Options for Regulating Payday Loan Businesses

At the 2015 UBCM Convention, due to time constraints, resolution B122 “Payday Loan Regulations” was not considered and was referred automatically to the UBCM Executive. The resolution called for amendments to the Business Practices and Consumer Protection Act and associated Payday Loans Regulation, to provide greater protection for consumers accessing payday loan services. Upon consideration of the resolution, the UBCM Executive through its Community Safety Committee undertook further research into regulation of payday lenders. It also sought to identify local government best practices for zoning and licensing payday loan businesses.

Payday loan providers offer alternative financial services typically not found in traditional financial institutions (banks, credit unions, trust and loan companies). The primary service offered by payday lenders is short-term personal loans; however, they may also offer cheque cashing, money transfer and other financial services. Current provincial legislation places limits on the services offered by payday lenders:

  • maximum loan amount is $1,500;
  • maximum fee is $23 for every $100 borrowed—i.e. 23 %—inclusive of administrative fees and interest rates;
  • maximum interest rate on outstanding loans is 30%;
  • maximum length of repayment term is 62 days;
  • payday lenders may not “roll over” loans (i.e. extending or renewing a loan at an additional cost to the borrower).

Resolution 2015-B122 requested the following amendments:

  • reduction of the maximum allowable fee and interest rate;
  • requirement for payday lenders to offer instalment-based repayment options; and
  • measures to restrict a payday lender from issuing more than one loan to the same applicant in the space of a week.

While the Province has shown interest in regulatory reform, UBCM would observe that local governments already hold some authority to regulate payday lenders in their communities. This authority is exercised primarily through land use control, and may include the following measures:

  • overall prohibition: a municipality may include in its zoning bylaw a clause prohibiting payday loan uses in all zones.
  • density control:establishing distance requirements in a zoning bylaw—for example, to specify that a payday lender may be located no closer than 1 kilometre from another payday lender, or from a specific type of institution such as a school.
  • location control: through its zoning bylaw, a municipality may prohibit payday lenders in specific zones or types of zones. This limits the areas within a municipality in which payday lenders may operate legally, and in some cases, a payday lender may need to submit a rezoning application, thereby triggering the municipality’s review process.

UBCM acknowledges that many local governments have chosen not to undertake specific regulation of payday lenders, permitting payday lenders to operate as other businesses do in commercial zones.

Note:

Payday loan services are different from cheque cashing services, though some businesses may offer both services. Payday lenders offer short-term personal loans, with consumers agreeing to meet repayment terms (i.e. deadlines) and, for an outstanding loan, to pay interest on the principal amount of the loan.

Cheque cashing is an immediate fulfilment service, providing—for a fee—instant cash for cheques, money orders, or bank drafts. The cash provided through a cheque cashing service is not a loan, and consumers are not subject to a repayment term or interest. Selected local governments have chosen to regulate cheque-cashing centres, as opposed to payday lenders.

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