Item - 2018.LS24.3

The Licensing and Standards Committee recommends that:

1.  City Council amend Toronto Municipal Code, Chapter 545, Licensing, to create a new business licence category for payday loan establishments as an interim measure, pending a full review of licensing requirements for payday loan establishments, as follows:

a.  any person or entity who holds a valid licence as a lender or a loan broker under the Payday Loans Act, 2008 shall obtain a licence under Chapter 545 and provide the following information:

1.  Name of applicant;

2.  Address for business;

3.  Address for main office (if different from business address);

4.  Contact information (telephone and e-mail address);

5.  Payday Loans Act, 2008 licence number;

6.  Primary contact person name, telephone number, e-mail address, and mailing address; and

7.  Criminal background check.

b.  in order for a payday loan establishment in Toronto to obtain and continue holding a licence under Chapter 545, Licensing, that every applicant for a licence must provide proof of a valid licence under the Payday Loans Act, 2008 and continue holding a valid licence under the Payday Loans Act, 2008;

c.  if a licence under the Payday Loans Act, 2008 is suspended, or revoked, the licence under Chapter 545 shall be suspended;

d.  a City licensee shall inform the Executive Director, Municipal Licensing and Standards, immediately if their provincial licence ceases to be valid or is revoked;

e.  a City licensee shall operate only at a location(s) authorized by the provincial licence;

f.  the number of City licences be capped at the number of locations operating in the City and that are licensed under the Payday Loans Act on May 1, 2018;

g.  no City licence shall be issued to any person or entity unless the person or entity holds a valid lender or loan broker licence issued by the Province of Ontario and is operating within Toronto on May 1, 2018;

h.  licence holders are permitted to change locations, but will be required to submit an application for a re-issuance of the City licence and pay the applicable pro-rated licensing fee; and

i.  licence holders must notify the City within five business days of any changes to their business address.

2.  City Council direct the Executive Director, Municipal Licensing and Standards, to report back to the Licensing and Standards Committee, within one year from the date that the By-law comes into force, with a comprehensive review of payday lenders, including research, consultation, and the impact of the new licence and cap, and with recommendations on how best to regulate payday loan establishments, including possible additional licence requirements. 

3.  City Council amend Chapter 441, Fees and Charges, to include the following fees for the new payday loan establishment licence:

a.  Payday loan establishment licence fee: $632.87

b.  Payday loan establishment annual renewal fee: $308.99

4.  City Council direct that the Payday Loan Establishment licence come into effect when the By-law is enacted by City Council.

5.  City Council state its support for the creation of alternative, low-interest loan products.

6.  City Council request that the Province of Ontario:

a.  extend payday loan repayment plans to a term of 42 to 62 days;

b.  enforce the ban on rollover loans by creating a user real-time database to monitor and avoid rollovers from company to company;

c.  create protections for installment, rent-to-own, and title loans; and

d.  support the creation of alternative, low-interest loan products.

7.  City Council request that the Government of Canada:

a.  require that financial institutions provide access to low-interest credit for emergencies;

b.  require that financial institutions provide low-interest overdraft protection;

c.  mandate that banks provide no holds on government cheques;

d.  require that financial institutions reduce non-sufficient funds (NSF) fees;

e.  create alternatives to predatory lenders, such as postal banking and credit union credit products geared toward low- and moderate-income families;

f.  create a national anti-predatory lending strategy;

g.  create a real-time national tracking system or database to help stop rollover loans; and

h.  amend the Criminal Code to lower the maximum interest rate from 60 percent to 30 percent.

The Licensing and Standards Committee:

1.  Requested the Executive Director, Municipal Licensing and Standards, in consultation with appropriate staff, to report to the Licensing and Standards Committee in the second quarter of 2019 on reducing the number of payday loan stores permitted in the City of Toronto, with recommendations on an appropriate cap on the number of licences issued to payday lenders.

This report provides an update on changes to the Payday Loans Act and the City of Toronto Act (COTA) as they relate to payday loan establishments. It recommends using the new authorities to create a licence for payday loan establishments, and to cap the number of stores to those that currently operate in Toronto and are licensed by the Province of Ontario, as of May 1, 2018. This report further recommends Municipal Licensing and Standards (MLS) conduct broad consultation and research on payday lenders and report back to the Licensing and Standards Committee in one year with final recommendations on regulations for the industry and any adjustments to the cap on City licences.

In 2013, the Province of Ontario began reviewing its regulation of payday lending. As a result of this review, the provincial government gave municipalities the authority to regulate payday loan establishments. Ontario Bill 59, Putting Consumers First Act, received Royal Assent in April 2017 and, as of January 1, 2018, provided municipalities with the authority to limit the number and location of payday loan establishments.

People need access to financial services to achieve economic stability. Traditional financial services, such as credit cards, loans, and lines of credit, help individuals build credit and manage financially difficult times. Consumers who cannot or choose not to access traditional financial services often turn to alternative financial services, such as payday lenders.

Payday loans fill a gap in credit for some consumers, but they are an expensive way to borrow money. They are defined as short-term, unsecured, small-dollar loans. They are intended to bridge a borrower through a cash shortfall, until the borrower's next payday when the loan is expected to be repaid in full. The maximum cost of borrowing a payday loan is based on a set dollar amount per $100. As of January 1, 2018, the maximum set dollar amount in Ontario is $15 for every $100. This represents an annual percentage rate (APR) of 390 percent.

While the Criminal Code of Canada, Section 347, makes it a criminal offence to charge more than an effective rate of 60 percent per year, there is a specific exemption for payday loans if the amount of the loan is $1,500 or less, the term of the agreement is 62 days or less, and the payday loan establishment is licensed by the province.

The Payday Loans Act, enacted by the Province of Ontario in 2008, regulates the terms and conditions of payday loans (including the cost and interest rate), requires that payday lenders are provincially licensed, and prohibits certain predatory practices, such as concurrent and rollover loans.

This report recommends creating a municipal business licence for payday loan establishments and restricting the number of establishments permitted in the City. This is recommended as an interim approach, during which time MLS will conduct a comprehensive review and consultation on the issue and report back in a year with final recommendations. MLS will conduct research during the summer of 2018, including leading and working with an inter-divisional working group. Public and stakeholder consultations are planned for the fall of 2018 and will include consulting with other municipalities that have implemented a licensing regime for payday loan establishments, such as the City of Hamilton. A report with recommendations is expected in the second quarter of 2019.

This report was written in consultation with Social Development, Finance and Administration, Economic Development and Culture, Toronto Employment and Social Services, City Planning, Toronto Public Health and Legal Services.