Ontario files lawsuit against payday loan operator Cash Store
The Ontario government has launched legal proceedings against The Cash Store Financial Services Inc., a publicly traded firm in the payday loan business, over its operations and licences.
The application to begin legal action in the Ontario Superior Court of Justice, filed by the Ministry of Consumer Services on June 7, asks the court to declare that by providing consumers with lines of credit, Cash Store is essentially in the payday loan business and is therefore subject to Ontario’s Payday Loans Act. At the same time, the government wants the court to order the company to obtain a payday loan broker licence.
The lawsuit follows in the wake of a decision by the consumer protection branch of Ontario’s Ministry of Consumer Affairs to revoke Cash Store’s payday lender licences on Feb. 4. Ontario served notice that it intended to strip the licence of the Edmonton-based company, which has 512 branches across Canada and 25 in the United Kingdom, because it alleges that by charging fees, it allowed Cash Store to end run the province’s maximum borrowing cap of $21 per $100 lent.
Cash Store disagreed, arguing that its lines of credit are not governed by the provincial act, and filed for a judicial review on April 29 seeking a declaration that the product is not a payday loan. Peter Block, a spokesman for the company, declined to comment further because the case is before the courts.
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Meantime, the provincial government issued an “alert� to consumers telling them of the investigation and reminding them of their rights.
The Canadian Payday Loan Association, the industry lobby group, said it “strongly supports the regulation and licensing of the payday loan product and the lenders who offer the product� because the loans are “an important credit option used by many Ontario residents and delivery of this product in a fair and responsible manner is essential.� In a statement, CPLA president Stan Buell applauded the provincial government’s leadership role in “diligent inspection and enforcement of regulation.�
Cash Store, which has faced similar challenges in Alberta, Manitoba and British Columbia, switched its line of business from offering payday loans to lines of credit, and in doing so, the company argued that lines of credit are not governed by the province’s Payday Loans Act.
Two years ago, the B.C. government fined the company $25,000 and demanded it refund “unlawful� fees paid by consumers. That hasn’t happened yet because Cash Store appealed.
Essentially, payday loan operators provide short-term funds or payday advances in small amounts, ostensibly to cover last-minute or emergency expenses. Typically, this type of loan is $1,500 or less for a maximum term of 62 days and the money is advanced in exchange for a post-dated cheque or some other form of pre-authorized payment.
On average, Canadians borrow $300 for a two-week term. According to Statistics Canada, about 3% of Canadian families have obtained a payday loan.
The bottom line: 1,350 players populate the Canadian industry that’s worth an estimated $2-billion annually. In the case of Ontario, where 750 of these companies operate, the Payday Loans Act was established in 2008, and amended in 2011 when the government worried lenders were getting around the maximum borrowing costs by charging fees.
The same is true in other provinces – except for Quebec, where payday loans are prohibited. Borrowing costs vary from province to province, for example, $25 per $100 in Nova Scotia, $23 per $100 in B.C., and $17 per $100 in Manitoba.
In the U.S., 15 states have an outright ban on payday loans while others have been introducing stringent regulation to curb them. Even so, the measures have not stopped the sector from expanding. According to The New York Times, three million Americans obtained short-term loans in 2011, amounting to US$13-billion, more than a 120% increase from US$5.8-billion in 2006.
Article source: http://www.canada.com/Ontario+files+lawsuit+against+payday+loan+operator+Cash+Store/8510289/story.html
