Canada’s largest city is the latest of a host of municipalities to crack down on payday lenders with bylaws to impose restrictions on their business activities and rein in the number of physical locations.
Toronto City Council adopted new interim regulations last week that cap the number of physical locations allowed across the city and require operators to be licensed. That permit will cost lenders an initial $633, plus $309 to renew it annually.
The number of payday licenses will be capped at 212, which matches the number of provincially-licensed locations already operating in the city as of May 1, according to Toronto’s municipal licensing and standards department.
Payday lenders are often a last resort for borrowers who would be otherwise be rejected for a traditional bank loan. The crackdown is in addition to new regulations handed down by the province. The Ontario government decreased the cost of a payday loan from $21 to $18 per $100 in 2017 and dropped it again to $15 this year.
The loan rates still far exceed Canada’s criminal usury rate of 60 per cent interest when expressed annually, but because the loans are meant to be used to cover short-term expenses for a two-week period, the lenders do not express terms annually. However, many users end up carrying them for far longer than their next paycheque.
Toronto city councillor Kristyn Wong-Tam, who has long pushed for more restrictions on payday lenders, said these businesses often prey on the most economically vulnerable and trap them in a “vicious cycle” of debt with high interest rates that make it nearly impossible to repay the loan. A licensing system will give municipal officials more control, she added.
“Ultimately, what we want to do is reduce the number of payday lenders and try to cap some of the rates so people cannot be a victim of predatory lending,” she said.
Last month, Ottawa city council adopted a motion to examine options to establish a cap on the number of payday loan establishments and measures to reduce their concentration.
In March, Hamilton city council adopted legislation to cap the number of payday loan outlets to 15, or one per ward, while city council in Belleville, Ont. adopted a councillor’s resolution to study the possibility of limiting payday lenders’ presence to three distinct zones.
But even as cities close in on physical outlets, short-term loan providers increasingly interact with their customers online.
“That’s certainly the challenge that we have,” said Wong-Tam. “Much of the financing is also available online. And once it’s online, how do you regulate something that doesn’t have a physical address in Toronto?”
Toronto city officials are also considering limiting distances of payday lender establishments in certain neighbourhoods as part of its consultation and research process over the next year. After one year of the interim regulations being in force, licensing officials will make recommendations on how to regulate payday lenders, including possible additional license requirements.
Tony Irwin, CEO of the Canadian Consumer Finance Association, said its members understand the industry needs to be regulated, but these new rules seem like “duplication,” with additional fees on top of the provincial fees.
The additional regulations could lead to store closures and fewer options for those individuals who rely on payday loans, he said.
“What does that mean for the single mother who works two jobs but has a shortfall of income in a particular month and needs help?… Where will she go? The need doesn’t go away.”
Irwin said most consumers typically turn to their physical locations to access payday loans, but people who don’t have access to a physical store will simply find another option online, such as an unlicensed, offshore lender out of the reach of Canadian law enforcement.
The scant research available shows that individuals who have low incomes and live in poverty are more likely to go to brick-and-mortar stores for payday financing, as opposed to online, said Michelynn Lafleche, the vice president of strategy, research and policy at United Way Toronto and York Region.
She said the non-profit organization, which made submissions to the city regarding payday loan regulations, is pleased that Toronto is taking initial action to make sure that these credit products are not taking undue advantage of people.
“The ultimate aim is the protect the consumer … Without ending and killing the business. There is a balance that needs to be struck there somehow.”