Canadian money lenders, whether they are in the pawn industry or the payday loan business, need to be sure they are in compliance with the latest regulations that govern the industry, or else face heavy fines and consequences. There are many laws in place across the country, often varying by province, that are in place to ostensibly protect consumers and address everything from interest rates to identity verification. It takes a long period of time for these statutes to change through legislative process, but when they do they can cause a large shakeup in the industry – many rates, processes and policies have to be examined and in many cases overhauled.
In Ontario, there is currently a new Bill at the Standing Committee, Bill 156: Alternative Financial Services Statute Law Amendment Act, which would impact not only pawnbrokers and payday lenders, but also rent-to-own companies, debt collectors, cheque cashers, and lenders that provide installment loans. Earlier this summer on June 7th 2016, it was passed with division to Committee – this means that after their revisions, there will be one more reading before it may be voted into law. The Bill's detractors have complained that it is too loosely worded and not yet specific enough to effect change, but if passed, Bill 156 will certainly have a large impact on the lending industry's operations.
One of the most prevalent changes in this Bill for payday loan operators is that it would prevent people from taking out a loan unless a predetermined number of days (a week has been suggested) has passed since their last one. There also is discussion around limiting the number of payday loans a borrower could take out in a year from both a single lender and, if through a loan broker, over multiple lenders. This would impact not only the number of customers a lender could service, but also the process for qualifying a borrower for a loan. In addition, it proposes that certain frequent borrowers could have their repayment times extended at no additional cost to them.
Installment loan providers would also see their industry subject to great changes should the Bill pass. It would require new ways of qualifying borrowers on the basis of their income, and force lenders to disclose their findings to the customer before any agreement can be signed. In addition, the bill would disallow lending companies from contacting customers to increase or refinance their loan, and impose limits on the non-repayment fees, like loan insurance, that the company charges.
In regards to cheque cashing, the Bill would provide limits on the amount of fees that can be charged when cashing government cheques. While financial service providers are still able to charge their normal rates for those who are cashing regular cheques, this Bill would put in place a lower fee for those who are looking to cash government cheques, as the cheque would be guaranteed to be secure. Rent-to-own companies would see changes in grace periods for late payments and grant a customer the ability to reinstate a terminated agreement with no penalty.
Perhaps the most sweeping proposal that Bill 156 has made would impact all alternative lending channels by requiring that operators provide information and data concerning their services and their costs to a customer as part of the lending process. This way customers would be aware of the fees and charges up front and not be surprised by any non-transparent fees when it comes time for repayment. Not everything would change with this bill, though. For example, any type of money transferring services would remain the same, as well as any licensing primes or price caps on fees that can be charged per a certain dollar amount transferred.
While there is still time for debate and amendments on Bill 156, should it be passed into law the lending industry will see some sweeping changes on par with when the Payday Loan Act was instated in 2008. Lenders will need to update their policies and procedures, provide staff with new training, update their software and reexamine their business model as a whole.
"We are keeping a close eye on Bill 156 as the debate unfolds," said Roy Toker of Quickcheck Canada. "Should the bill pass, our lending software will adapt to keep our clients compliant with the new regulations. We are continuously upgrading our system as developments unfold. After the bill returns from committee we should have a clearer idea of the exact changes the government is proposing. It certainly is one to watch."