The history of payday loan laws in Canada
Up until 2006, the form of lending commonly known as payday lending was illegal under section 347.1 of the Criminal Code of Canada. That statute specifies 60% per annum as the maximum legal interest charged. After a multi-million dollar court case against A OK Payday loans, the government then introduced section 347.1(2) which exempts lenders from prosecution if:
- the loan is for $1,500 or less and the term of the agreement lasts for 62 days or less;
- the person is licensed by the province to enter into the agreement; and
- the province has been designated by the Governor in Council (Cabinet) under new section 347.1(3).
The government’s rationale for regulating the industry was essentially this: there is a significant demand for the product which would not be reduced by outlawing the practice, and making it strictly illegal would then close the industry to anyone other than criminal organizations who would be far more difficult to manage. In addition, the spirit of section 347.1 was not instituted as a consumer protection law but was instead designed to attack organized crime. To this end, the government created an exemption and passed the task of enforcement to the individual provinces. See below for information on the individual provinces’ response to the legislation:
- British Columbia
- New Brunswick
- Prince Edward Island
- Nova Scotia
- Northwest Territories
Commonalities between provinces
There are a number of common factors among most payday loan regulations:
- The interest rates are all capped under 19%.
- There is usually some form of a “cooling off period” where the borrower can return the money within 2 business days without incurring any interest charges.
- Payday loan collection tactics are often restricted, although the specifics vary widely between provinces.
- The practice of “rollovers” is discouraged, and again, the specific mechanism varies widely between provinces.