Newfoundland and Labrador was the last Canadian province to bring in legislation regulating payday lenders, but has introduced two changes to improve protections for consumers of higher cost credit in the province.
In late September, it announced lower lending limits for payday lenders, cutting the maximum cost of borrowing from $21 per $100 borrowed to $14 per $100, the lowest limit in the country. In late October, it introduced legislation to regulate higher-cost instalment loans and lines of credit.
The protections involve amendments to the province’s Consumer Protection and Business Practices Act that increase disclosure requirements, prohibit giveaways to encourage customers to take out the loans and automatic payment deductions from paycheques, and also grant borrowers a four-day “cooling off” period to reverse the loan without any consequence.
Minister of Digital Government and Service Sarah Stoodley said consumers who use high-cost lenders can easily “become stuck in a cycle of payments. While recognizing that these credit products may help individuals who have no other options, we must work to ensure consumers are protected.”
Four other provinces, Manitoba, British Columbia, Alberta and Quebec have passed legislation that places similar requirements on loans and credit above a certain interest rate – 32% annual percentage rate (APR) in the first three provinces, 22% above the bank rate for Quebec. Ontario announced its intent to regulate higher cost lenders, but has not introduced legislation to do so.
The Newfoundland revisions did not declare a specific threshold rate, allowing that to be set by regulations still to come. And while the provincial announcement proclaimed that it would prohibit undisclosed fees, the proposed legislation does not include measures that other provinces have adopted to provide separate “front page” disclosure of all amounts due. Many higher cost lenders embed optional insurance charges and other fees in the cost of borrowing, and gloss over (or misrepresent) the effect of those additional services in the total amounts to be repaid. The costs of the optional fees often exceed the interest costs.
The federal government recently completed a call for submissions as it looks to revise the criminal rate of interest lenders can charge, which is an effective annual rate of 60% (equivalent to an APR of about 47%). Payday lenders are exempted from those laws in provinces where legislatures have adopted specific laws for short-duration loans of less than $1,500. While most provinces implemented regulated payday lending more than 10 years ago, Newfoundland and Labrador’s payday lending laws did not take effect until April 2019.