Item - 2020.GL19.3

The General Government and Licensing Committee recommends that:

1. City Council amend the City of Toronto Municipal Code Chapter 545, Licensing, as follows:

a. add to the provision addressing the limit on licences to clarify that the effect of § 545-538 is to reduce the total number of licences issued under this chapter as licences issued under the Payday Loans Act, 2008 or Toronto Municipal Code, Chapter 545, Licensing cease to be valid, are revoked or expire; and

b. add a provision to clarify that the total number of locations is limited to the total number of locations operating within a ward (as each ward exists on the day it comes into existence) on May 1, 2018 which have been permitted by a licence under the Payday Loans Act, 2008.

2. City Council direct that changes to the City of Toronto Municipal Code Chapter 545, Licensing, come into force on January 1, 2021.

3. City Council request the Federal Government to:

a. require chartered banks to have branches in low-income neighbourhoods which offer credit lines to low-income people at the same rates they offer to other customers;

b. create a national database of payday loan establishment users to stop users from taking out loans to pay off other loans;

c. amend the Criminal Code of Canada to lower the maximum interest rate from 60 percent to 30 percent; and

d. work with partners such as credit unions, to encourage and steward the development of lower-cost financial products that can provide an alternative for users of payday loan establishments.

4. City Council request the Government of Ontario to:

a. strengthen its enforcement of online payday lending, including unlicensed online payday lenders;

b. introduce regulations for high-cost installment loans to better protect consumers from high-cost loans that fall outside the regulation of the Payday Loans Act, 2008; and

c. strengthen its regulation of payday lending advertising by proclaiming Subsection 77.16.1 of the Payday Loans Act, 2008 into effect, enabling the provincial government to make regulations to further govern and enforce advertising or signage in any medium with respect to a payday loan or a payday loan agreement, including the content, location and size of advertising or signage, and the ability to create regulations that prohibit licensees from making certain advertising or signage.

5. City Council direct the Executive Director, Social Development, Finance and Administration, in consultation with the General Manager, Economic Development and Culture, to include an update on improving access to relevant financial products and services such as access to cash for Toronto residents, in partnership with the financial services industry and the For Public Benefit (not-for-profit) sector, in the forthcoming 2021 Poverty Reduction Strategy update report to Council.

6. City Council request the Chief Planner to report to the Planning and Housing Committee on the necessary steps required to amend the zoning classification for payday loans to remove it from the category governing banks and credit unions, and that the report include requirements needed for municipalities to govern over payday loan establishments, including regulations on their locations and spacing.

7. City Council forward this Item to the Association of Municipalities of Ontario and the Federation of Canadian Municipalities.

This report builds upon regulations for payday loan establishments adopted by City Council in 2018, recommends that future work is undertaken through the Toronto Poverty Reduction Strategy and responds to the following outstanding directives to explore:

- the feasibility of creating minimum separation distances between payday loan establishments and schools

- the feasibility of establishing a process for the local Councillor to object to the relocation of a payday loan establishment

- options to restrict advertising, and discussions with the financial services industry on improving access to financial products

Capping the number of payday loan establishments to those that existed and were provincially licensed as of May 1, 2018 has provided the City with a mechanism to mitigate the proliferation of establishments, while enabling operators to continue to provide a product to meet consumer demand. Future work is required to address consumers' need for credit and explore options for low-cost lending alternatives through an anti-poverty lens.  

Research suggests that the number of residents who take out high-cost lending options (such as payday loans) may increase due to the ongoing financial effects of the COVID-19 pandemic. Due to the current absence of low-cost alternatives, there are concerns that if City Council were to further limit the number or location of payday loan establishments, residents would turn to higher risk or higher cost options. Potential further restrictions, such as minimum separation distances between schools and payday loan establishments, do not address the consumer's need to access low-cost financial products and services. The City's Poverty Reduction Office, under Social Development, Finance and Administration, will work to increase access and to advance inclusive economic development in Toronto and will report on the status of this work to City Council in 2021, as part of their Poverty Reduction Strategy Update.

This report recommends technical amendments to the By-law, such as updating the licensing regime to reflect the 25-ward model, and simplifying language in the By-law to provide clarity to residents and operators on the cap on the number of licensees and locations.

With respect to advertising, under the Payday Loans Act, 2008, the Government of Ontario prohibits payday loan establishments from advertising misleading or false information and requires all advertisements that mention the cost of borrowing to disclose specific information such as the maximum allowable cost of borrowing and the actual cost of borrowing. It is recommended that City Council request the Government of Ontario take further action by proclaiming Subsection 77.16.1 of the Payday Loans Act, 2008. Once this Subsection is proclaimed, the Government of Ontario can make regulations governing advertising or signage in any medium with respect to a payday loan, including the content, location and size of advertising or signage, and/or prohibiting advertising or signage. Payday loan establishments are prohibited from advertising on City property under Toronto Municipal Code, Chapter 545, Licensing. Adding restrictions that duplicate provincial requirements is not recommended and going further than the province could lead to a freedom of expression Charter challenge.

As directed by City Council in June 2020, staff engaged with the traditional financial services sector and reviewed feedback collected under the City's recovery and rebuild engagement process. Feedback collected by the Toronto Office of Recovery and Rebuild highlighted the financial challenges that residents are experiencing as a result of COVID-19, the lack of low-cost credit alternatives and the increased digitization of financial services. More information is included in Attachment 1.

In addition, this report provides an update on recent changes to the provincial Payday Loans Act, 2008. As part of the COVID-19 Economic Recovery Act, 2020, the Government of Ontario amended the Act to cap interest rates and fees on defaulted loans. While this amendment offers relief for new users of payday loans (that is, after August 20, 2020), it does not address the initial high cost of borrowing (that is, $15 for every $100) or the lack of low-cost alternatives. Staff are concerned that due to the increased digitization of financial services, accelerated by the COVID-19 pandemic, more payday loans and high-cost installment loans are being obtained online.

The Government of Ontario is responsible for the enforcement of online payday lending and in previous conversations, has indicated challenges with enforcement. While attempts are made to make the online lender aware of the requirements of the Payday Loans Act, 2008, it is often difficult to determine the location of the online operator. In addition, high-cost installment loans (that is, loans above $1,500 but with interest rates as high as 59.9 percent) are not subject to the Payday Loans Act, 2008 or other consumer protection legislation such as the Consumer Protection Act, 2002. It is recommended that City Council request the Government of Ontario strengthen its enforcement of online payday lending and introduce consumer protection legislation for high-cost installment loans.

This report was written in consultation with Social Development, Finance and Administration, Economic Development and Culture, City Clerk's Office, City Planning, Legal Services and the City Manager's Office.