annual, anywhere from 400-600%; that’s uncalled for,” observed Jonathan Bishop, Research Analyst for PIAC. “This leads to a situation where consumers are on a virtual ‘hamster wheel’ where they need to keep taking loans out, and keep taking loans out, and there’s really no way to easily get off once you’ve started.”

The Ontario Government has begun to move on this situation by introducing Bill 156, which would address the ‘unending loan’ problem by having the third loan that a customer takes out within 62 days be converted into an installment loan. Currently, the loans have very quick turnaround times, generally a few weeks at best. The Ontario Government is also looking into addressing the rate of borrowing. However, the proposed plan falls short of truly addressing the extremely high interest rate of a payday loan. Jonathan Bishop believes that a public review board should be formed to ensure the rates are reasonable.

“PIAC would like to see a review board for the maximum rate of borrowing,” stated Bishop. “It should be placed in a public utilities-like board, a publicly funded board that takes in evidence from all stakeholders when determining what that rate should be. It’s clear that the market will not take care of lowering the maximum rate of borrowing. Competition has not lowered it. Every time a provincial jurisdiction has set a rate, most of the players in that marketplace have kept the rate pretty much at the maximum. Which demonstrates to us that competition isn’t working the way it would in other markets.”

The payday loan issue in Ontario is still in its consultation phase, with Bill 156 being offered to a legislative committee for review. PIAC will continue to push for changes to better protect consumers, a more equitable system of repayment and to reign in the astronomical interest rates consumers face when they’re trying to make ends meet.

Financial Planners

If you’ve ever found yourself looking to invest or just trying to plan out your financial future, you may have sought the services of a financial planner or advisor.  When you embark on that trip to work on your financial future, you would likely assume that those titled individuals are held to a certain standard when helping you. Unfortunately, in most provinces, except for Quebec and to some extent British Columbia, the government regulates the sale (and sellers of) financial products, while the advisory services from “financial planners” or “financial advisors” are not regulated.

The reason why it is so difficult to sort out the differences between financial planners and financial advisors, and to understand what they can and cannot do, is because they all are not regulated – meaning they can do what they will. The Ontario Government is currently looking at how the government can better regulate financial planning and those who give financial advice. PIAC is adamant that there needs to be greater order brought to this industry.

“At the moment individuals call themselves a ‘financial planner’ or something that sounds similar and they’re not regulated. It sounds like they are, but they’re not for that activity anyway. The first reform we’d like to see is to have them all licensed and to give them a common set of names they can use which have proficiency standards attached.” stated John Lawford, Executive Director of PIAC. “Then we really need to look at how they get paid. At the moment, you can’t tell how they’re paid because it often comes from trailing commissions and referral fees and all sorts of things the client doesn’t see, so you think your investment just didn’t make that much money this year but it’s because 2% or more came off the top in commissions.”

Consumers deserve a clear idea of what they can expect when they seek out financial advice. PIAC has continually tried to steer government towards a set of guidelines for the financial advisor/planner industry that give Canadians a fair and informed start to their financial futures. They should be able to know they are dealing with an accredited financial service worker, and they should know the advice given to them was not swayed by commission money or other factors.

The Ontario Government continues to hold meetings and seek guidance on how to bring some order to the financial planner/advisor industry. PIAC continues to advocate for more effective protections for Ontario investors that will set a standard that other provinces will also strive towards. While some results are expected later this year, consumer protection in the financial services will remain an active file for PIAC going forward.

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