Effective January 1, 2017, the maximum allowable charge (including fees) for a payday loan in British Columbia will be reduced from $23 per $100 borrowed to $17. For the regulatory amendments, please refer to the government Order in Council (PDF) reflecting the changes to cost of borrowing.
A payday loan is a loan with a principal of $1,500 or less that does not require security and that must be paid within 62 days. In BC, these loans are governed by the Business Practices and Consumer Protection Act (the “BPCPA”) and the Payday Loans Regulation.
Currently Alberta has the lowest payday lending rate in Canada at 15%, (see Alberta’s Fair Trading Act, PDF), and Ontario has proposed to lower its rate to 15% by 2018 (as announced by the Ontario government in “Reductions in the Maximum Total Cost of Borrowing a Payday Loan”).
British Columbia’s amendment to the Payday Loan Regulation is occurring in the context of the Province’s broader review of the payday loan sector and stakeholder consultations on issues including consumer education, borrower protection and alternative loan products. These are anticipated to result in further changes for the industry. We will keep you updated on any future developments.
As of January 1, 2017, payday lenders must ensure that they have implemented the new cost of borrowing rules, which includes replacing the required reference to 23% interest rate with 17% interest rate in any signage. Any formulas or calculators used to determine the annual percentage rate (“APR”) of a payday loan must also be updated to reflect this change. It is important to keep in mind that the APR must be included in the following:
- licensing applications;
- loan agreements;
- signage at locations; and
- if offering payday loans online, at or near the top of the introductory page of the website.
There are consequences if lenders do not comply with the new rules. For instance, borrowers are not liable to pay any amount that exceeds the maximum lending rate and if they have paid an amount exceeding the maximum, they are entitled to a refund of all monies paid in excess of the principal. If borrowers are entitled to a refund, they must be refunded immediately on demand.
Further, charging over the maximum lending rate is an offence under the BPCPA. As a result, lenders may be subject to penalties of up to $10,000 for individuals and up to $100,000 for corporations, or to administrative penalties of not more than $5,000 for an individual and $50,000 for corporations.
If you would like more detailed information on these changes, payday lending in BC, or other consumer protection issues that may affect your business, please contact the authors.