Toronto: The Ontario government is proposing changes that would provide additional protection for payday loan borrowers by capping interest rates and fees on defaulted loans. The changes were included in the Covid-19 Economic Recovery Act, 2020.
“Our government remains committed to protecting Ontarians during these unprecedented times, now and in the future,” said Lisa Thompson, Minister of Government and Consumer Services. “These proposed amendments to the Payday Loans Act, 2008, are intended to provide some much-needed relief to some of Ontario’s most vulnerable consumers.”
Proposed amendments to the Payday Loans Act, 2008, would cap the interest rate that lenders can charge on payday loans that are in default. Lenders would not be permitted to charge interest in excess of 2.5 per cent per month (non-compounded), providing rate relief to borrowers unable to repay their loans on time, said a statement.
The government would also establish a maximum fee of $25 that may be charged by lenders for dishonoured or bounced cheques or pre-authorized debits, it added.
If passed, this would be the first time Ontario has taken action to protect borrowers in default from annual interest rates as high as 60 per cent and to establish a maximum fee that may be charged for dishonoured payments.
- Ontario would join six Canadian jurisdictions that have similar maximum interest rates on payday loans in default, including British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, and Newfoundland and Labrador.
- Payday loans are the most expensive form of consumer loans in Ontario.
- Payday lenders typically have to be repaid two weeks after borrowing the money.
- The government is also conducting a review of the Consumer Protection Act — the first comprehensive review in almost 15 years.
- As part of the review of the Consumer Protection Act, the government will consider how to better protect vulnerable consumers who use alternative financial services that are regulated under that act.