Regulating “Alternative Financial Services” in Ontario
December 22, 2015
Earlier this month, the Minister of Government and Consumer Services introduced Bill 156, the Alternative Financial Services Statute Law Amendment Act, 2015 (Bill 156). Bill 156, if enacted, would amend the Consumer Protection Act and Payday Loans Act, 2008. Bill 156 also proposes to amend the Collection and Debt Settlement Services Act. For a discussion of the amendments to the Collection and Debt Settlement Services Act, please see our December 2015 Blakes Bulletin: Administrative Monetary Penalties and New Exemptions for Debt Collectors.
Bill 156 was introduced following a consultation paper that was released by Ontario’s Ministry of Government and Consumer Services on June 15, 2015. Comments to the consultation paper were due on August 14, 2015. For a discussion of the consultation paper, please refer to our June 2015 Blakes Bulletin: Stronger Protections for Financial Services Consumers in Ontario? in respect of “high cost” financial services, and to our June 2015 Blakes Bulletin: Expanding the Meaning of Debt Collector in Ontario? in respect to debt collection.
Consumer Protection Act
Bill 156 proposes to amend the Ontario Consumer Protection Act (CPA) by adding a new part VII.1., that if enacted, would introduce new rules regarding agreements for cashing government cheques. Bill 156 includes a limit on the fee that may be imposed for cashing a government cheque and a mandatory statutory statement to be provided to a consumer. A government cheque is defined as a cheque issued to a consumer by the Government of Ontario (including a municipal government), a government agency or the federal government.
Subject to certain exemptions, the new part would apply to any consumer agreement under which a supplier cashes a government cheque for a consumer. Specifically excluded from the government cheque cashing rules are an Ontario credit union and a bank (including a bank, authorized foreign bank or federal credit union as defined in section 2 of the Bank Act (Canada)). However, the new part would apply to retail associations and credit unions incorporated in other provinces in Canada.
Limit On Fees
The new part VII.2 would put a limit on the fee that may be imposed for cashing a government cheque. The fee will be fixed by regulations to the CPA (CPA Regulations), which have not yet been released. Bill 156 states that the fee prescribed by the CPA Regulations may be:
- A fixed amount
- A percentage of the face value of the cheque or any other amount calculated on the basis of the face value of the cheque
- An amount that results from the application of any combination of clauses (a) or (b)
- Any amount determined by any other prescribed means
Bill 156 would require any supplier under a consumer agreement to which Part VII.1 applies to provide the customer with a mandatory statement of information regarding the cashing of the government cheque. However, we will have to wait for the new CPA Regulations to see the nature and content of this statement.
It would be an offence under the CPA to violate the fee limit or mandatory statement requirements.
Part VIII Leases
Tucked into Bill 156 is an amendment to section 87 of the CPA, which sets out the types of leases to which Part VIII applies. Ontario’s leasing regime under the CPA is unique as it contemplates two types of leases: “Part VIII Leases”, which require certain cost of credit disclosures, and “Part IV Leases”, which do not. Part VIII applies to leases that are:
- Leases for a fixed term of four months or more
- Leases for an indefinite term or that are renewed automatically until one of the parties takes positive steps to terminate them
- Residual obligation leases
Bill 156 adds to this list “such other leases that are prescribed.” This amendment suggests that additional types of leases will be added to Part VIII. We will have to wait for the CPA Regulations to know which additional types of leases may fall under Part VIII, thus requiring certain cost of credit disclosures.
Certain items mentioned in the government news bulletin are not addressed in Bill 156. However, new regulation making powers provided for in Bill 156 suggest that the new CPA Regulations may deal with these matters, including:
- Grace periods for repayment on rent-to-own services
- Limits on the costs of optional creditor’s insurance for instalment loans
The amendments to regulation making powers also include a long list of other powers, many of which deal with leasing.
Payday Loans Act
Bill 156 also proposes to amend the Payday Loans Act, 2008. If enacted, the bill would amend the restrictions applicable to replacement payday loans and add restrictions that apply to a third payday loan agreement. Bill 156 would also permit the registrar to conduct inspections if he or she reasonably believes that a person or entity is acting as a payday lender or a loan broker without a licence.
Restrictions Applicable To Third Payday Loan Agreement
Bill 156 would restrict the terms of a third payday loan agreement.
If a borrower enters into a third payday loan agreement within 62 days of having entered into a first payday loan agreement, the lender would be required to ensure that:
- The term of the third payday loan agreement is at least 62 days
- The agreement provides that the borrower is required to repay the advance
- The agreement provides that the cost of borrowing must be repaid to the lender in the prescribed number of instalments and at the prescribed times
As with the changes to the CPA, further details will be set out in regulations (PLA Regulations) that have not yet been released. We will have to wait for new PLA Regulations as to the number of instalments and timing of same.
Despite this, if a third payday loan agreement includes a provision described in sections (b) and (c), above, the lender would be entitled to receive and demand payment of a portion of the cost of borrowing from the borrower before the end of the term of the loan.
Further Restrictions On Replacement Payday Loans
Bill 156 provides that the PLA Regulations may prescribe a time period after which a new payday loan may be entered into. Under the current Payday Loans Act, a lender cannot enter into a new payday loan agreement until at least seven days have passed since the borrower has paid the full outstanding balance under the first agreement. However, a lender may enter into a new payday loan agreement before the seven days have passed if the borrower has provided the lender with proof that the borrower has paid the full outstanding balance under the first agreement.
Bill 156 would amend the Payday Loans Act such that a lender under a payday loan agreement would be prohibited, in all instances, from entering into a payday loan until at least seven days (or a prescribed number of days) has passed since the borrower paid the full outstanding balance under the first agreement.
Amendments to the regulation making powers of the minister include powers that may significantly impact the number of payday loan agreements into which a lender and borrower may enter. Bill 156 permits the minister to make the PLA Regulations:
- Prohibiting a lender from entering into more than the prescribed number of payday loan agreements with the same borrower in a one year period
- Prohibiting a loan broker from facilitating more than the prescribed number of payday loan agreements between the same borrower and different lenders in a one year period
Bill 156 also permits the minister to make the PLA Regulations prohibiting licensees from offering or providing prescribed goods or services, other than payday loans, to anyone. It is unclear what these goods or services will be.
Inspections Of Non-Licensees
Included in Bill 156 is an amendment that allows the registrar certain investigative powers. If the registrar has reasonable grounds to believe that an activity for which a licence is required is occurring, the registrar or its designate may conduct an inspection. The amendments would include power to enter and inspect at any reasonable time the business premises of a person or entity, other than any part of the premises used as a dwelling, for the purpose of determining whether the person or entity is carrying on the activity.
Bill 156 was carried on first reading on December 9, 2015. The Legislature adjourned on December 10, 2015 and will resume on February 16, 2016, after which the bill will be up for second reading.
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