New protections when getting payday loans

* This is a translation of  “New protections when getting payday loans”  published in October 2018, produced in English by CLEO (Community Legal Education Ontario). Japanese Social Services is wholly responsible for the accuracy of this translation, produced with permission of CLEO.

This summer, some of the rules for payday lenders were changed to give borrowers more protection.
This month’s On the Radar outlines some of the main rules and highlights what’s new.

What are payday loans?

Payday loans are aimed at people who can’t get loans from banks or credit unions.
Payday lenders advertise that they give “quick cash” with no credit check and no need for anyone to guarantee the loan.
They usually lend money only until the borrower’s next payday. So payday loans are most often for short terms like 14 to 30 days.

How much can payday lenders charge?

Payday loans are the most expensive type of consumer loan.
Charging more than 60% annual interest on a loan is usually a criminal offence. But payday lenders can charge far more than this.
As long they follow certain rules, they can charge up to $15 for every $100 they lend. Their advertising must tell borrowers this and how much they would charge to lend $500.

What’s new
Starting in July 2018, payday lenders must also tell a borrower the annual interest rate their charges work out to. Because the term of the loan is short, this can be a very high rate, such as 300% or more.
Their advertising must show what this interest rate would be for a 14-day loan. And the agreement borrowers sign must show what the interest rate works out to for their actual loan.

How much can someone borrow?

In Ontario, payday lenders don’t offer loans for more than $1,500. This is because if they lend more, they can only charge up to 60% annual interest.

What’s new
As of July, payday lenders also can’t lend more than half of the borrower’s average net income for one pay period. For most people this new limit will be less than $1,500 and may be less than they want to borrow.
The law sets out a formula lenders must use to figure out this amount.

How long does someone get to pay it back?

Payday loan agreements say that the loan must be paid back by a certain date, which is usually on the borrower’s next payday.
In Ontario, payday lenders don’t give borrowers more than 62 days to pay. This is because if the term of the loan is more than 62 days, they can only charge up to 60% annual interest.

What’s new
Payday lenders must now give someone the option of paying back by instalments, if they’ve already had 2 or more payday loans from the same lender in the past 63 days. This means the person gets a longer time to pay back the new loan.
If the borrower gets paid once a month or less often, the lender must let them pay back the loan over at least 2 pay periods. Each instalment can be no more than half of the total amount they owe.
If the borrower gets paid more often, for example twice a month, every 2 weeks, or every week, they must be given at least 3 pay periods to pay back the loan. Each instalment can be no more than 35% of the total amount they owe.

Other rules

There are many other rules that payday lenders must follow about things like:

  • information that must be in their advertising and in loan agreements
  • what steps they can and can’t take if someone does not pay back the loan on time
  • what extra fees they can charge if someone does not pay back the loan on time
  • the borrower’s right to cancel a loan for any reason within a cooling-off period of 2 days
  • the borrower’s right to cancel at other times if the lender does not follow the rules

Getting help and information

If someone has a problem with a payday lender, they can file a complaint the Ministry of Government and Consumer Services.
If that does not solve the problem, people with low incomes might be able to get legal help and advice from a community legal clinic.
People who can’t get help from a legal clinic may have other options, including JusticeNet and Law Help Ontario.

This email alert gives general legal information. It is not a substitute for getting legal advice about a particular situation.

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