Payday Loan Consultation

clipart of green dollar bills

The Ministry of Government and Consumer Services wants input and comment on whether to lower the cost of borrowing a payday loan and, if so, what the maximum total cost of borrowing should be.

The current cost of borrowing is set in regulation under the Payday Loans Act, 2008 at $21 per $100 advanced. The options for consideration include retaining the current maximum total cost of borrowing a payday loan and three reductions:

  • $15 per $100 advanced
  • $17 per $100 advanced
  • $19 per $100 advanced

The government welcomes your input. Your comments will help inform decision-making. You may submit your comments and ideas:

  • to the Regulatory Registry;
  • by e-mailing them to: with “Payday Loan Cost of Borrowing” in the subject line; or
  • by mailing them to the address below.

Consumer Policy and Liaison Branch
Ministry of Government and Consumer Services
5th Floor, 777 Bay Street
Toronto, Ontario
M7A 2J3

(This information is available on the Service Ontario website, here.)

Why is this issue important for homeless prevention advocacy?
Individuals who are experiencing poverty and/or homelessness are less likely to have an account with a bank or seek loans from a bank, and more likely to use payday lending businesses to cash government cheques and paycheques, and to borrow money.

The interest rates on payday loans are high, and the repayment conditions are difficult for many users experiencing poverty to meet. Collection practices can also be harsh.

A 2012 study on payday lending in London reported the following:

Payday lenders

  • There are many payday lending outlets in London and their number is rising.
  • Payday lenders are catering to individuals who are in need of money when unexpected emergencies arise.
  • Payday lenders provide a convenient and quick access to money.
  • Generally, payday lenders were perceived as predatory. Those representing the
    Canadian Payday Lending Association expressed that the payday lending industry is
    regulated and often misperceived.

Payday loan borrowers

  • Payday loan borrowers in London were described as low income individuals; dependent on Ontario Disability Support Program (ODSP), Ontario Works (OW) or social assistance; as well as those who have a bad credit history, thus, not having access to a loan through a bank.
  • Some study participants said that borrowers belong to all income groups and are not
    limited to the characteristics mentioned above.
  • The majority of borrowers who completed the survey had interacted with a bank (i.e.
    had some kind of a bank account)
  • Most often, borrowers heard of payday lenders through family or friends or sign boards.
  • The most common reasons borrowers gave for making the switch to payday lending
    were: having a bad credit history and the lack of small loans from banks. Lack of
    awareness of the banking system was also a reason why payday loans are used rather than banks.
  • Borrowers identified having used multiple services at payday lending stores, including cheque cashing, pre-paid credit cards and money transfers.
  • The majority of borrower survey respondents did not rollover on a loan.
  • The most common reasons for borrowing money from payday lenders were: to meet basic needs, pay bills and rent.
  • The majority of borrowers received a contract when they obtained their loan and
    reported that the loan was helpful and good for emergencies. However, they did not
    like the high interest rates and fees associated with payday loans.
  • Most reported being charged 20-25% interest over two weeks, while some reported
    being charged more. Additional services offered by payday lenders were also seen as being very expensive.
  • Mostly negative impacts were identified by borrowers as a result of borrowing from
    payday lenders; including: falling into a debt trap; dropping monthly income; and high
    amounts of stress.

Financial Education

  • A vast majority of study participants identified the need for a payday loan alternative.
    Providing a loan with a low interest rate and fees and clear information were the most important elements to consider while developing a payday alternative.
  • Respondents suggested that there is a need for a community-wide financial education program in London, believing that it would benefit the community.
  • Respondents rated integrating financial literacy into other existing programs as the most effective delivery setting. The least preferred delivery setting was via the internet.
  • The most preferred delivery mechanism was one-on-one counselling with the least
    preferred being via the internet again.
  • Providing the program close to where people live as well as providing incentives (e.g. food, childcare, transportation costs, etc.) were identified as the best promotion
  • In terms of location, low income neighbourhoods should be considered, but there is
    need across the city and in rural areas as well.
  • For youth, delivery in schools was suggested and for individuals on ODSP or OW,
    information about the program could be included with their cheques.
    Suggested organizations and agencies to lead such a program include the municipal
    government, OW/ODSP, and community agencies that serve people living in poverty, including the United Way of London & Middlesex. Other community agencies and stakeholders such as, banks, credit unions and payday lenders should be involved in implementing a community-wide financial education program.

The study on payday lending in London can be found here.
A study on payday lending in Ontario can be found here.