Strengthening Ontario’s
Payday Loans Act
Payday Lending Panel
Findings and
Recommendations
Report
May 2014
Prepared by Deloitte on behalf of the Payday Lending Panel
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) i
Transmittal letter
In January 2014, the Ministry of Consumer Services asked us, a volunteer panel of stakeholders with
expertise in the payday lending industry, to discuss how to improve financial protection for payday loan
borrowers. In particular, we were asked to recommend changes to the Payday Loans Act, 2008 and the
regulations made under the Act.
Payday loans are typically short-term loans of less than $500 that are repaid in a lump sum and made in
exchange for a post-dated cheque or pre-authorized debit.
Ontario first regulated payday lending in 2008. The regulations include a maximum price that lenders can
charge for payday loans ($21 per $100 advanced, including all fees and charges) as well as other
consumer protections. For example, lenders must disclose the price and terms of their products in a
specific format and cannot issue a payday loan to a consumer until they have repaid their previous loan.
The payday lending market has changed since 2008. Online payday lending has grown and new loan
products have been introduced into the Ontario marketplace. It is in this context that we came together to
discuss how the Payday Loans Act should change to ensure that legislation is responsive to changes in
the industry and that Ontario consumers are protected today and in the future.
Our panel was asked to take a close look at five issues in particular:
ď‚· Online and mobile payday loans;
ď‚· New / alternate loan products;
ď‚· Concurrent loans and rollovers (high frequency repeat borrowing);
ď‚· Data requirements, monitoring and enforcement; and
ď‚· Maximum total cost of borrowing (price cap).
In discussing these issues we realized that two more topics needed to be added to the list: how to ensure
that payday lending legislation keeps pace with changes in the industry and how to strengthen financial
education and awareness.
These issues were discussed over about three months in early 2014. We met on six occasions,
discussing the challenges that we needed to solve, the range of options available and which of those
options would be most effective.
By the end of our discussions, we had identified a wide range of recommendations to help protect
consumers. The goals of those recommendations include:
ď‚· How to reduce the risks posed by unlicensed lenders and loan brokers;
ď‚· How to ensure that online borrowers receive the information they need to make informed decisions;
 How to create a “safe landing” for borrowers who have taken out several loans in a short period of time;
and
ď‚· How government can keep the legislation and regulations working for consumers in the years ahead.
This report reflects our discussions. In addition to laying out the areas where the panel reached
consensus on recommendations, we also present the issues where panel members had differing views.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) ii
In illustrating this range of perspectives, we hope to encourage further discussions, not only within
government but also with all Ontarians. With that in mind, the panel encourages the government to
release this report in support of further public consultations.
Signed by:
Mark Bettiol
Zaplo
Laurie Campbell
Credit Canada Debt Solutions
Judy Duncan
ACORN
Mel Fruitman, Consumers
Association of Canada
Tony Irwin
Money Mart
Stan Keyes
Canadian Payday Loan
Association
Michelynn Laflèche
United Way Toronto
John Lawford
Public Interest Advocacy Centre
Amir Mahmoudzadeh
Cash 4 You
Henrietta Ross
Canadian Association of Credit
Counselling Services
Mark Ruddock
Wonga Canada
Janet Tufts
United Way London & Middlesex
Patricia White
Credit Counselling Canada
Ken Whitehurst
Consumers Council of Canada
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) iii
Table of contents
Transmittal letter ............................................................................................................................................ i
1. Executive summary .......................................................................................................................... 1
2. Background ...................................................................................................................................... 4
3. Online and mobile payday loans ...................................................................................................... 9
4. New / alternative loan products ...................................................................................................... 15
5. High-frequency, repeat borrowing .................................................................................................. 17
6. Data requirements, monitoring and enforcement .......................................................................... 23
7. Maximum total cost of borrowing (price cap) ................................................................................. 28
8. Financial education and awareness ............................................................................................... 33
9. Future reviews of legislation and regulation .................................................................................. 36
10. Conclusion ..................................................................................................................................... 38
Appendix A: Terms of reference ................................................................................................................. 39
Appendix B: Works cited ............................................................................................................................. 42
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 1
Payday Lending in Ontario: Quick Facts
ď‚·
Each year, approximately 400,000 Ontarians
take out a payday loan
ď‚· There are 796 payday loan licensed
locations in Ontario, operated by 249
different businesses
ď‚· Approximately $1.1 - $1.5 billion in payday
loans are issued each year
ď‚· The average payday loan is $460 and has a
two-week term
Sources: Estimates developed by Deloitte and Ministry of
Consumer Services payday lending licensee database
1. Executive summary
1.1 The Payday Lending Panel and review of the Payday Loans Act
The Ministry of Consumer Services announced a review of the Payday Loans Act in September 2013.
The purpose of the review was to strengthen consumer protection in the context of Ontario’s changing
payday loan market. As an important part of the review, the Ministry invited expert stakeholders to form a
panel and provide advice to government. The 14 members of the Payday Lending Panel included payday
lending businesses, community agencies, consumer advocates and credit counselling experts. It met on
six occasions from mid-February to early May 2014.
The panel’s discussions focused on seven topics: 1) online and mobile payday loans, 2) new / alternative
loan products, 3) concurrent loans and rollovers (high-frequency repeat borrowing), 4) data requirements,
monitoring and enforcement, 5) maximum total cost of borrowing, 6) financial education and awareness,
and 7) future reviews of legislation and regulation. These topics were selected to reflect the key priorities
of both the Ministry and the panel members.
This report summarizes the advice of the expert stakeholder panel and provides a window into their
thinking and discussions. All panel members share a strong commitment to protecting payday loan
consumers, and the panel hopes that this report will encourage further discussion and debate amongst
Ontarians on this important issue. The panel also urges government to move quickly in implementing the
recommendations made in this report. In particular, the panel stresses the importance of obtaining more
data on Ontario’s payday lending industry.
1.2 Payday lending in Ontario
Payday loans are typically short-term loans
of less than $500 that are repaid in a lump
sum and made in exchange for a post-
dated cheque or pre-authorized debit.
Definitive data is not available, but Deloitte
estimates that approximately 3 per cent of
Ontarians took out a payday loan over the
last 12 months. Payday loans generally
cater to individuals who are unable to
access traditional sources of credit like
bank loans or credit cards due to a poor or
limited credit history (Statistics Canada,
2007; Maximum Total Cost of Borrowing
Advisory Board, 2009).
Ontario’s payday lending industry is
composed of a mix of several large lenders
with many storefronts and a large number of small lenders. Overall, there are 796 licensed payday
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 2
lending storefronts, which are operated by 249 different businesses. Deloitte estimates that together,
these lenders issue loans worth approximately $1.1 – $1.5 billion annually.
The practices of this industry are structured by, among other things, Ontario’s Payday Loans Act and the
regulations under the Act.
1.3 Summary of consensus positions
The table below summarizes the consensus advice of the panel to government. The advice is organized
by discussion topic.
Table 1: Summary of Payday Lending Panel Recommendations
Topic
Recommendations
Online and mobile
payday loans
Enhance the content, usability and awareness of the Ministry of Consumer
Services’ searchable database of all payday loan licensees.
The Payday Loans Act should include protections for consumers against lead
generators.
Encourage licensed lenders and loan brokers to report all unlicensed lenders or
loan brokers that come to their attention.
Increase cooperation with other jurisdictions to facilitate prosecution of unlicensed
lending activity.
Ontarians who take out a payday loan online or on a mobile device should
automatically receive the information that in-person borrowers receive in a format
that recognizes the differences between in-person and online channels.
Require online lenders and loan brokers to include a link to a list of licensed, non-
profit credit counselling agencies that are registered charities.
New / alternative
loan products
Encourage lenders, loan brokers, industry associations and credit counsellors to
report new loan products that may violate the Payday Loans Act when such
products come to their attention.
Review the existing spectrum of enforcement tools and consider new tools to
address the development of new loan products that may have been designed to
avoid the Payday Loans Act.
High-frequency,
repeat borrowing
Introduce a requirement for lenders to offer a voluntary extended payment plan to
borrowers; the requirement should be triggered by a period of repeat borrowing.
Require licensees to provide customers with a list of licensed, not-for-profit credit
counselling agencies that are registered charities.
Data requirements,
monitoring and
enforcement
Authorize the Registrar to inspect unlicensed lenders and loan brokers.
Consider how to facilitate access to compensation for borrowers who have been
harmed by violations of the Act.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 3
Topic
Recommendations
Obligate lenders to provide the Registrar with data (at least at the aggregate level)
on their lending activities. The data request should be developed and issued in a
timely manner.
A payday loan data working group should be formed to provide advice on data
requirements and analysis.
Maximum total cost
of borrowing (price
cap)
The maximum total cost of borrowing (price cap) should reflect the cost of lending
and a balanced approach to maintaining industry viability and affordability for
consumers.
Introduce a requirement that the price cap be reviewed every five years or less,
concurrent with the full review of the Payday Loans Act.
In setting the price cap, receive external advice from a broad range of
stakeholders (including industry, consumer advocates, community agencies and
credit counsellors).
Financial education
and awareness
Strike a working group to study opportunities for enhancing the provision of
financial literacy and education to payday loan borrowers, including the future of
the Payday Lending Education Fund.
Until the working group has completed its study, maintain the clauses establishing
the Ontario Payday Lending Education Fund and designating the Ontario Payday
Lending Education Fund Corporation.
Future reviews of
legislation and
regulation
Establish an advisory committee of payday loan industry representatives,
consumer protection associations, community organizations and the Registrar or
their designate that meets regularly.
Review the Payday Loans Act every five years or less.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 4
2. Background
2.1 Purpose
The Ministry of Consumer Services (“the Ministry”) announced a review of the Payday Loans Act in fall
2013 to determine whether Ontario’s protection for payday borrowers can be strengthened. To inform this
review, the Ministry formed a panel of expert stakeholders to provide advice to government. The
membership of this panel represented a wide range of stakeholders in order to provide advice that was
rich in a range of expertise and experience.
The panel examined seven topics, the five topics listed in the fall 2013 announcement and two that they
believe are essential to strengthening consumer protection:
ď‚· Online and mobile payday loans;
ď‚· New / alternate loan products;
ď‚· Concurrent loans and rollovers;
ď‚· Data requirements, monitoring and enforcement;
ď‚· Maximum total cost of borrowing (price cap);
ď‚· Financial education and awareness; and
ď‚· Future reviews of the Act.
This report summarizes findings and advice of the expert stakeholder panel, as well as the considerations
that led to that advice. The report also includes a record of the discussion of options that were considered
by the panel but did not lead to a consensus position.
All panel members share a strong commitment to protecting payday loan consumers. The panel hopes
that this report will serve as the basis of broader consultation with Ontarians on this important issue and
inform government decisions about amendments to the Payday Loans Act and its regulations.
2.2 Report structure
The Background section of this report provides information on the panel, including its members, mandate,
process and scope. Background information on Ontario’s payday lending industry is also provided.
The body of the report is divided into seven sections – one for each of the topic areas.
Each section provides a short background, following which the section is further broken down into more
specific issues that the panel sought to address. Under each challenge or issue, the options considered
by the panel are described as well as the recommendations developed by the panel. The considerations
for this recommendation and alternative options are also included. Several areas of discussion did not
lead to consensus; in those instances, the various views of panel members are presented.
The Conclusion summarizes the recommendations and findings of the panel as well as advice on the next
steps government should take in enhancing consumer protection for payday loan borrowers.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 5
2.3 The payday lending stakeholder panel
The 14 members of the Payday Lending Panel included payday lending businesses, community
agencies, consumer advocates and credit counsellors.
Table 2: Payday Lending Panel Members
Organization
Managing Director, Zaplo (4finance)
CEO, Credit Canada Debt Solutions
Head Organizer, ACORN
Vice-President, Consumers Association of Canada
Director of Government Relations, Money Mart
President, Canadian Payday Loan Association
Director of Research, Public Policy & Evaluation,
United Way Toronto
Executive Director and General Counsel, Public
Interest Advocacy Centre
Owner, Cash 4 You
CEO, Canadian Association of Credit Counselling
Services
CEO, Wonga Canada
Director of Community Partnerships and Investment,
United Way London & Middlesex
Executive Director, Credit Counselling Canada
Executive Director, Consumers Council of Canada
The panel was guided by its Terms of Reference, which set out the scope of the panel’s work, the roles
and responsibilities of panel members (as well as those of the Ministry and Deloitte) and the panel
process. The Terms of Reference also included considering the public interest and striving for consensus
in making recommendations to government. The full Terms of Reference can be found in Appendix A.
The panel met six times from mid-February to early May. Panel members were provided with information
packages prior to each meeting; the materials were prepared by Deloitte based on publically available
reports from governments, industry and other organizations (e.g., consumer advocacy organizations). The
background material addressed a number of topics including the characteristics of Ontario’s payday
lending industry, the profile of payday loan borrowers and the approaches to payday loan regulation
adopted in Ontario and other jurisdictions.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 6
In addition to the background information, Deloitte conducted a survey of lenders to estimate the cost of
making payday loans in Ontario. Surveys were sent to 164 identified potential respondents. Responses
were ultimately obtained from six lenders who operate a total of 111 of Ontario’s 796 payday loan
locations (not including online operations). Deloitte also conducted two focus groups with approximately
15 payday loan borrowers in order to obtain qualitative insights into borrower decision-making. Panel
members also benefitted from each other’s experience and knowledge, sharing information and research
both during and between panel meetings.
2.4 Payday lending and borrowing in Ontario
What are payday loans?
Payday loans are typically short-term loans of less than $500 that are repaid in a lump sum and made in
exchange for a post-dated cheque or pre-authorized debit. Based on a 2014 survey of payday lenders in
Ontario conducted by Deloitte, the typical payday loan in Ontario is approximately $460 and has a two-
week term.
Payday loan borrowers in Ontario
Payday loans are a niche financial product. Definitive data is not available, but Deloitte estimates that
approximately 3 per cent of Ontarians (400,000 individuals) took out a payday loan over the last 12
months.
Payday loans generally cater to individuals who are low to moderate income and unable to access
traditional sources of credit like bank loans or credit cards due to a poor or limited credit history (Statistics
Canada, 2007). While they may have other loan products, they tend to have exhausted their available
credit when they take out the payday loan (Statistics Canada, 2007; Maximum Total Cost of Borrowing
Advisory Board, 2009; Bhutta, Skiba and Tobacman 2013). As a result, payday loan borrowers are more
likely to be in financial distress than non-borrowers. A 2007 study of Canadian borrowers indicates that
they are more likely to be behind in mortgage or rent and are also more likely to have less than $500 in
their bank account (Statistics Canada). Men and women are equally likely to borrow (Environics Research
Group, 2005) and payday loan borrowers have similar levels of educational attainment than non-
borrowers (Statistics Canada, 2007). However, payday loan customers appear be younger than the
general population (Statistics Canada, 2007; Environics Research Group, 2005).
Ontario’s payday lending industry
Ontario’s payday lending industry is composed of a mix of several large lenders with many storefronts
and a large number of small lenders. Overall, there are 796 payday loan licensed locations in Ontario,
operated by 249 different businesses. Together, the four largest businesses operate 57 per cent of
storefronts.
Deloitte estimates that together these lenders issue loans worth approximately $1.1 – $1.5 billion
annually. While authoritative data is not available, several estimation methods return a similar range of
results.
Similarly, little data is available regarding the rate of growth of the payday lending industry in Ontario. Two
estimates that were developed based on the growth in storefronts and the growth in loan volume of
Ontario’s largest lender (Money Mart, which is a public company) suggest a recent growth rate of 1 – 2
per cent annually.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 7
There are several recent developments impacting the payday lending industry in Ontario. Since the
Payday Loans Act was introduced in 2008, online and mobile payday loans have become a more
prominent feature of the market. A recent study found that approximately 25 per cent of all payday loans
in the United States are made online (Pew Research Center, 2012), but panel experts suggest that the
current proportion in Ontario may be substantially lower. Some panel members estimated that online
loans represent only 10 per cent of Ontario’s market. However, stakeholders agree that payday loans are
increasingly moving online and that this trend is likely to continue.
Another issue that recently surfaced in Ontario is the development of new loan products to avoid
government regulation. One major Ontario lender began offering a line of credit product that appeared to
resemble a payday loan. The Ontario Superior Court of Justice subsequently ruled that the line of credit
product constituted a payday loan. In 2013, Ontario amended the general regulation under the Act to
broaden the scope of loan products covered by the Act to protect consumers against harms from other
potential high-interest loan products.
Ontario’s payday loans legislation and regulations
Ontario’s Payday Loans Act (and its regulations) is consumer protection legislation that governs the
practices of licensees including the maximum allowable cost of borrowing for payday loan agreements.
For payday loan agreements of $1,500 or less and for a term of 62 days of less, the maximum allowable
cost of borrowing is $21 per $100 advanced. For payday loan agreements for more than $1,500 or with
terms longer than 62 days, the criminal rate of interest applies and it prohibits charging an effective
annual interest rate of more than 60 per cent.
Set out below are examples of consumer protection provisions in the current Payday Loans Act and its
general regulation. Please refer to the legislation and regulation for the complete wording.
Table 3: Sample Consumer Protection Provisions of the Payday Loans Act and Regulation
Category
Consumer Protection Provision
Reference
Restrictions on
borrowing
Lenders may not rollover the balance on an existing payday loan
agreement into a new payday loan agreement.
Payday Loans
Act s. 35
Lenders may not offer concurrent payday loans (maximum of one
outstanding loan per customer).
Payday Loans
Act s. 35
Agreement and
advance
The borrower must receive a copy of the payday loan agreement
and the payday loan advance immediately / no later than upon
entering into the agreement.
Payday Loans
Act s. 29.
Other goods or
services
Licensees are prohibited from offering or providing other goods or
services in connection with a payday loan agreement.
O. Reg. 98/09,
ss. 27(3)
Price cap
Lenders may charge a maximum of $21 per $100 advanced (e.g.,
the fee on a $300 loan cannot exceed $63).
O. Reg. 98/09,
s. 23
Disclosure
requirements
Lenders must disclose certain information about the payday loan
agreement on the first page of the agreement. The information that
must be disclosed includes the amount of the loan, the loan term
and the total cost of borrowing.
O. Reg. 98/09,
s., 18
Licensees must display a poster at their premises that sets out
information such as the regulated maximum cost of borrowing and
O. Reg. 98/09,
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 8
Category
Consumer Protection Provision
Reference
the amount that the lender charges.
s. 14 4
No repeat
processing charges
Lenders are prohibited from processing a pre-authorized debit (or
other instrument) more than once if subsequent processing
attempts results in a charge to the borrower.
O. Reg. 98/09,
s. 31
Prohibited contacts
No licensee may contact, in respect of a payday loan, a member of
the borrower’s family, or a relative, friend or acquaintance.
Employers may only be contacted to verify employment details or
with the prior consent of the borrower.
O. Reg. 98/09,
s. 26
Collection practices
No licensee may communicate with a consumer in a manner or
with a frequency that constitutes harassment.
O. Reg. 98/09
s. 32
2.5 The consumer protection challenge
Payday loans are one means for individuals with limited credit to address immediate financial needs. In
the absence of other readily available credit options, payday loans may be more attractive to borrowers
than options such as informal borrowing from friends or family, pawning or selling possessions, deferring
non-discretionary spending (e.g., rent) or reducing spending. Access to payday loans may also reduce
the risk of borrowers going to unlicensed lenders or loan brokers. However, frequent use of payday loans
generally adds to borrowers’ financial hardship.
Research in a variety of jurisdictions demonstrates that the typical payday loan borrower takes out
multiple loans in the course of a year (Consumer Financial Protection Bureau, 2013). Where these
borrowers are using loans to pay for recurring expenses, they face difficulty in repaying the loan and fee
while still covering those recurring expenses. Payday loan borrowers face a risk of entering a “debt cycle”
of continuous payday loan borrowing.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 9
3. Online and mobile payday loans
3.1 Background
Payday loans have traditionally been a storefront-based product. A borrower will go to a retail location,
provide identification and proof of income, then enter into a loan agreement and receive their funds.
Ontarians are also able to take out a payday loan online. The borrower provides their information through
an online portal, accepts the terms of the loan agreement, and then receives the funds directly into their
bank account. As with many other services, payday loans are increasingly available online.
Online payday lending is a growing industry in Ontario. As described above, while panel members
estimate that the current proportion in Ontario may only be as high as 10 per cent, it is generally thought
that the share of payday loans made online is growing.
One unique feature of the online marketplace is the presence of “lead generators,” who set up websites to
attract potential borrowers and then sell those “leads” to online lenders for a fee.
Online and mobile payday loans pose several unique issues for consumer protection.
First, unlicensed lending is simpler to offer online than through a physical location. Given the low cost of
establishing a website and the ability to host their website offshore, persons seeking to offer loans without
a license face fewer risks and costs online. Due to the underground nature of unlicensed lending, no data
is available regarding unlicensed lending. However, panel members and other experts agree that
unlicensed online lenders are making loans in Ontario.
Second, borrowers may consider the information received online differently from that provided in brick
and mortar stores. The Payday Loans Act requires lenders to disclose certain information to borrowers in
their loan agreement. Online lenders are required to have the same information disclosed as bricks and
mortar locations. Beyond the payday loan agreement, when online and bricks and mortar locations are
required to make information available to borrowers, the method of communication differs. The panel
considered whether the differences between physical and online information required changes to current
legislative and regulatory provisions.
Third, there is concern that the growth of online and mobile borrowing may lead to more spontaneous or
impulsive borrowing. Because online services may be easier to access than a physical store, borrowers
may be less likely to consider other options before taking out a loan (e.g., identifying lower cost credit
options, deferring or reducing expenses).
3.2 Protecting payday loan consumers from unlicensed online lenders and
loan brokers
To address the threat to consumer protection posed by unlicensed lenders and loan brokers, the panel
recommends a multi-pronged strategy to address a number of related challenges:
ď‚· Helping Ontario consumers to easily determine whether a given online lender or loan broker is licensed;
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 10
ď‚· Ensuring that lead generators are licensed and do not sell Ontario borrowers' leads to unlicensed
payday lenders and loan brokers; and
 Enhancing the Ministry’s awareness of unlicensed lenders and loan brokers and their ability to pursue
effective enforcement actions against unlicensed lenders or loan brokers.
Helping payday loan customers know which online lenders and loan brokers are licensed
The panel observed that Ontarians who borrow payday loans online may be unaware of whether or not
their lender or loan broker is licensed in Ontario. This may be due to general unfamiliarity with the
consumer protection benefits of the Payday Loans Act’s licensing regime. While the Act currently requires
online lenders or loan brokers to communicate information required to be on their certificate of license
(including the license number), borrowers may not be aware of the importance of the license number.
Anecdotal evidence suggests that some unlicensed lenders or loan brokers may be putting a fake license
number on their website to deceive borrowers.
Consensus Position
 Enhance the content, usability and awareness of the Ministry of Consumer Services’ searchable
database of all payday loan licensees.
Considerations
The Ministry of Consumer Services’ website currently hosts a searchable database of all payday loan
licensees.
1
However, panel members note that the database could be made significantly more useful to
loan borrowers. It is not easily found on the Ministry website, it is not sortable by field and it is not
exclusive to payday loan licensees (the same search function is shared with a wide variety of other
licensees). Further, the default display is a search form rather than a list of lenders and loan brokers
within which one could search. A list format would help borrowers search for a licensed lender or loan
broker as well as confirm whether a lender or loan broker they have already identified is licensed.
A list of licensed lenders and loan brokers would best serve the needs of consumers and minimize market
distortion if it had the following characteristics:
ď‚· Prominent: seek opportunities to raise the prominence and visibility of the list to payday loan borrowers.
 User friendly: users should be able to enter a lender’s URL, website name, business name or license
number into a search field to see whether they are licensed and the status of that license. Currently, the
database can be searched by file number (license number), name, address, city and postal code.
ď‚· Informative: the panel suggests that the list could indicate how long a given lender or loan broker has
been licensed.
ď‚· Fair: some consumers may use the list to find a licensed payday lender or loan broker (not just to
determine whether an online lender they have found is licensed); consider randomizing the order of
licensees that appear on the website list to address potential concerns regarding fairness.
The panel observed that introducing a regulatory or legislative requirement to establish, maintain and
regularly update a list of payday loan licensees could promote the maintenance and accuracy of the list.
1
The website can be accessed at http://www.consumerbeware.mgs.gov.on.ca/esearch/search.do?eformsId=0.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 11
Ensuring that lead generators are licensed and do not sell leads to unlicensed lenders or
loan brokers
One of the unique features of the online payday loan marketplace is the presence of “lead generators.”
While definitive information on lead generation activity is not available, panel members (and reviews of
internet search results) confirm that there are lead generators facilitating loans for Ontario borrowers. The
activities of lead generators appear to include the collection of information about prospective borrowers
(e.g., through websites offering payday loans) in order to sell that information to interested lenders. Lead
generators play a substantial role in the online payday loan market in the US, and panel members (as
well as other experts) indicate that their role in Ontario may grow as the online payday lending market
expands. While lead generators are most prominent in the online market, the extent of their other data
gathering activities is worth investigating and considering when considering a regulatory approach.
Lead generators’ role in the payday loan market may pose a number of consumer protection issues as it
appears that they may be undertaking loan broker-like activity without a payday loan license and they
may be selling leads to unlicensed lenders or loan brokers.
Consensus Position
ď‚· The Payday Loans Act should include protections for consumers against lead generators.
Considerations
To help address the risks posed by lead generators, the panel recommends that the Payday Loans Act
require lead generators to be licensed and consider additional protections for consumers who deal with
lead generators. Lead generators may already be defined as loan brokers under the Act, and loan brokers
must be licensed. The Payday Loans Act defines loan brokers as “a corporation, partnership, sole
proprietor, association or other entity or individual that assists a borrower in obtaining a payday loan or
that holds oneself out as available to provide such assistance.” While this definition may appear to
encompass lead generators, the panel believes that clarifying their applicability to lead generators would
avoid confusion and increase consumer protection.
Several options could be considered when determining how to capture lead generators:
ď‚· The definition of loan brokers could be amended to ensure that lead generators are captured;
ď‚· Legal analysis could determine that the current definition already captures lead generators (in which
case an amendment would not be required); or
ď‚· A new class of licensee could be established for lead generators.
‒ If a new class of licensee is established, this form of licensee should be required to only deal with
licensed lenders and, similarly, licensed lenders should be prohibited from dealing with unlicensed
lead generators. These requirements would mirror existing provisions for loan brokers.
In the view of the panel, there are several related requirements that would support the recommended
clarification on the application of the Payday Loans Act to lead generators:
ď‚· Require licensed lenders to notify the Registrar when they are approached by unlicensed lead
generators;
ď‚· Review the current penalties for lenders who deal with unlicensed loan brokers to determine whether
they are appropriate in the context of lead generators;
ď‚· Review the approach to monitoring compliance with these provisions of the Act;
ď‚· Ensure that lead generators, once licensed, are included in the list of licensed lenders and loan brokers;
and
ď‚· Communicate to the public the risks posed by unlicensed lead generators.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 12
These actions would help estimate the scale of the issues posed by lead generators, ensure that effective
deterrents are in place, enforce compliance and raise public awareness.
Enhancing the Ministry’s awareness of unlicensed lenders or loan brokers and their
ability to pursue enforcement actions against them
One of the most significant challenges in protecting consumers from unlicensed lenders or loan brokers is
the ability of government to identify who those lenders and loan brokers are. Government cannot take
action to alert consumers about unlicensed lenders or loan brokers or pursue enforcement activities
against them until they have been identified. Once identified, if the unlicensed lender or loan broker is in
another jurisdiction, enforcement can prove difficult.
Unlicensed lenders or loan brokers have a vested interest in avoiding detection and identification can
pose a challenge. The panel considered a variety of potential approaches for the government to enhance
its ability to identify unlicensed lenders or loan brokers.
While the panel urges the Ministry to pursue multiple avenues in enhancing its awareness of unlicensed
lenders or loan brokers, they believe that the most promising approach would be to encourage licensed
lenders and loan brokers to report unlicensed ones to the Ministry.
Consensus Position
ď‚· Encourage licensed lenders and loan brokers to report all unlicensed lenders or loan brokers that
come to their attention.
Considerations
Panel members believe that licensed lenders are the most likely stakeholders to be aware of unlicensed
lending activity as a result of their interest in understanding the competitive landscape of the industry.
Comparatively, consumers may be unable to determine whether lenders are licensed or not, and may be
less motivated to take the time to notify the Ministry if they do encounter an unlicensed lender.
Licensed lenders and loan brokers should be encouraged to report unlicensed lenders and loan brokers
and noncompliant activity, but the reporting mechanism must preserve the anonymity of “whistleblowers”
and ensure that they cannot be held liable for damages to any businesses that they report.
To make it easy for lenders to report unlicensed lending activity, a secure, simple electronic form that
ensures anonymity should be developed. Licensed lenders would access the form online.
There are two aspects to the challenge presented by unlicensed lenders or loan brokers. In addition to
improving its ability to identify unlicensed lenders or loan brokers, there must be a capacity to enforce the
provisions of the Payday Loans Act against them. This challenge is exacerbated by the fact that many
unlicensed lenders or loan brokers are operating offshore, in other jurisdictions.
Consensus Position
ď‚· Increase cooperation with other jurisdictions to facilitate prosecution of unlicensed lending activity.
Considerations
The panel believes that a focus on inter-jurisdictional cooperation could improve the enforcement of
payday loan regulations. However, the panel also recognizes that working bilaterally with other
jurisdictions may not be time- or cost-effective. The Province should continue to work collaboratively with
other provincial governments and with the federal government to establish and execute a joint strategy for
cracking down on unlicensed, offshore lenders. For example, a Memorandum of Understanding with other
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 13
provinces could be developed to assist with identification and prosecution. These efforts should build on
existing inter-governmental initiatives related to the regulation of payday lending.
3.3 Ensuring that online borrowers have the information they need to make
informed decisions
In the view of the panel, online and mobile borrowing may pose specific challenges with regard to
disclosure of information to borrowers. Current disclosure rules in Ontario include the following:
 O. Reg. 98/09 s. 5 states that licensees must display and provide “educational materials about the
payday lending industry, financial planning, the Act and the regulations.” For online lending, the
licensees must communicate that the materials are available and provide them upon request.
 O. Reg. 98/09 s. 14 requires licensees to display a poster that is “visible to borrowers immediately upon
entering the office.” Online licensees are required to communicate the same information on the poster
to borrowers before “discussing” anything about payday loans with the borrower. While the format for
providing the information in-person is strictly defined,
2
the format for online lenders is not.
ď‚· O. Reg. 98/09 s. 18 requires that payday loan agreements disclose certain information to borrowers,
including the cost of the loan per $100 advanced and their cancellation rights. The same disclosure is
made whether in person or on-line.
The panel held the view that these provisions do not explicitly take into account the differences in
receiving information over a computer or mobile phone screen compared to taking out a loan in-person.
Consensus Position
ď‚· Ontarians who take out a payday loan online or on a mobile device should automatically receive the
information that in-person borrowers receive in a format that recognizes the differences between in-
person and online channels.
Considerations
The panel suggests providing specific direction to online lenders on a format for presenting required
information that will ensure that borrowers benefit from this information. For example, the design of a
digital “poster” could be specified and lenders and loan brokers could be required to include that image on
their home page (or on all pages of their website). The Ministry could also require that online lenders and
loan brokers provide the educational information to borrowers as part of their user interface, rather than
having borrowers request that information and then provide it.
In specifying how online lenders and loan brokers must structure their user interface, a balance must be
struck between flexibility and specificity to allow for changes in technology and online media.
Panel members believe greater awareness of credit counselling services to be particularly important in
promoting consumer protection. These services can help payday loan borrowers improve their financial
management skills, review their financial options and, ultimately, get out of debt.
Consensus Position
ď‚· Require online lenders and loan brokers to include a link to a list of licensed, non-profit credit
counselling agencies that are registered charities.
2
O. Reg. 98/09 specifies the size and font of the poster.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 14
Considerations
To promote awareness of credit counselling services, the panel recommends requiring online lenders to
prominently display a link to a list of non-profit, registered charity credit counselling agencies. This
requirement could indicate where and when in the online or mobile borrowing process the link would
appear.
Panel members note that there are some businesses that claim to provide non-profit credit counselling
but are not truly charitable organizations. To address this issue, require online lenders and loan brokers to
provide a link to a list of licensed, non-profit credit counselling agencies that are registered charities
3
.
The panel also considered whether this recommendation could overwhelm the current capacity of credit
counselling organizations by increasing the number of Ontarians seeking their services. Representatives
of credit counselling organizations who are on the panel suggest that this is not an issue.
3
Non-profit credit counsellors in Ontario are licensed under the Collection Agencies Act, 1990.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 15
4. New / alternative loan products
4.1 Background
In Ontario and other jurisdictions, some lenders have sought to offer products that appear similar to
payday loans or that may give rise to similar consumer protection considerations. Once a product is
beyond the scope of the payday loan legislation, protections in the legislation are not available to
consumers.
Responding to such products can be challenging. First, regulators must identify new products and assess
whether they are sufficiently similar to regulated products and so, a cause for concern (not all new
products will pose risks to consumers). If the new product does pose risks, government must respond
appropriately. The response may include engaging in effective enforcement activity.
Deloitte conducted a scan of the range of payday loan-like products currently being offered in the Ontario
market, and panel members provided input based on their experience. Overall, the Ontario payday loan
marketplace is dominated by traditional payday loans and, at the time of this writing, no new or alternative
high-cost, short-term credit products have been identified.
Analysis was also conducted on the attributes of payday loans and other loan products in order to
understand the potential forms that a new loan product designed to avoid regulation could take. This
analysis suggests that the greatest potential risk may be the development of small-dollar value instalment
loans.
4.2 Identifying new and alternative loan products designed to avoid regulation
Panel members agreed that there is no simple and effective way to identify new products as they emerge,
but suggested ways to improve detection. The panel noted that a complaint-based enforcement process
may be insufficient as it is unlikely that consumers are familiar enough with the Payday Loans Act to
identify issues. To complicate matters, borrowers may not always feel comfortable with or know how to
bring those issues to the attention of the Ministry.
Consensus Position
ď‚· Encourage lenders, loan brokers, industry associations and credit counsellors to report new loan
products that may violate the Payday Loans Act when such products come to their attention.
Considerations
Instead of relying largely on consumer complaints, the panel recommends that government expand its
efforts to make use of information from lenders, industry associations (the Canadian Payday Loan
Association) and credit counselling organizations.
In considering the implementation of this recommendation, panel members emphasized that the
anonymity of stakeholders reporting potentially non-compliant products must be safeguarded, and
“whistleblowers” must be protected from liability if the lender who is reported takes legal action to sue for
damages.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 16
Enhanced information collection could be supported through a secure online reporting form. A similar
electronic form could potentially be used for reporting unlicensed lenders or loan brokers (see section
3.2), given the similar requirements to ensure anonymity and avoid potential liability.
The panel has identified several other avenues for increasing the Registrar’s awareness of new loan
products that may have been designed to avoid the Act. Discussions regarding new loan products should
be central to the work of the advisory committee recommended in section 9. While advisory committee
members may not wish to name specific lenders and products in that forum, more general discussions
could be held regarding new products that are emerging in Ontario and other jurisdictions. Given the
tendency of issues and trends in the market to cross borders, the panel also recommends that new loan
products be discussed regularly in the inter-jurisdictional discussions recommended in section 3.2 of this
report.
4.3 Addressing the consumer risks posed by new and alternative loan
products effectively
Once new/alternative loan products have been identified and assessed as products designed to avoid
regulation and pose a risk to consumers, the government takes enforcement action. The panel noted that
the process for dealing with such matters may be lengthy and can involve the courts.
Consensus Position
ď‚· Review the existing spectrum of enforcement tools and consider new tools to address the
development of new loan products that may have been designed to avoid the Payday Loans Act.
Considerations
The panel recommends that the Ministry consider new enforcement tools against lenders who develop
products to avoid the Payday Loans Act. A progressive enforcement regime could provide for more robust
enforcement. For example, the first action may include a notice to the lender who has developed the
product, warning them to cease offering the product or arranging a meeting to discuss their product with
the Registrar of Payday Loans. The second stop could be a formal citation, indicating the potential fine for
continuing to sell the product. The citation could also play a role in licensing decisions by the Registrar.
The introduction of a range of escalating measures could allow the Ministry to protect consumers from
new loan products designed to circumvent the Act without the need to go through a lengthy court process.
Lenders may decide to voluntary withdraw their product more quickly than such activity would be stopped
by the courts. The exact nature of the various enforcement activities would require legal analysis and
advice beyond the scope of the panel’s work.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 17
Definitions
Concurrent loans refer to when a
borrower has two or more payday
loans outstanding
Rollovers refer to when a borrower
extends the term (length) of a payday
loans in exchange for a fee, without
repaying the original payday loan
5. High-frequency, repeat borrowing
5.1 Background
Governments have introduced a variety of restrictions on borrowing patterns in order to reduce the
likelihood that consumers will enter a “debt cycle,” where they are dependent on multiple or repeat
payday loans to meet their basic needs.
Ontario’s Payday Loans Act prohibits concurrent loans
and rollovers. It does so by prohibiting lenders from
making (and loan brokers from facilitating) a loan to a
borrower when they already have a loan outstanding with
that borrower. Loan brokers are prohibited from facilitating
two or more payday loans at the same time between the
same borrower and different lenders. Also, because the
Act requires that one payday loan has to be paid off
before another payday loan agreement is entered into, the
Act prohibits the balance of one payday loan being rolled
over into a second payday loan. Borrowers can, however,
independently seek concurrent payday loans from
different lenders. For example, borrowers can use a
payday loan from one lender to pay off a payday loan from a different lender. Borrowers can also
immediately take out a new payday loan from the same lender after paying off the previous payday loan.
Current enforcement tools do not enable government to monitor the behaviour of borrowers across
different lenders, focusing instead on individual licensees.
All Canadian jurisdictions, like Ontario, ban concurrent loans from a single lender and most ban rollovers.
Ontario also prohibits loan brokers from facilitating multiple loans from different lenders at the same time.
Restrictions on borrowing patterns and frequency are also in place in virtually all US states that regulate
payday loans. The most common approach, like Ontario’s, is to ban or limit rollovers and concurrent loans
at a single lender. A number of US states go further and prohibit borrowers from taking out multiple loans
from different lenders at the same time or limit the number or value of loans they can have outstanding
across lenders. For example, Florida and Virginia prohibit concurrent loans altogether, while Oklahoma
allows a maximum of two concurrent loans and Delaware limits the total value of loans outstanding to
$1000 (regardless of how many loans are borrowed)
Many US states have also introduced a waiting period between the time a borrower pays off one loan and
is able to take out a new loan. Waiting periods have been introduced in Illinois, Indiana, Alabama,
Oklahoma and other states. The nature and length of the waiting period varies from state to state. In most
cases, such restrictions are triggered by repeat borrowing. For example, Indiana’s seven-day waiting
period is “triggered” after five consecutive small loans have been made to a borrower after the borrower’s
initial small loan.
5.2 Potential approaches to high-frequency borrowing
Panel members considered a range of alternative options for helping borrowers avoid using payday loans
in ways that could negatively impact their financial wellbeing including:
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 18
ď‚· An extended payment plan for borrowers;
ď‚· The promotion of referrals to licensed, registered charity, non-profit credit counsellors;
ď‚· A waiting period between loans;
ď‚· A limit on the number of loans a borrower can take out annually;
ď‚· The introduction of a maximum loan size provision; and
ď‚· A requirement for lenders to disclose the cost of lending in the APR format.
Voluntary extended payment plan
The panel considered whether borrowers who meet a certain “trigger” in their borrowing history should
have the option of repaying their loan in instalments rather than a lump sum. This approach has been
introduced in BC, where if a borrower takes out a 3
rd
loan in a 62-day period, they are automatically put
into an extended repayment plan and the loan is repaid over the borrower’s next 2-3 pay periods
(depending on how frequently the borrower is paid).
Consensus Position
ď‚· Introduce a requirement for lenders to offer a voluntary extended payment plan to borrowers; the
requirement should be triggered by a period of repeat borrowing.
Considerations
Panel members believe that introducing an extended payment plan option for repeat payday loan
borrowers could help create a “soft landing” for borrowers by stretching out the period in which they repay
their loan.
The panel considered whether all borrowers who meet the trigger (i.e., they have taken out multiple
payday loans within a set time-period) should be required to repay in instalments rather than a lump sum,
or whether borrowers should have the option of repaying the loan in instalments. Panel members noted
that there may be some situations where borrowers would prefer to repay in a lump sum in order to better
manage their finances and avoid the late fees and penalties associated with missing payments. This is
supported by views heard in borrower focus groups. While many borrowers in the focus groups were in
favour of the idea of an extended payment plan, some preferred to repay their loans as soon as possible
in a lump sum. It is important to note that under a voluntary extended payment plan, borrowers would
have the option of choosing an extended payment plan or not but lenders would be obligated to provide
them with the option.
The group agreed that when implementing a voluntary extended payment plan, consideration should be
given to BC’s model, where the trigger is three loans within a 62-day period (although other potential
triggers should also be discussed). In addition, government should reflect on how to best ensure that
consumers are aware of their ability to request an extended payment plan (when they have reached the
trigger).
Referral to credit counselling
The panel believes strongly in the ability of credit counsellors to help Ontarians improve their financial
management skills and get out of debt. Credit counsellors can help customers manage their entire range
of financial commitments, and the experience of credit counsellors on the panel indicates that borrowers
of payday loans who are in financial difficulty often have multiple debt obligations of which payday loans
are one component.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 19
Consensus Position
ď‚· Require licensees to provide customers with a list of licensed, not-for-profit credit counselling
agencies that are registered charities.
Considerations
The panel believes that encouraging more borrowers to obtain the services of credit counsellors may be
an effective avenue for helping borrowers gain the skills required to use payday loans responsibly and
avoid the risk of entering a debt cycle.
In implementing this recommendation, government should consider how the contact information for these
agencies could be more prominent for borrowers. For example, lenders could be required to have a
poster with credit counselling contact information or include such information on the first page of the loan
agreement. While current regulatory requirements obligate lenders to display and provide prescribed
information to borrowers upon entry (including information about credit counselling), focus groups of
borrowers indicated that they were largely unaware of those educational materials during their borrowing
experience.
Concurrent loan restrictions across lenders
The panel considered whether measures should be put into place to completely prevent or restrict
concurrent borrowing across lenders.
Consensus Position
ď‚· Ontario-specific data on the frequency and impact of concurrent loans across lenders is needed to
provide advice on whether to restrict concurrent loans across lenders.
Considerations
Panel members were unable to come to a consensus recommendation on restricting concurrent loans
across lenders. In particular, Ontario-specific data on the prevalence of concurrent borrowing across
lenders and on the impact of concurrent loans would provide a fact base to support future decision-
making. There are several topics discussed in this section where the panel believes that further
information is required to arrive at a consensus position. For a discussion regarding how the data could
be obtained, see section 6.3 of this report.
Some panel members were in favour of a ban or restriction on concurrent loans across lenders (given the
data currently available). These panel members noted that payday loan customers are borrowing against
the value of their future paycheque, and that if a borrower takes out several loans against the value of that
paycheque, they may be unable to successfully manage and repay all their obligations. Panel members
representing credit counselling agencies indicated that many credit counselling clients have multiple
payday loans outstanding from different lenders, and that having taken out multiple payday loans
contributed to their overall financial difficulties.
Panel members who were in favour of restrictions also noted that lenders currently do not know whether
customers have taken out a payday loan with another lender. As a result, the lenders cannot account for
those obligations when assessing the credit risk of a customer.
4
On the other hand, panel members who opposed restrictions noted that borrowers may not be able to
access as much credit as they need if restrictions on concurrent borrowing across lenders are introduced.
These panellists suggested that borrowers who are unable to access payday loans may turn to
4
It is important to note that payday loan obligations represent only a piece of the total credit risk of a given borrower.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 20
unlicensed lenders or loan brokers. They also noted that customers who are restricted from payday loans
may face financial repercussions. For example, a borrower may wish to access a loan in order to avoid
charges for dishonoured cheques (non-sufficient funds) or disconnection and reconnection charge for
cable or phone service. In some cases, these charges can be greater than the cost of a payday loan. In
addition, some payday lenders offer discounts on loans and consumers may be able to reduce fees by
accessing multiple lenders.
The question of how borrowers respond when they are restricted from accessing payday loans cuts
across many of the regulatory options discussed in this section. Borrowers who are unable to access
payday loans can 1) find another source of funds to cover their shortfall, 2) reduce their expenses or
rethink the need for the loan, or 3) increase their income. Based on consultations with borrowers,
potential alternative sources of credit where traditional sources have been exhausted include pawning or
selling possessions, going to an unlicensed lender and borrowing from friends or family.
Panel members did not have definitive data on the extent to which borrowers pursue these options. While
some participants highlighted the risks of borrowers going to unlicensed lenders or loan brokers, others
focused on the potential for borrowers to sell or pawn possessions, reduce expenses or borrow from
friends or family.
The introduction of restrictions on borrowing across multiple lenders would require lenders to be informed
of all the payday loan obligations of potential customers. For further discussion on how a capability to
track payday loans could be implemented if determined to be necessary, see section 6.3 of this report.
Waiting period and annual limit on number of loans
The panel discussed whether Ontario should mandate a waiting period between loans. This would mean
that after repaying a payday loan, a borrower would have to wait a set period of time before they could
take out another loan. A waiting period could apply to all loans, or it could be triggered by a period of
repeat borrowing.
The panel also considered the option of introducing a limit on the number of loans that an individual
borrower can take out in a set period of time (e.g., annually).
Consensus Position
ď‚· Ontario-specific data on borrowing patterns and borrowing frequency is needed to provide advice on
whether to introduce a cooling off period or an annual limit on the number of loans that a borrower
can take out.
Considerations
As with the introduction of restrictions on concurrent loans across lenders, the panel felt that consensus
advice on these two options could not be provided without further, Ontario-specific data on borrowing
patterns and frequency. The panel felt that more data was needed on the extent to which high-frequency,
repeat borrowing occurs and how it impacts the financial wellbeing of borrowers.
Based on the data available to them, some panellists were in favour of a waiting period and annual limit
on the number of loans. These panel members noted that:
ď‚· A waiting period provision could help encourage borrowers to improve their budgeting skills and rely
less on payday loans (and other high-interest credit products);
ď‚· The ability for borrowers to take out a new loan immediately upon repayment of the previous loan limits
the effectiveness of Ontario’s policy to ban rollovers, which a waiting period could address; and
ď‚· A limit on the number of loans that a borrower may take out annually could help reduce the likelihood of
borrowers entering debt cycles.
Panel members who opposed the introduction of a waiting period and an annual limit on the number of
loans noted that:
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 21
ď‚· Borrowers in a waiting period or who have reached their loan limit would be unable to access payday
loans and may turn to unlicensed lenders or loan brokers (as discussed above);
ď‚· A limit on the number of loans a consumer can take out in a year could negatively impact Ontarians
who have the financial means to borrow frequently.
Either of these two regulatory options could apply at a single lender or across lenders. However, some
panel members note that the provisions would be more effective if they applied across lenders (which
would require a loan tracking capability, as discussed in section 6.3).
Panel members agree that additional data would be helpful when considering these options. In particular,
data on how often borrowers take out a new loan immediately after a previous loan would inform the
discussion on a waiting period, and data on what proportion of borrowers take out a high number of loans
per year would inform discussions on an annual limit on the number of loans that can be borrowed.
Maximum loan size
The panel considered whether the introduction of a cap on the size of payday loans could help ensure
that borrowers do not take on obligations that they cannot repay. Borrowers who take out loans that they
cannot repay are at greater risk of entering a debt cycle (a period of sustained, repeat borrowing).
Regulatory provisions that cap the size of payday loans are common in North American jurisdictions. For
example, payday loans greater than $1500 are subject to the Criminal Code rate cap of 60 per cent APR.
This has the practical result of capping the size of payday loans to $1500 or less. In the US, states have
introduced loan size caps at a variety of levels, with the most common cap at $500 (Kaufman, 2013).
The examples cited above are absolute size caps. Some jurisdictions have introduced size caps that are
relative to borrower income. For example, Saskatchewan and British Columbia cap the size of a payday
loan at 50 per cent of the borrower’s net pay during the term of the loan. Manitoba has limited the size of
payday loans to 30 per cent of net pay.
Consensus Position
ď‚· No consensus position was reached.
Considerations
Some panel members felt that introducing a maximum loan size requirement based on borrower pay
would ensure that borrowers are able to repay their loans. However, other panel members felt there is no
need for such a provision, as lenders have an interest not to loan more than can be recovered from a
borrower. The panel members opposed to a size cap also noted that borrowers unable to obtain the funds
they are looking for may seek out unlicensed lenders or loan brokers.
Requirement to disclose cost of borrowing in annual percentage rate format
Annual percentage rate (APR) is an annual rate charged for borrowing expressed as a percentage
number that represents actual yearly costs of funds over the term of a loan. It includes fees associated
with the transaction and provides borrowers with a number to compare against rates charged by other
potential lenders. Currently, licensed lenders in Ontario are obligated to disclose the cost of payday loan
products in dollars per $100 advanced (e.g., $63 for a $300 loan). In the United States and most
Canadian provinces, lenders are obligated to disclose payday loan costs in both the dollars per $100
advanced and as an APR.
Panel members considered whether a similar requirement in Ontario might improve borrowers’
understanding of the cost of payday loans and lead to a decrease in the types of borrowing behaviour that
can lead to financial difficulties.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 22
Consensus Position
ď‚· No consensus position was reached.
Considerations
A number of panel members argued in favour of requiring lenders to disclose the cost of payday loans in
an APR format as well as the current format. They noted that the cost of other loan products (e.g.,
mortgages, credit card interest) are disclosed in APR, so having payday loans in an APR format would
enable borrowers to better understand the cost of payday loans and compare them against other credit
products. These panel members also noted that some borrowers use payday loans frequently and that
the APR format may better indicate the long-term costs of sustained loan use.
Other panel members did not support disclosure in the APR format, noting that the payday loan product is
designed as a short-term, small-dollar loan while APR presents the annual cost of the loan.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 23
6. Data requirements, monitoring and
enforcement
6.1 Background
This section focuses on two related issues: 1) the tools that government needs to effectively monitor and
enforce compliance with regulation and 2) the data required to inform monitoring and enforcement
activities and policy development.
Under the Payday Loans Act, the Registrar for Payday Loans
5
receives and collects data from licensees
through several avenues:
ď‚· Applicants for a licence under the Payday Loans Act make certain disclosures, including the
identification of persons owning or controlling 10 per cent or more of the voting shares (Payday Loans
Act, 2008, c.9, s. 20[1]).
ď‚· The Registrar may at any time require a licensee to provide copies of any documents that the licensee
uses in the course of conducting business; for example, the Registrar may request copies of brochures
and payday loan agreements (Payday Loans Act, 2008, S.O. 2008, c. 9, s. 23).
ď‚· If the Registrar receives a complaint about a licensee, the Registrar may request information in relation
to the complaint from any licensee (Payday Loans Act, 2008, S.O. 2008, c. 9, s. 46 [1]).
ď‚· Licensees are required to submit financial statements in respect of the activity for which they are
licensed to the Registrar each year (O. Reg. 98/09, s. 13 [3]). The format for the financial statements is
not specified or uniform.
 “The Registrar may require licensees to provide information to the Registrar about their business,
including financial information, within the time and in the manner that the Registrar specifies” (O. Reg.
98/09, s. 13 [4]).
The Registrar receives and collects data from licensees for two primary purposes: to review and process
license applications and to monitor regulatory compliance.
Two potential issues related to monitoring and enforcement were discussed by the panel. First, the
Registrar does not have the authority to inspect unlicensed lenders or loan brokers, which may limit the
Ministry’s ability to protect consumers. Second, monitoring of borrowing patterns is limited by current
enforcement tools, which focus on the behaviour of a single lender or loan broker. With current
enforcement capacity, any potential restrictions on lending practices that span more than one lender or
loan broker would impose unfair expectations on the lending industry (lenders and brokers do not know if
a borrower has loans outstanding) and would be unenforceable, as there is no way of tracking an
individual borrower’s transactions. To address these issues, a capability to collect information on
individual transactions would need to be in place.
5
The Registrar of Payday Loans administers the Payday Loans Act. He or she is appointed by the Deputy Minister of Consumer
Services.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 24
A number of US states have developed payday loan databases (also referred to as “deferred presentment
transaction systems” or tracking systems) in order to monitor and enforce regulations across lenders.
The first jurisdiction to adopt this approach was Florida, in 2001. Today, there are 14 states with a loan
database or tracking system. In these jurisdictions, all lenders enter the details for each loan into the
state-wide database. The databases are funded by payday lenders based on a fee per transaction. In
addition to enabling regulatory restrictions that apply across lenders, the database can assist regulators in
monitoring compliance with other regulatory provisions such as price caps.
Several panel members also identified the need for more public disclosure of information regarding
Ontario’s payday lending industry. Aggregated data on the industry (e.g., the size of the market, average
loan size, term and fees, etc.) would support the development of evidence-based policy, but it would also
support the research efforts of a wide range of stakeholders including community agencies, academic
researchers and consumer advocacy organizations. In sharing any information publically, protections
would need to be in place to prevent disclosure of commercially sensitive or private information.
6.2 Improving the effectiveness of enforcement tools
Inspection of unlicensed lenders or loan brokers
The Registrar’s authority to inspect payday lending operations is confined to licensed payday operations.
As discussed above, unlicensed lenders or loan brokers pose a significant threat to consumer protection
and to the fairness of the payday lending marketplace.
Consensus Position
ď‚· Authorize the Registrar to inspect unlicensed lenders and loan brokers.
Considerations
To address the current gap in inspection and enforcement powers, the panel recommends that
government introduce a legislative amendment giving the Registrar the authority to inspect unlicensed
payday lenders.
The expansion of this mandate would require consideration of the need for additional enforcement
resources.
Compensating borrowers harmed by noncompliant lending
Panel members also considered whether legislative or regulatory amendments could help provide
compensation to borrowers who are negatively impacted by borrowing from an unlicensed lender or loan
broker (or from a noncompliant licensee).
The panel noted that the length and complexity of addressing borrower concerns may discourage
potential complainants from taking action. Clarifying and improving these processes could help
consumers assert their consumer rights and manage their financial obligations and ensure that their basic
needs are met.
Consensus Position
ď‚· Consider how to facilitate access to compensation for borrowers who have been harmed by violations
of the Act.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 25
Considerations
Further analysis is needed to determine whether legislative or regulatory amendments to the Payday
Loans Act could facilitate access to compensation for borrowers who have been harmed by violations of
the Act. In considering options, review the approach taken in British Columbia, where Consumer
Protection BC (a not-for-profit corporation) can order restitution for an entire class of borrowers.
6.3 Increasing the data available regarding payday loan use in Ontario
Throughout the panel meetings, participants identified the need for better data regarding Ontario’s payday
lending industry. The panel believes that more accurate and complete data would support a wide range of
goals including:
ď‚· Improving regulatory monitoring and enforcement;
ď‚· Supporting evidence-based policy development;
ď‚· Enhancing transparency and public understanding of the industry; and
ď‚· Supporting the research of other groups with an interest in consumer financial protection and related
government priorities (e.g., poverty reduction and social inclusion).
The panel explored ways to track payday loans and ensure that licensees are compliant with existing
regulations. In particular, the panel considered whether a loan tracking capability should be introduced.
All panel members agreed that more data regarding payday loans in Ontario should be obtained, but the
panel felt that it would be premature to recommend either in favour of or against the introduction of a loan
tracking capability.
Instead, the panel has recommended a process to determine whether the introduction of a loan tracking
capability would be worthwhile or whether other options for data collection would be preferable.
Consensus Position
ď‚· Obligate lenders to provide the Registrar with data (at least at the aggregate level) on their lending
activities. The data request should be developed and issued in a timely manner.
ď‚· A payday loan data working group should be formed to provide advice on data requirements and
analysis.
Considerations
The panel recommends the development of a data request to obtain information from all licensees in
Ontario. This approach has been adopted in other Canadian provinces; both British Columbia and Nova
Scotia request data from licensees in their jurisdictions.
There was a difference of opinion amongst panel members on how the data request should be
developed. Some members of the panel believe that the data request form from BC should be used
without further study, while others suggested that an expert working group be formed to study the BC and
NS examples and determine whether they capture a sufficient level of data. As a third option, government
could issue an initial data request based on the BC model while the expert working group studies whether
additional information should be collected.
If a data request is to be developed by a working group, the panel has the following advice for the working
group:
ď‚· Data requirements should be determined based on the purposes that the data would serve. As outlined
above, there are four primary goals in obtaining more and better data. Those goals should serve as a
framework for determining specific data requirements.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 26
ď‚· Potential pieces of data that could be requested include: borrower characteristics (e.g., gender), total
loan volume (number of loans and value of loans), the cost of lending, loan properties (e.g., average
loan value, average loan term) and differences between online/mobile and storefront-based borrowing.
ď‚· The data requested should provide insight on the three topics discussed above where the panel felt that
more data was required: concurrent loans across lenders, a waiting period and a limit on the number of
loans a borrower can take out annually.
Regardless of whether a working group is formed or not, the data request should be developed and
distributed in a timely manner – the panel recommends a timeline of no more than six months after this
report is submitted to government.
After the request is issued and data are obtained from lenders, the data should be analyzed and provided
to the working group (which should be formed at this point if it is not already) with the intent of making it
publically available. The working group would provide advice on a range of issues including:
ď‚· Whether the data obtained was sufficient for the required purposes (if not, the working group should
provide recommendations on a more appropriate data collection methodology for future information
gathering);
ď‚· How the data should be publicly disclosed (including how to ensure that no commercially-sensitive,
competitive information is shared); and
 How the data could inform the Ministry’s approach to the payday lending industry.
Other considerations regarding data needs and data collection approaches
A data request issued to lenders will provide aggregated data on lending activities, but depending on the
information requested it may not provide transactional data on each loan. Some degree of transactional
data would be necessary for certain purposes, including determining the borrowing patterns of individual
consumers (e.g., how many consumers borrow concurrently from multiple lenders, the length of time
borrowers are indebted for).
Transactional data would also be required in order to monitor and enforce regulatory restrictions that
apply across lenders. Several such potential restrictions were discussed in section 5, including restrictions
on concurrent loans and a limit on the number of loans a borrower can take out annually. The
transactional data would need to be available in (near) real-time, which suggests that a loan tracking
capability would need to be in place.
Consensus Position
ď‚· No consensus achieved
Considerations
The panel did not arrive at a consensus position on whether transaction-level data are required or
whether a loan tracking capability should be implemented. As described in section 5, some panel
members believe strongly that regulatory provisions requiring a loan tracking capability should be
introduced, while other panel members argue that those provisions could harm borrowers and the
industry. This latter group also noted the costs that the implementation of a loan tracking capability would
impose on government and lenders.
The panel believes the question regarding the need for transactional data should be revisited by the
working group after the data requested from lenders is collected, analyzed and reviewed. However, panel
members would like to share their analysis regarding the considerations that should be taken into account
in determining whether a loan tracking capability should be implemented.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 27
Table 4: Considerations Regarding the Introduction of a Loan Tracking Capability
Pros
Cons
Other Considerations
ď‚· Would support research, policy
development, and
enforcement.
ď‚· A loan tracking capability could
provide comprehensive,
transaction-level data on
payday loans in near real time.
ď‚· A capability could enable the
implementation of regulatory
provisions that apply across
lenders.
ď‚· Lenders would have
information regarding whether
borrowers have other payday
loans outstanding and may be
able to make more informed
credit risk assessments as a
result (although payday loan
obligations represent only a
portion of the credit risk
presented by a borrower).
ď‚· May reduce bad debt costs for
lenders.
ď‚· There would be costs in
implementing the tracking tool
ď‚· The requirement to enter all
payday loan transactions would
impose an administrative and
cost burden on lenders, which
might disproportionately impact
smaller companies and
dissuade potential new
entrants to the market.
ď‚· There would continue to be a
need for traditional inspections
to ensure that data is being
entered accurately.
ď‚· Government would need to
examine who would bear the
costs of the loan tracking
capability. If lenders bear the
costs, those costs should be
considered in determining the
appropriate maximum total cost
of borrowing for payday loans
(see section 7 of this report).
 The privacy of borrowers’
information should be
prioritized in designing the
capability and determining
which users would have access
to what data.
ď‚· There may be an opportunity to
leverage the capabilities and
infrastructure of credit reporting
agencies or bureaus to track
loans.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 28
Payday Loans in Quebec, Newfoundland and
Labrador, and New Brunswick
Three Canadian provinces have minimal to no
regulation of the payday lending industry
Quebec has introduced a lower interest cap of 30 per
cent, which applies to all lenders. Newfoundland and
Labrador do not have relevant legislation, so the
federal interest cap of 60 per cent applies.
While New Brunswick has developed payday loan
legislation, a maximum total cost of borrowing has not
yet been established. As a result, there is no
exemption from the Criminal Code interest rate cap.
7. Maximum total cost of borrowing
(price cap)
7.1 Background
Ontario’s payday loan general regulation came into effect in 2009 and included a price cap on the
maximum total cost of borrowing,
which was set at $21 per $100
advanced. The most that a lender can
charge for a $300 loan is $63. The
price cap has not subsequently been
revised.
Government established the maximum
total cost of borrowing on the basis of
advice received from a specially
constituted advisory body called the
Maximum Total Cost of Borrowing
Advisory Board for the Ontario Payday
Lending Industry. The Advisory Board
recommended the $21 per $100
advanced price cap that was ultimately
put in place; they recommended that
rate based on the principle that
“borrowing costs to consumers should
be kept as low as possible, consistent with the existence of a competitive industry” (Payday Lending
Advisory Board 2009).
Figure 1: Provincial Payday Loan Price Caps
$23 $23
$17
$25
$21
$25
$23
$0
$5
$10
$15
$20
$25
$30
AB BC MB NS ON PEI SK
Price Cap per $100 Loan
Province
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 29
Figure 1 presents the price cap for all Canadian provinces that regulate payday loans. Price caps in the
United States are generally somewhat lower, with a median value of $17.50 per $100 loan. Twenty-six US
states have a price cap (six states allow payday loans but do not have a price cap, while payday loans
are not available in the remaining states).
7.2 Identifying the factors that should be considered in setting a price cap
Panel members developed advice on a wide range of issues related to the setting of a price cap for
payday loans in Ontario, including the factors that should be considered in setting the cap. The factors
were organized into three categories of stakeholders: consumers, industry and communities. The table
below captures the key considerations that government should take into account regarding each
stakeholder group.
Table 5: Factors to Be Considered in Setting the Price Cap
Stakeholders
Factors
Consumers
ď‚· Affordability: prices should be set at a rate that enables borrowers to repay
their loans while still having enough money to meet their basic needs.
ď‚· Fairness: consumers should not be charged fees that generate an
excessive rate of return for lenders.
ď‚· Access: consumers should continue to have access to payday loans from
licensees.
Industry
ď‚· Cost of lending:
‒ Government should obtain high-quality data on the cost of providing a
payday loan in Ontario in order to understand the point at which industry
viability may be threatened.
‒ The government may wish to focus more on the cost components that are
generally outside the control of lenders. For example, some types of
operating costs (e.g., rent) may be relatively consistent across lenders,
while bad debt expenses, for example, may depend on the level of risk
that lenders are willing to take.
‒ Government may also wish to consider predictable changes to the cost of
lending over time. For example, it may wish to factor in inflation,
anticipated productivity gains and other cost trends (e.g., an announced
increase in Ontario’s minimum wage).
‒ In considering the cost of lending for Ontario’s licensed payday lenders,
the government should adopt a price cap that creates an opportunity for
lenders to make fair profits, but does not guarantee them.
‒ A low price cap may lead lenders to exit the marketplace. If a large
number of lenders exit, potential impacts include restricted access to
payday loans from licensees, reduced competition in the industry and
increased risk of illegal lending.
‒ In considering an appropriate profit ceiling, the government should
consider profit margins in other financial services industries.
Communities
ď‚· The economic wellbeing of individuals has an impact on communities,
including demand for social services and local economic development. If
price caps are set at a rate that harms the economic wellbeing of
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 30
Stakeholders
Factors
individuals, communities will also be impacted.
ď‚· In particular, the panel urges the government to consider the long-term
impact that payday loans may have on key social outcomes. For example,
financial security is an important social determinant of health, and regulation
that negatively affects or fails to protect financial security can be expected
to have a negative impact on the health of communities.
7.3 Setting the price cap based on the identified factors
After identifying the factors that should be considered in setting the price cap, the panel identified the
outline of a formula that could be used to set the price cap.
Consensus Position
ď‚· The maximum total cost of borrowing (price cap) should reflect the cost of lending and a balanced
approach to maintaining industry viability and affordability for consumers.
Considerations
The panel has also summarized a potential process for setting the price cap, which provides further detail
on the formula and advice on the data required:
1. Determine the cost of making a payday loan in Ontario through a statistically significant
assessment of lender costs. In executing this study, balance the administrative burden imposed
on lenders (especially smaller lenders) with the need for accurate and representative data.
2. After establishing the current cost of lending in Ontario, consider how costs can be expected to
change over time.
3. Identify an appropriate “profit ceiling” for the industry. A profit ceiling refers to the difference
between the average industry cost of advancing a loan and the price they are allowed to charge.
The panel recommends that in establishing the profit ceiling, government consider affordability for
consumers (and the relevant effects on communities) in addition to industry viability. Therefore,
while the government will clearly wish to examine profit ceilings in similar financial services
industries, it should also consider the specific characteristics and needs of payday loan
borrowers.
Panel members also considered whether there should be a single price cap for all borrowers or whether a
separate, lower price cap should be introduced for social assistance recipients. This option was strongly
supported by some panellists, who argued that given the fixed, limited income of social assistance
recipients, a reduced rate would substantially improve their financial security and ability to meet their
basic needs. They also suggested that social assistance recipients may be less likely to default on their
loans, given that government benefits payments are certain and predictable (i.e., government payments
will come on time and will not bounce).
Other panel members held an equally strong view that a single price cap should be applied to all
borrowers, including social assistance recipients. They noted that lenders may become unwilling to lend
to social assistance recipients as a result
6
and that based on their experience, these customers do not
have lower default rates. No consensus was reached on this issue.
6
Panel members noted that some Ontario lenders already have a policy of not lending to benefits recipients.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 31
7.4 Determining the price cap-setting process
In Ontario and most other Canadian provinces the government sets the price cap through regulation. The
process for doing so varies. Ontario used a special purpose advisory board, while Manitoba’s government
receives recommendations from a utility board, and Nova Scotia delegates the price cap setting to a utility
board. The panel considered whether Ontario should use processes similar to those of Manitoba and
Nova Scotia. While the panel did not reach consensus on who should have cap-setting authority, the
panel agreed on principles regarding regular review of the price cap and the role of stakeholders in
providing input and advice.
Consensus Position
ď‚· Consensus was not reached on whether or not to delegate price cap-setting authority to a regulatory
body.
Considerations
The panel discussed the potential costs and benefits of delegating cap-setting authority to a regulatory
body. Those considerations are presented in the table below.
Table 6: Approaches to Setting the Price Cap
Option
Description
Considerations
Price cap set by
government
Under the current approach,
government sets the price cap
directly through regulation.
ď‚· Cost: This option is likely to be less costly to
government and stakeholders (in terms of both
time and resources) than the delegation of
authority to a regulatory body.
ď‚· Transparency and openness: This option may
be less transparent to the public and less open
to stakeholders than a regulatory body.
However, the government could take steps to
increase transparency through public
consultation or other measures. Organizations
or individuals with minimal funding may have
limited capacity to contribute to this process.
ď‚· Timelines: Government could set the price cap
at regular intervals or on an ad hoc basis.
ď‚· Advice: Government could make the price cap
decision without external consultation or it
could convene an advisory body to support its
decision-making. In 2009, the Ontario
government convened an Advisory Panel to
make a recommendation on the price cap.
Price cap set by
regulatory body
The government would delegate
authority to set the price cap to a
regulatory body such as a utility
board. The regulatory body
would hold hearings and receive
submissions and deputations
ď‚· Cost: The establishment of a regulatory body
and the execution of hearings could be more
costly than direct setting of the price cap by
government. This cost of establishing a body
could be mitigated by delegating price-cap
setting authority to an existing organization.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 32
Option
Description
Considerations
from stakeholders before coming
to a decision.
The hearing process may also take up more
stakeholder time and resources than the
alternative approach.
ď‚· Transparency and openness: Hearing
processes are generally open to the public and
transparent. All interested parties put forward
their information and analysis, as well as their
proposals. Further, the decision of the
regulatory body is public and a rationale is
generally provided. As a result, this option may
be more transparent to the public and more
open to participation by stakeholders
(regardless of resources).
ď‚· Timelines: A regulatory body could set the price
cap at regular intervals or on an ad hoc basis.
ď‚· Advice: The hearing process would provide
advice on how the regulatory body should set
the price cap.
Consensus Position
ď‚· Introduce a requirement that the price cap be reviewed every five years or less, concurrent with the
full review of the Payday Loans Act.
ď‚· In setting the price cap, receive external advice from a broad range of stakeholders (including
industry, consumer advocates, community agencies and credit counsellors).
Considerations
Regardless of whether government maintains authority for setting the price cap or delegates that authority
to a regulatory body, the panel believes that the price cap should be reviewed every five years or less, to
ensure that it continues to balance industry viability with affordability for consumers. The price cap review
should be concurrent with the broader review of the Payday Loans Act recommended in section 9 of this
report. This will help reduce demands on stakeholder time and lead to more coordinated regulatory policy.
If government continues to set the price cap directly, it should receive advice from a broad range of
stakeholders. These stakeholders will be able to provide insight and advice on how changes in the price
cap may impact both borrowers and lenders.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 33
8. Financial education and awareness
8.1 Background
Ensuring that payday loan borrowers understand the payday loan product is fundamental to the goal of
consumer protection. Borrowers should be making informed borrowing decisions based on a clear
understanding of the cost of the products they purchase and their rights as a borrower.
7
More informed
decisions may reduce the risk of borrowers entering a debt cycle.
The Payday Loans Act contains a number of provisions designed to enhance borrower awareness and
education. The following table summarizes some of those provisions in plain language and includes
references to the relevant legislation or regulation.
Table 7: Financial Education and Awareness Provisions under the Payday Loans Act
Category
Provisions
Reference
Act (Payday Loans Act)
Reg (O. Reg. 98/09)
Disclosure
ď‚· Licensees (licensed lenders and loan brokers) are
obligated to display a poster in each office indicating the
maximum total cost of borrowing ($21 per $100
borrowed), the lender’s cost of borrowing per $100 loan,
and the lender’s cost of a 14-day, $300 loan.
Reg s. 14
ď‚· The first page of payday loan agreements must have a
table detailing the amount borrowed, the term of the
loan, the total cost of borrowing, the maximum allowable
cost of borrowing, the cost of the loan on a per $100
basis, the total amount due, the date on which payment
is due and the borrower’s signature.
Reg s. 18 (1)
ď‚· The loan agreement must also include notices regarding
the high cost of payday loans and the borrower’s
cancellation and refund rights.
Reg s. 18 (2)
Advertising
ď‚· Advertisements by payday licensees that mention
certain details of the payday loan offered must also
disclose other information including, the actual cost of
borrowing per each $100 borrowed and the cost of
borrowing for a 14-day, $300 loan.
Reg s. 15
7
For example, borrowers in Ontario have the right to cancel their payday loan without fees or penalties within two business days of
borrowing.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 34
Category
Provisions
Reference
Act (Payday Loans Act)
Reg (O. Reg. 98/09)
ď‚· If the Registrar believes that a licensee is making false,
misleading or deceptive statements in published
materials, he may order the licensee to stop using the
materials or order a retraction or correction.
Act s. 53 (1)
Education
ď‚· As a condition of licence, licensees must display and
provide educational materials about the payday lending
industry, financial planning and the Payday Loans Act
and its regulation that the Registrar approves.
ď‚· If the loan is remote (e.g., made over the internet), the
licensee must communicate that the educational
materials are available and provide them on request.
Reg s. 5
Payday
Lending
Education
Fund
ď‚· The Act established the Ontario Payday Lending
Education Fund. The purposes of the Fund are to
promote the education of persons respecting the rights
and obligations of persons under the Act and respecting
financial planning, where education is done through the
use of publications, training, advertising and similar
initiatives, including by making grants and transfer
payments. The Fund is to be financed primarily through
payments from licensed payday lenders and brokers.
Act s. 66-67
ď‚· A non-profit corporation called the Ontario Payday
Lending Education Fund Corporation was designated to
administer the Fund.
Act, s. 68
8.2 Advancing the financial literacy and education of payday loan borrowers
All panellists felt strongly about the importance of financial education and awareness in protecting
consumers, which is why the issue was added to the list of topics for discussion by the panel (as
described in section 2.1, the other topics were identified by the Ministry).
Panel members reviewed the current disclosure and financial education provisions and discussed
potential options for enhancing the financial literacy and education of payday loan borrowers. They also
noted that the independent Board of the Payday Lending Education Fund Corporation (PLEFCO) was
inactive, following the decision of the Board to dissolve. The panel considered whether PLEFCO should
be re-established, and if so, whether its purpose should be updated. The panel agreed that more time
was required to study how to enhance financial literacy and education to ensure that new approaches
reflect the specific needs of payday loan borrowers and to prevent duplication of existing supports and
resources.
Consensus Positions
ď‚· Strike a working group to study opportunities for enhancing the provision of financial literacy and
education to payday loan borrowers, including the future of the Payday Lending Education Fund.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 35
ď‚· Until the working group has completed its study, maintain the clauses establishing the Ontario
Payday Lending Education Fund and designating the Ontario Payday Lending Education Fund
Corporation.
Considerations
The panel recommends that a working group be formed to determine how best to support the goal of
enhancing the financial literacy and education of payday loan borrowers. As part of their mandate, the
working group should consider whether to re-activate PLEFCO. Panel members agreed that there may be
value in reconstituting PLEFCO
8
, but that they had insufficient information to determine whether or not
that is the case. Until the working group completes its study, the panel recommends that the clauses
providing for PLEFCO be maintained. The panel recommends that the working group have access to
available background regarding PLEFCO.
Some panel members also noted that the current stated purpose of the Fund could be amended to better
reflect the needs of payday loan borrowers. Currently, the purpose of the Fund focuses on financial
planning; these panellists recommend that the stated purpose of the Fund focus on financial literacy,
money management, budgeting and use of credit products.
Panel members agreed that the working group should take a broad, fresh look at the goal of enhancing
the financial education of payday loan borrowers. Key questions for the working group to consider
include:
ď‚· What information would be most valuable to the various segments of payday loan borrowers?
ď‚· What channels are most effective in reaching various segments of payday loan borrowers?
For example, panel members note that brochures and handouts are insufficient and that a more creative
approach to providing financial education is desirable. For example, resources could be directed to
community-based financial education programs and licensed, non-profit, registered charity, credit
counselling agencies. The working group could also consider the most appropriate, effective mechanism
for disbursing funds to these organizations.
Panel members also recommend that the working group focus on coordinating with organizations and
institutions delivering financial awareness and education programs and initiatives. Ensuring alignment
across organizations will help reduce duplication and ensure that new initiatives are filling gaps in existing
resources.
8
Some panel members took a stronger position, suggesting that PLEFCO was a fundamentally important aspect of the Payday
Loans Act.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 36
9. Future reviews of legislation and
regulation
9.1 Background
The payday lending industry is continuously changing in response to new technology and changes in
consumer demand, among other factors.
This dynamism goes beyond the growth of online and mobile lending, and may pose a challenge to
effective regulation unless that regulation is equally dynamic and broad. While the panel has identified a
variety of actions that will help government enhance consumer protection today, the government will need
to continue monitoring and responding to changes in the marketplace.
9.2 Effectively addressing future changes in the payday lending market
Context
The panel recommends three key actions to assist government in adapting regulation to emerging trends
and issues in the payday lending industry:
ď‚· Establish an advisory committee that meets regularly;
ď‚· Mandate a formal review of the Payday Loans Act every five years or less; and
ď‚· Obtain better data regarding the industry.
Consensus Position
ď‚· Establish an advisory committee of payday loan industry representatives, consumer protection
associations, community organizations and the Registrar or their designate that meets regularly.
Considerations
Stronger communication with stakeholders would allow government to respond nimbly to changes in the
payday lending industry. It could also provide a sounding board for the Ministry as it considers regulatory
or operational reforms.
The panel recommends that an advisory committee should meet at least twice per year, and should also
be convened as needed (e.g., the consideration of a regulatory amendment). The advisory committee
would provide advice to government (and Registrar) on the Payday Loans Act, regulations and
operational issues (e.g., communications by the Ministry regarding the industry, implementation of new
regulatory provisions, etc.). In particular, the advisory committee should provide a sounding board for
implementation of the recommendations made in this report.
Consensus Position
ď‚· Review the Payday Loans Act every five years or less.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 37
Considerations
To promote the capacity of the Payday Loans Act to protect consumers in a changing market, the panel
recommends that the Act be comprehensively reviewed every five years at a minimum. If there is a
significant change in the industry, the government should accelerate that schedule.
More data would be essential to the work of the advisory committee and the reviews of the Act. In
considering trends and issues in Ontario’s online and mobile payday lending marketplace, the panel
identified significant gaps in available data. For example, it is unclear what proportion of payday loans in
Ontario are made online and whether borrowers of online loans have different characteristics or borrowing
patterns than those who borrow in a store. The panel recommends that the Ministry enhance its data
collection. For a full discussion of current data gaps and how they might be addressed, see section 6.3 of
this report.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 38
10. Conclusion
The panel’s report to the Minister of Consumer Services is intended to inform the government’s review of
the Payday Loans Act, 2008. The panel recognizes that regulating the payday lending industry presents a
complex challenge. Careful, thoughtful analysis is required to improve protections for payday loan
borrowers while maintaining a viable payday lending industry. Although panel members sometimes
differed on how to best arrive at an appropriate balance, the consensus positions set out in this report
reflect the best advice of the panel.
In considering the panel’s specific advice and recommendations, the panel urges the government to act
quickly on the recommendations laid out in the report. More broadly, the panel hopes that the government
will also consider several key themes that arose consistently in panel discussions:
ď‚· The need for better data on payday lending in Ontario to support evidence-based regulatory
policy;
ď‚· The importance of thinking broadly and creatively in promoting the responsible use of credit
products, including the importance of financial education; and
ď‚· Strategies for keeping up with the high rate of change in the industry to ensure that government is
responsive to the needs of payday loan borrowers.
The panel was encouraged by the government’s recognition of the benefits of consulting with a broad set
of stakeholders in conducting its review of the Payday Loans Act. With this in mind, the panel urges the
government to consider further public consultations. Panel members hope that this report will be made
public in support of those further consultations.
While the panel believes that amendments to the Act and its regulations can play an important role in
enhancing consumer protection, the panel encourages all industry stakeholders to consider the role that
they can play. In particular, panel members want to highlight the importance of strong communication
between lenders, credit counsellors, community agencies that serve borrowers and consumer advocates.
Working together, these groups can identify key gaps in consumer protection and develop grass-roots
strategies to address them.
Dated: May 2014
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 39
Appendix A: Terms of reference
Payday Lending Panel
Terms of Reference
Payday Lending Panel
In September 2013, the Ontario government announced its intention to review the Payday Loans Act in
order to strengthen protections for payday loan customers. The review will:
ď‚· Assess the ability of the current legislation to protect consumers using new online and mobile apps to
access short-term payday loans
ď‚· Explore ways to track payday loans and ensure companies are compliant with existing regulations
ď‚· Study stronger protections for consumers against multiple loans and roll-over loans
ď‚· Review the maximum total cost of borrowing, which is currently capped at a $21 fee for every $100
borrowed
ď‚· Examine the impact on customers of new short-term, high-cost loan products that have recently entered
the marketplace
In response to this government commitment, the Ministry of Consumer Services (“the ministry”) is
establishing a Payday Lending Panel (“panel”) to provide independent advice to government on how to
strengthen protections for payday loan customers. The findings and recommendations of the Panel will be
delivered to the government through a report, which will be used to inform future government decision-
making.
Deloitte has been engaged to facilitate panel meetings and prepare the Report on behalf of the panel.
Payday Lending Panel Composition
The panel includes 14 members with expertise and an interest in payday lending legislation. This includes
payday and other lenders, credit counsellors, consumer advocates and others.
Panel Member Responsibilities
ď‚· Attend panel meetings and provide input based on experience
ď‚· Work cooperatively with the meeting facilitator
ď‚· Review materials that may be distributed in advance of panel meetings
ď‚· Engage and participate in panel discussions
ď‚· Strive for consensus on recommendations to government
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 40
ď‚· Consider the public interest in making recommendations to government
ď‚· Maintain a respectful environment where all are welcome to share their views
ď‚· Contribute to the development of a Findings and Recommendations Report that will be written by
Deloitte and delivered to the Ministry.
Deloitte’s Responsibilities
 Develop the panel work plan, for the panel’s approval
ď‚· Prepare meeting agendas and materials
ď‚· Facilitate panel meeting discussions and take notes
ď‚· Engage expert stakeholders to support panel discussions, as required
ď‚· Draft a Findings and Recommendations report to government, based on panel discussions and for the
panel’s approval
Payday Lending Panel Proceedings
The panel will meet for six workshops over the period from February to May, 2014. Guiding principles for
developing the Findings and Recommendations Report with advice on strengthening protections for
payday loan customers through a review of the Payday Loans Act, 2008 include:
ď‚· Be reflective of stakeholder expertise and advice
ď‚· Be understandable to the general public
 Contain enough detail and rationale to provide a window into the panel’s deliberations
ď‚· Anticipate what would be acceptable to the public and government
Deloitte will prepare meeting agendas based on input from panel members. Pre-meeting packages
including background materials supplied by panel members, Deloitte, the ministry, or other sources, will
be distributed in advance of each panel meeting. Deloitte will inform panel members of any pre-meeting
requirements such as research and readings.
The panel may also seek additional support to assist with the panel’s deliberations from an informal pool
of expert stakeholders from the payday lending and related sectors.
Public Service and Confidentiality
Participation as a member of the panel requires a commitment to the broader public interest. Panel
members are expected to provide impartial advice for the benefit of all Ontarians, rather than necessarily
advocating on behalf of any specific interest.
Panel members agree to share information and collaborate, while respecting each other’s opinions,
upholding the privacy of the discussions, and representing the views and interests of the people of
Ontario.
The names of all panel members will be included in the report and posted on the ministry’s website to
ensure public transparency.
Meetings will be conducted under the Chatham House Rule:
ď‚· When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use
the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any
other participant, may be revealed.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 41
The panel report will aim to achieve consensus on recommendations. Where consensus is not reached,
the various points of view will be represented in the report, but not attributed to those who expressed
them.
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 42
Appendix B: Works cited
Bhutta, N., Skiba, P. M., & Tobacman, J. (2013). Payday Loan Choices and Consequences.
Consumer Financial Protection Bureau. (2013). Payday Loans and Deposit Advance Products. White
Paper.
Environics Research Group. (2005). Understanding Consumers of Canada's Payday Loans Industry.
Kaufman, A. (2013). Payday Lending Regulation. Federal Reserve Board.
Maximum Total Cost of Borrowing Advisory Board. (2009). Capping Borrowing Costs, A Balanced
Approach to Payday Loans in Ontario.
Ministry of Consumer Services. (2013, September 13). Strengthening Protection for Payday Loan
Customers.
Pew Research Center. (2012). Payday Lending in America: Who Borrows, Where they Borrow, and Why.
The PEW Charitable Trusts.
Statistics Canada. (2007). Perspectives, Catalogue no. 75-001-XIE.
Veritec Solutions LLC. (n.d.). Applying BI to Payday Lending Regulatory Solutions. Retrieved January 28,
2014, from https://www.veritecs.com/PaydaySolution.aspx
Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 43