Payday Loan Regulations
February 17, 2023
On February 9, 2023 the Lieutenant Governor in Council amends the Payday Loans Regulations under the Consumer Protection and Business Practices Act by Order in Council 2023-028.
Paragraph 8(2)(a) is repealed and substituted with “Maximum fees and charges permitted in Newfoundland and Labrador for a payday loan: $14 per $100 lent”.
The latest amendment is amongst many restrictions that have been put into place since the Payday Loans Regulations (10/19) came into effect back in 2019. Among limiting the number of fees and charges other restrictions imposed on payday lenders included: prohibition from issuing a new payday loan to a borrower who already has a payday loan issued by the payday lender; prohibited from granting a rollover loan; prohibited from issuing a payday loan in excess of 50% of the borrower’s net pay or other net income to be received during the payday loan term; prohibited from requesting or accepting from the borrower or another person, as security for a payday loan, personal property or real property; accept a cheque from the borrower unless it is payable to the payday lender; and/or an assignment of wages that is given in consideration of a payday loan or an advance under a payday loan, or to secure or facilitate a payment in relation to a payday loan.
In response to a growing consumer need for short-term credit in small amounts, the payday loan industry emerged in Canada in the mid-1990s, following an international trend. Traditional financial institutions like banks, credit unions, and trusts did not cater to this demand, leaving consumers with limited options. With salary advances becoming less available due to changes in payroll processing and direct deposit, consumers were left with borrowing from friends and family or seeking out alternative lenders with unfavorable lending terms.
To address this gap in the market, financial service companies began offering payday loans, an unregulated product at the time. In 2004, the Canadian Payday Loan Association, now known as the Canadian Consumer Finance Association, was established to represent the interests of these companies.
Since its inception, the payday loan industry has grown rapidly in Canada, with an estimated 1,400 retail outlets nationwide. Nearly two million Canadians use payday loans annually.
Payday loans are consumer loans of a small amount, typically ranging from $300 to $500, and with a short-term repayment period of about 10 days. These loans are designed to be paid back, along with the cost of borrowing, when the borrower receives their next paycheck. However, there have been concerns raised by consumer advocates, regulators, and Canadians in general about the payday lending industry’s unfair practices, such as exorbitant borrowing costs.
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