Toronto to crack down on payday lending outlets

TORONTO — 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 licences 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 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 has dropped it again to $15.

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 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.