Saturday, December 12, 2015

What to do about Predatory Lending?

(Payday loans are the Lay’s Potato chips of finance.  You can’t have just one and they are terrible for you… John Oliver

I was asked on Thursday how I felt about the Ontario’s new legislation that deals with alternative financial services.

My answer was that I'm quite disappointed.

It is hard to believe it has taken 2 years of consultation and this is all we get.

Consumer advocate Mel Fruitman put it better.

“I hate it when government does that. It says 'we're going to do something but it's going to be a year before we do something and we can't tell you anything until we do it,'" he told the CBC.

I was involved in some consultation by the Ministry of Government and Consumer Services this past July.  This was part of lengthy process that included a 2014 “panel of volunteers with expertise in matters related to payday lending.”  That panel had concluded, not surprisingly since there were lenders involved, that everything was pretty much OK.  Some tightening of regulations and a little more education for consumers was all that was needed.

To the government’s credit, they realized more had to be done.  It seemed to me that the staff leading that 2015 consultation that I had attended knew how badly people were being exploited by the payday loan predators and other private sector operations that “help” people with money problems.  I believed that they were going to do something significant about it given the political realities that they had to work with.

What happened, then?  

To be fair, there are good things in Bill 156 – An Act to amend various Acts with respect to financial services.

ACORN Canada has done a lot of advocacy in this area.  Their spokesperson, Donna Borden, had this to say:

This announcement is a great first step.  There are still countless ways the banking system could be made fair for low-to-middle income Canadians.” 

I read the Bill yesterday.  Bill 156 amends various other pieces of legislation. Specifically:

The Collection and Debt Settlement Services Act
The Courts of justice Act
Budget Measures Act 2009
The Consumer Protection Act
and more, I think.

So, to do a thorough analysis of it one would have to look at all those acts and see how each amendment changed it.  That is a lot of work. I’ll reference Mel Fruitman again:  

It is very difficult to comment on an announcement about an announcement about an announcement." 


Provincial governments have largely remained on the sidelines or brought in regulations that were as weak as the ninth batter in a National League lineup. Some municipal governments have stepped up. But it appears that no new powers will be given to municipalities to deal with the problem as Howard Elliott noted in the Hamilton Spectator.

This “industry” hurts communities. Peter Kucherepa, an Ottawa lawyer, has researched the payday loans and argues that  enabling cash transactions (the mainstay of how this industry functions) can contribute to the proliferation of the drug industry and other criminal activity in neighbourhoods.

There are health issue too. Kucherepa cites research from St. Michael’s Hospital in 2014. That study “clearly shows that the proliferation of cash based money lenders lowers community life expectancy and increases pre-mature deaths.” 

You can read Kucherepa’s paper at

Kucherepa also compares interest rates for the two week loans that are legally permitted in each province. For example, if you borrow $300 in Nova Scotia, the payday loan company could legally recover $2,106 from you.  In Quebec that $300 loan could result in a maximum repayment of $405.

If provinces won’t act and municipalities can’t,  perhaps the solution lies with making a change to the Criminal Code of Canada.  About ten years ago an exemption from criminal prosecution was made for Payday Loans so that they could exceed a 60% interest per annum. (Criminal code of Canada 347.1)
Recent example of advertising  used by the "Industry"
That should change. 

My Oxford English Dictionary  says “a crime is something disgraceful or very unfair.”

That ought to make these lending practices criminal.

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