Strengthening Ontario’s Payday Loans Act (Confidential, May 2014) 17
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: