Toronto is the latest Canadian city to crack down on payday loans

Canada’s largest city is the latest in a multitude of municipalities to crack down on payday lenders with bylaws to place restrictions on their business activities and limit the number of physical locations.

Toronto City Council last week passed new interim bylaws that limit the number of physical locations allowed in the city and require operators to be licensed. This license will cost lenders an initial amount of $ 633, plus $ 309 to renew it each year.

The number of payday licenses will be capped at 212, which is the number of provincially licensed locations already operating in the city as of May 1, according to the Toronto Municipal Licensing and Standards Service.

Payday lenders are often a last resort for borrowers who would otherwise be turned down for a traditional bank loan. The repression comes on top of the new regulations issued by the province. The Ontario government reduced the cost of a payday loan from $ 21 to $ 18 per $ 100 in 2017 and reduced it again to $ 15 this year.

Loan rates still far exceed Canada’s criminal usury rate of 60% interest when expressed annually, but since the loans are intended to cover short-term expenses for a period of two weeks, lenders do not express terms annually. However, many users end up keeping them for much longer than their next paycheck.

Toronto City Councilor Kristyn Wong-Tam, who has long called for more restrictions on payday lenders, said these companies often prey on the most economically vulnerable and trap them in a “vicious cycle” of debt with high interest rates that make it almost impossible to repay the loan. A licensing system will give city officials more control, she added.

“At the end of the day what we want to do is reduce the number of payday lenders and try to cap some rates so people can’t fall victim to predatory loans,” she said.

Last month, Ottawa city council passed a motion to examine options for setting a cap on the number of payday lending establishments and measures to reduce their concentration.

In March, Hamilton City Council passed legislation limiting the number of payday loan outlets to 15, or one per ward, while City Council in Belleville, Ont. adopted a councilor resolution to explore the possibility of limiting the presence of payday lenders to three distinct areas.

But even as cities move closer to physical outlets, short-term loan providers are increasingly engaging with their customers online.

“This is definitely the challenge we have,” Wong-Tam said. “Much of the funding is also available online. And once it’s online, how do you sort out something that doesn’t have a physical address in Toronto? “

Toronto city officials are also considering limiting distances from payday lending establishments in certain neighborhoods as part of their consultation and research process over the next year. After one year of the interim regulations come into effect, licensing officials will make recommendations on how to regulate payday lenders, including any additional licensing requirements.

Tony Irwin, CEO of the Canadian Consumer Finance Association, said its members understand the industry needs to be regulated, but the new rules appear to be a “duplication,” with additional fees on top of provincial fees.

The additional regulations could result in store closings and fewer options for people who depend on payday loans, he said.

“What does this mean for the single mother who has two jobs but has a shortfall in a given month and needs help?… Where will she go? The need does not go away.

Irwin said most consumers typically look to their physical locations for access to payday loans, but people who don’t have access to a physical store will simply find another option online, such as an unlicensed foreign lender. beyond the reach of Canadian law enforcement agencies.

The little research available shows that people with low incomes and living in poverty are more likely to go to physical stores for payday financing, rather than online, said Michelynn Lafleche, vice president of strategy. , Research and Policy at United Way Toronto and York Region.

She said the nonprofit, which has made representations to the city regarding the regulation of payday loans, is pleased that Toronto is taking the first steps to ensure that these credit products do not unduly benefit consumers. people.

“The ultimate goal is to protect the consumer… Without ending and killing the business. There is a balance that has to be struck one way or another.

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