Why is Ontario waiting so long to protect consumers from costly lenders?
He is listed as one of the “best sellers” on a popular Canadian rental company website.
- An HP laptop, 15.6 inch screen, 4 GB RAM, 500 GB hard drive, AMD E1-2100 processor. Yours for $ 19 per week. For 104 weeks.
Total cost, excluding taxes, without what is called a “disclaimer”, without what is called a “product performance provision”: $ 1,976.
The same laptop can be purchased from The Source or London Drugs for $ 399.99.
At first glance, leasing with an option to buy might seem like a good concept. After all, if you can’t afford to pay the full cost of something up front, it’s certainly easier to pay, say, $ 19 a week.
But the real long-term cost is often much, much more.
Option-to-purchase leases also often contain penalties, the cost of which can be prohibitive.
The penalties are severe
Missing a payment, for example, and the full cost that had to be paid over two years could be due immediately.
Or the product could be taken back and the consumer could lose the right to purchase, along with all the money they have already paid for its cost.
These kinds of penalties are the kinds of things the Ontario government is trying to curb with the tabling this week of Bill 156, the “Alternative Financial Services Law Amendment Act, 2015”.
Bill 156 would give consumers a grace period if they miss payment on an option-to-purchase lease. During this period, the company cannot repossess the product, cannot terminate the lease, cannot impose penalties.
Unfortunately, this is one of the few specific details described in the legislation. The government says it plans to consult with stakeholders in the coming year before creating firm rules that will take effect in 2017.
“It is very difficult to comment on an ad regarding an ad regarding an ad,” Mel Fruitman, consumer advocate, told CBC News.
Some details about the Ontario plan
“I hate when the government does that. It says ‘we’re going to do something but it’s going to take a year before we do something and we can’t tell you anything until we do it,'” he said. declared.
This is pretty much what the Ontario government is doing with Bill 156.
“Our government is committed to protecting consumers, and that includes protecting Ontarians from a cycle of debt,” David Orazietti, Ontario Minister of Government and Consumer Services, said this week.
At that press conference, Orazietti said that alongside this lease-to-own grace period, the new legislation would cap the cost of check-cashing services, crack down on unfair debt collection and put in place a period of wait between loans for payday lenders.
On this last point, Bill 156 says that the government can make provisions “prohibiting a lender from entering into more than the prescribed number of payday loan contracts with the same borrower in a period of one year. “.
“This is what we asked for,” said John Lawford, Executive Director and General Counsel of the Public Interest Advocacy Center in Ottawa.
“People entering [to get a payday loan] tend to go eight, nine, 10, 11, 12 times a year. And these are the people who do [payday lenders] the most money, but also the people who have the most problems. ”
Lawford said a few states in the United States have limited the number of loans a person can take out in a year, but Bill 156 does not say what the limit would be in Ontario: “If they do 12 in a year, it won’t be If they make six, then we’re probably talking. “
Installment loans, a problem
There are also very few details on installment loans.
We reported on these high interest subprime loans last February. They are short term, typically three to five years, up to $ 15,000 and repaid in monthly installments.
According to two actuaries we consulted, alternative lenders charge interest rates on installment loans as high as 57 percent, just below the legal limit of 60 percent.
Donna Borden of the national anti-poverty group ACORN Canada (Association of Community Organizations for Reform Now) says any regulation of installment loans should involve more than just the province.
“We would like the federal government to get involved because we would like to see the criminal interest rate drop from 60 to 30 percent.” Borden said.
Borden has personal experience with installment loans. Wanting to consolidate her debts, she borrowed $ 10,000 at 30% to repay over five years.
Seven years later, after the loan period was renewed several times, she had made over $ 20,000 in payments and still owed $ 7,500. The experience led her to join Acorn.
There are no regulations governing installment loans, beyond the interest rate provisions of the Criminal Code.
Good questions, no answers
At his press conference earlier this week, I asked Orazietti if he was considering finding a way to cap interest rates on installment loans.
“You know these are good questions and they will be asked, I’m sure, in the committee process. I’m not going to rule anything out at this point.” he said, adding that there may not be as much detail as we all would immediately like right now “in Bill 156.
The bill, which is expected to come into force in 2017, resembles a Speech from the Throne in many ways; it is a list of things the government is considering fixing. That way, the government can spend the next year meeting with stakeholders and industry members to discuss the details.
Experts say there are good reasons for doing it this way. The alternative lending industry will have time to prepare for more regulation and its likely income effects.
And, not least, it means the government is not seen – as one expert said – as pulling the rug out from under the people who use payday loans and other alternative financing.
At the same time, the concerns to be addressed in Bill 156 have been around for years.
And many will wonder why it will be at least another full year before Ontarians benefit from the government’s commitment to protect consumers.