Government of Ontario Proposes Changes to Consumer Protection Legislation, Payday Lending Legislation and Collections Legislation
January 18, 2016
James H. Archer
In December 2015, the Government of Ontario introduced Bill 156, Alternative Financial Services Statute Law Amendment Act (the “Bill”), containing proposed amendments to each of the Consumer Protection Act, 2002 (the “CPA”), the Payday Loans Act, 2008, and the Collection and Debt Settlement Services Act. The Bill passed first reading on December 9, 2015. The Bill is intended to provide additional protections for more vulnerable consumers and addresses certain issues referenced in the consultation paper in respect of regulation of alternative financial services in Ontario released earlier in the year by the Ontario Ministry of Government and Consumer Services (the “Consultation Paper”). See our prior legal update “Government of Ontario Proposes Additional Regulation of Alternative Financial Services and Debt Collection”.
The Bill adds a new Part VII.1 (Agreements for Cashing Government Cheques) to the CPA, providing for limits on the amount of fees that can be charged for cashing of government cheques and also requiring that certain prescribed disclosure be made to consumers in respect of the cashing of government cheques, with details in respect of such fee limits and prescribed disclosure to be specified in regulations to be drafted. The limits will not apply to the cashing of government cheques by a bank, an Ontario credit union or a federal credit union.
In addition, the Bill expands the regulation-making powers under the CPA relating to credit agreements and leases. The new powers will permit unprecedented intrusion into the credit underwriting and credit granting practices of lenders and could require that a lender provide to a prospective borrower the lender’s credit assessment of the borrower. Presumably, this is to deter “NINJA”- type lending practices that were common in the United States and may underlie certain sub-prime lending in Ontario today.
The new regulation-making power for leases will allow for government control over certain key terms of the lease. Grace periods during which lessor’s may not exercise rights following payment defaults, restricting rights of seizure and termination rights and limiting the amounts of penalties for late payment are examples of the extent of these new powers.
The Bill puts in place additional restrictions relating to repeat payday loan agreements. In particular, the Bill prohibits the entering into of a new payday loan agreement with the same borrower until a prescribed number of days has elapsed (or seven days if no number is prescribed). In addition, the Bill introduces limitations applicable to the entering of a third payday loan agreement within 62 days of the consumer having entered into the first payday loan agreement, by requiring that the term of such third payday loan agreement be at least 62 days and by prescribing the terms of the repayment of such loan. Furthermore, a loan broker is prohibited from facilitating the making of more than one payday loan between the same borrower and different lenders unless a prescribed number of days has passed since the borrower has paid the full outstanding balance under the first loan (or seven days if no number is prescribed).
The Bill also provides that the Registrar of Payday Loans may conduct an inspection if there are reasonable grounds to believe that a person or an entity is acting as a payday lender or loan broker while not licensed.
As suggested in the Consultation Paper, the Bill proposes that purchasers of debt be made subject to the Collection and Debt Settlement Services Act, with exceptions for (i) persons who purchase debts through acquiring or merging with a business in a transaction that includes the transfer of accounts receivable; (ii) persons who acquires debts through the seizure of accounts receivable under a security agreement; (iii) persons who acquire a debt by taking an assignment of the contract that gave rise to the debt for the purposes of financing a transaction; (iv) persons who purchase a financing agreement or group of financing agreements or the payments due under a finance agreement or group of financing agreements; (v) persons who purchase a debt that permits the person to collect the debt under the name of the original creditor; and (vi) persons who enter into an agreement to finance the purchase of goods or services and who assign the rights to payments under the agreement to a third party, even if the person continues to collect those payments on behalf of the third party.
The Bill also introduces the power to impose administrative penalties against a person who contravenes a prescribed provision of the Collection and Debt Settlement Services Act. The Bill includes provisions relating to the making of an order imposing such administrative penalty, the process for appeal of such orders and the enforcement of such orders. This will facilitate and speed up considerably the enforcement process.
The Bill does not address all of the proposed reforms raised in the Consultation Paper. In particular, the Bill does not introduce any new requirements in respect of money transfer services, nor does it introduce a new licensing regime, price caps or uniform disclosure requirements affecting alternative financial services as a whole, and consequently the amendments set forth in the Bill are fairly limited in scope by comparison to the breadth of issues raised in the Consultation Paper. The Bill and the earlier Consultation Paper are one part of a larger process of regulatory reform in respect of financial services in Ontario. As mentioned in our prior legal update Review Panel Recommends Creation of New Ontario Financial Services Regulator, the Government of Ontario is also currently considering replacing the provincial services regulators with a new financial services regulatory agency (the “Financial Services Regulatory Authority”) who would potentially have the authority to regulate, among others, payday lenders and loan brokers, consumer credit reporting agencies, debt and credit counsellors, guarantee and warranty insurers and other participants in the Ontario financial services sector. All of these proposals and initiatives signal that the Ontario government will be taking an active interest in more closely regulating financial services in Ontario.