Drew Hasselback: You might be a payday lender | Financial Post

Think what you will about the payday loans business. Whatever your opinion, you’ve probably thought that being in this business is one of those black and white things — either you’re in it or you’re not.

This might change in Ontario. The province’s Ministry of Consumer Services is contemplating some amendments to the regulations that implement the Payday Loans Act. If adopted as proposed, these changes will broaden the range of activities regulated under that law to include some things that most business people do not associate with payday lending.

While this is a uniquely Ontario story, it should be of interest to small business people in other parts of Canada. Credit activities are usually subject to some form of consumer protection legislation, so business people should always make sure they understand how their lending programs comply with local laws.

Feedback has been blunt. On the industry front, the Canadian Finance & Leasing Association, which represents more than 200 lenders, has filed a submission with the government that comments on the proposed changes. And on the legal front, the Ontario Bar Association, a voluntary group that represents 18,000 lawyers, judges and law students in Ontario, has warned the Ontario government that the proposed changes go too far.

“The OBA is strongly of the view that the proposed amendments are overly broad in their reach and go well beyond the specific mischief that the ministry aims to curb,” the association states in a submission to the government on the proposed changes.

The gist of the proposed changes is to extend the definition of payday lending to cover loans of $5,000 or less, along with some other criteria. The extended legal definition is supposed to capture some payday lending practices that have scooted around previous legal definitions. But more than a few business lawyers are shocked by the degree to which the new rules could impact many typical small business activities.

“The current draft of the proposed regulatory amendments broadens the scope of the act to capture a wide range of loans not typically considered to be payday loans, including the financing of low and medium value items, such as used cars, computers, furniture, and electronics,” write lawyers Jason Arbuck, Sarah McKinnon and Tim Pinos of Cassels Brock & Blackwell LLP in a note to clients.

The consequences of falling within the scope of the rules are serious and significant. Small businesses subject to the new rules would require a lender’s licence, be subject to inspection, and have to provide certain mandatory information to borrowers, the OBA’s government submission states. “The lender could also be made subject to potential penalties under the act, which can include substantial fines and possible imprisonment.”

The new regulations might even capture the activities of some charities that provide small loans to new Canadians so they can start small, home-based businesses, or that provide micro-financing for small business people in developing countries.

Most lawyers are pretty sure the Ontario government did not set out to make the Payday Loans Act applicable to almost every form of credit financing. “It is highly unlikely that MCS intended for its proposed amendments to capture such a broad range of activities, yet that may well be the import of the proposed amendments if they are not fundamentally changed,” write lawyers Derek Bell and Bruce Barker of Bennett Jones LLP in a note to clients.

Indeed, it’s possible the Ontario government might modify the proposed changes. The ministry accepted open comment on the payday loan amendments until Sept. 30, but an official with the ministry says comments received after that date may be considered.

Meanwhile, the situation offers a larger message for entrepreneurs in any province or territory. Always be careful about how you introduce any credit or pre-sales program. These activities are always subject to a raft of provincial and territorial regulations. As the Ontario experience demonstrates, what you might consider to be an innocuous, normal sales activity might turn out to be something that is captured by some serious regulation.

Drew Hasselback is Legal Editor of the Financial Post. He is a lawyer called to the Bar of Ontario.

Source: http://business.financialpost.com/2013/10/21/drew-hasselback-you-might-be-a-payday-lender/
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