Consumers facing financial difficulty who are unable to obtain credit from a bank or other conventional lender often resort to using the services of a pay day lender. Here is some information you should know when dealing with a pay day lender.
What is a Pay Day Loan?
In a pay day loan the borrower asks for money before their pay cheque, government cheque, or other funds become available. The pay day lender advances the funds, and when the borrower receives the anticipated cheque they use it to repay the loan. Pay day lenders often operate under names like “Cash 4 You” and “Cash Money”. While these loans may be quick and easy to obtain, interest rates can be very high and the repayment due date can be very short, causing you to look to other sources to repay the loan on time.
How Are Pay Day Loans Regulated?
The Criminal Code
If the amount of a pay day loan is greater than $1,500, the Criminal Code prevents a lender from charging more than 59% interest. If you are in this situation, you should call your local police department.
The Pay Day Loans Act
For pay day loans of $1,500 and under, lenders are regulated by Ontario’s Pay Day Loans Act (PDLA). Under the PDLA, pay day lenders must be licensed by the province. Pay day loan companies must provide information that is truthful and clear, and cannot make false, misleading, or deceptive statements. This applies to communications through advertising, posters, pamphlets and contracts. Posters must be displayed in all of the lender’s offices and be visible to all potential borrowers. The posters must state that the maximum amount the pay day lender may charge you for borrowing from them is $21 for every $100 you are loaned, and must display the amount that the lender is actually charging you. Written contracts are required for all loans. A signed copy of the written contract must be given to you at the time your loan is negotiated.
Under the PDLA, a lender cannot try to sell you other services (such as cheque cashing or currency exchange) when you are there to get a pay day loan. The lender cannot deduct any amount from the loan for administrative fees. You must receive the cash from the loan immediately upon signing the agreement, or within one hour if the agreement was made online. You have an automatic 2-day cooling offer period after you sign the loan agreement, during which you may cancel the agreement for any (or no) reason. If you cancel, you must return the funds you received, and the lender must return any post-dated cheques or debit forms you gave them. You have the right to repay a loan at any time before it is due without paying a prepayment charge or a penalty. Finally, lenders are not allowed to issue you another loan before your first loan is repaid.
Can a Pay Day Lender Contact Me to Collect a Loan?
If your loan is in default a lender may contact you, but only on weekdays between the hours of 7 a.m. and 9 p.m. and on Sundays only between the hours of 1 p.m. and 5 p.m. They may not contact you at all on statutory holidays, or more than 3 times during any 7-day period. They may not use threatening, profane, intimidating or coercive language, or communicate with you in a way that constitutes harassment.
What Can I do If I Have Problems With a Lender?
If you feel that a pay day lender has violated your rights, you have several options. First, you can complain to the Registrar of the Pay Day Loans Act. This can lead to mediation, the pay day lender being given a written warning, the lender’s license not being renewed, or the lender being fined up to $10,000. Second, you may be able to request a prosecution under the Pay Day Loans Act, which may result in the lender paying a fine or being imprisoned. If neither of these options resolves the matter to your satisfaction, you may be able to sue the lender in either the Small Claims Court or the Superior Court (depending on the amount of your claim).
For more information on consumer rights and complaints related to pay day lending services, please visit the Ministry of Consumer Services website at http://www.sse.gov.on.ca/mcs/en/Pages/default.aspx or call them at 1-800-889-9768. In addition, you can find more information about consumer protection topics at any time in a series of Community Law School webinars archived online at www.yourlegalrights.on.ca/training-topic/consumer-law. Be empowered, and stay tuned.
This column is brought to you by Community Law School (Sarnia-Lambton) Inc., and Community Legal Services and Pro Bono Students Canada at Western University, with funding support from the Law Foundation of Ontario. It provides legal information only. The information is accurate as of the date of publication. Laws change frequently so we caution readers from relying on this information if some time has passed since publication. If you need specific legal advice please contact a lawyer, your community legal clinic: Rural Legal Services at (613) 279-3252 or 1-888-777-8916, Justice Net at 1-866-919-3219, or the Law Society Referral Service at 1-800-268-8326.