Early this month, the provincial government tabled legislation to curb abusive payday lending practices. The way it works is payday loan operators lend cash to people who in turn pay a fee and interest on whatever amount they take.
The interest on a loan can be massive, often exceeding the 60 per cent usury rates set out in the criminal code. Worse still, loans can often be made back-to-back, or one loan on top of another.
New legislation would clamp down on the payday industry, frequently accused of targeting the poor. A new law would prevent payday lenders from making back-to-back loans and stop lenders from imposing ridiculous default charges or cancellation fees.
We applaud the government for taking the initiative but Queen's Park should have been more decisive on the issue of interest rate caps.
It is a criminal offence in Canada to charge in excess of 60 per cent interest per year, but the law was never intended to apply to commercial loans.
Provinces are required to regulate payday lending and set a cap on interest rates.
Ontario has not done this yet, effectively giving payday lenders free control on setting charges.
Instead of setting a cap-- the NDP has proposed a 35 per cent cap on annualized interest rates although that has been regarded as excessive by the industry-- the provincial Liberals have opted to leave the decision up to an independent advisory board comprised of business people, industry experts and poverty advocates. That was the wrong move in our opinion, as it slows down the effort to thwart abusive practices. The government has promised that a cap will be put in place by the time legislation is passed, but there is no clear timeline on when that will be.
It is imperative government officials take action now and put regulations in place.