Tell the Ontario Government They’ve Got it Wrong on Payday Loans

Ontario has been feigning sincerity about regulating the payday loan industry for about eight years now.  This so-called “industry” certainly needs regulating. However, in 2006, an exemption from criminal prosecution was made for Payday Loaning, which means that even though their interest rates may seem criminal, they are legal in Ontario.

That exemption allowed payday loan interest to exceed 60% per year.  The industry has shamelessly taken advantage of this exemption to raise the rate to 600%. Recognizing the evolving crisis, the government introduced Bill 156, which created longer repayment options and tougher rules against unfair collection processes.

Now, finally, the government has turned its mind to the actual payday loan interest rates and last month announced lowering the rates from 546% to 390% per annum. This change won’t be overnight, though – it will take another year and a half to get to this still usurious level.

Payday loans don’t just hurt borrowers, they hurt communities. Ottawa Lawyer Peter Kucherepa has argued that enabling cash transactions (the basis of the payday loan industry) can contribute to the proliferation of the drug trade and other criminal activity in neighbourhoods. Even more alarming, he cites research from St. Michael’s Hospital that “clearly shows that the proliferation of cash based money lenders lowers community life expectancy and increases pre-mature deaths.”  You can read about Kucherepa’s at

So what can be done?

  1. Legislate a Fair Interest Rate

Few would call 390% fair, but what is a fair rate? Faced with similar challenges from usurious “salary lenders” in the early 20th century, Americans established a rate of 36%. That rate remained in place for years in many states until powerful payday loan industry became friendly with decision makers.

  1. Follow Quebec’s Lead

Quebec has effectively barred payday loans by lowering its interest-rate cap to 35% per year, making it unprofitable for the payday lenders to provide its conventional services in the province.

  1. Facilitate the Development of Alternative Financial Institutions

Post offices could provide banking services. Canadians had access to postal banks for over 100 years until the Post Office Savings Bank ceased operations in 1968, closing nearly 300,000 accounts with it. At its peak in 1908, the postal bank held 47.5million in deposits, equivalent to $1 billion in today’s money, and postal banking is still thriving in other parts of the world. Other options could include provincial banks and services from member-led credit unions,

  1. Tell the Ontario Government They’ve Got it Wrong

You have until September 29th. Click here to have your say.


One thought on “Tell the Ontario Government They’ve Got it Wrong on Payday Loans

  1. Your article mixes apples and oranges throughout in the disclosure of interest rates. The limit in the Criminal Code is 60%. This is the effective (compound) rate, not the simple interest rate. For example, on a $100 loan, the maximum payment is $15, every two weeks. The simple interest rate is 0.15 x 365 / 14 or 391%. However, we all know that consumers are often forced to pay one payday loan with another payday loan, and the interest in not only on the principal, but on the accumulating interest. The Criminal Code also uses the effective interest rate when calculating the 60% maximum, to which paydays loans have been exempted. The effective rate is calculated as follows: (1+i)^(365/14)-1. In this case, (1.15)^(365/14) -1, or 3,724%.

    Any questions, please let me know.

    Keep up the good work.



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