BC borrowers now have more protections when it comes to taking out payday loans thanks to the recently-introduced legislation on high-cost loans.
Many British Columbians seek out easy-approval payday loans when fast cash is needed to cover a variety of expenses. Given the sky-high interest rates, and strict repayment plans payday loans have, many borrowers often find themselves in a never-ending cycle of mounting debt.
To counter this issue, lenders that offer high-cost loan products must now adhere to a more stringent regulatory framework that requires annual licensing and regulation by Consumer Protection BC.
These new rules came into effect May 1, 2022.
Under the regulation, high-interest loans are defined as high-interest instalment loans and lines of credit with interest rates over 32%. It also includes payday loans, which are notorious for their high-interest rates. More specifically, the regulations prohibit high-cost lenders from charging certain fees, establish credit agreement requirements, and enhance borrower rights.
Consumers who apply for a high-cost loan following the date of effect will first be informed of the risks so they can make a more informed decision about the financial product.
The legislative framework is a result of the 2019 amendments made to the Business Practices and Consumer Protection Act, which require increased compliance among lenders. It closely follows a similar regulation enacted by the Quebec government in 2019.
While the payday lending sphere is already regulated in BC, the new legislation will strengthen regulations to provide additional protections to borrowers in BC who use high-credit products and services. Though other lenders that offer high-cost loans also fall under this umbrella, the regulation primarily targets payday lenders.
The regulation aims to establish transparency concerning loan products and associating costs.
According to a recent 2021 study on BC’s consumer debt by Sands & Associates, approximately 6% of consumers polled claim that payday loans are their main type of debt. The goal is to help consumers holding payday loans to be in a better position to handle such financial products without the risk of being caught in the vicious debt cycle.
The new legislation on high-cost lending will protect consumers in several ways:
As part of the new regulations, a consumer financial education fund administered by Consumer Protection BC will provide BC consumers with enhanced financial literacy to better understand and manage personal finances.
Right now, payday lenders in BC can charge a maximum of $15 for every $100 borrowed. For instance, if you take out a $500 payday loan, you can be charged no more than $75 in interest and fees. Furthermore, a loan cannot be any more than 50% of your paycheque.
Payday lenders will also be prohibited from issuing you more than one loan at a time and cannot rollover your loan. That means your loan cannot be renewed at an additional cost if you feel that you aren’t able to come up with the funds needed to repay your original loan.
In addition, the regulation has put the maximum capacity for borrowing at $1,500, stating the loan term cannot exceed 62 days.
The new regulations prohibit high-cost lenders from charging any fees in an attempt to process a dishonoured regularly scheduled payment.
Borrowers in BC have one day after signing the loan agreement to cancel their payday loan contract without having to pay any penalty fees and without reason. This is what’s known as a “cooling-off period.”
In this case, the lender is required to draft a cancellation notice and deliver it to the borrower when the contract is signed. If the borrower wants to cancel the contract during the cooling-off period, the notice must be sent to the lender. However, the borrower must pay back the principal funds received, though no additional costs may be charged.
Here are 10 questions you should ask before getting a payday loan.
That said, BC borrowers can cancel a payday loan at any time if:
In BC, payday loan contracts must include several compulsory clauses, including the cooling-off period clause and a clause letting the borrower know that complaints about the payday lender can be sent to Consumer Protection BC. The borrower must sign the contract in order for it to be valid, which acknowledges that all clauses have been read and understood.
The Quebec Government recently made it difficult for lenders to make a sizable profit on high-cost loans by reducing the AIR (annual interest rate) lenders can charge to 35%. Given the current laws in the province surrounding payday loans, this rate reduction limit has made it unprofitable and almost impossible for lenders to operate legally while providing payday loans. On a similar note, BC’s regulations on high-credit lending will also make it difficult for payday loan lenders from operating within the Atlantic province.
As mentioned, Quebec has strong laws that make it very difficult for predatory lenders to take advantage of unsuspecting borrowers. Here are some ways that Quebec consumers are protected by legislation in the province.
In Quebec, there are certain rules that lenders who provide high-cost loans must adhere to:
In Quebec, borrowers can take advantage of a 10-day cooling-off period. During this time, borrowers can cancel their payday loan without penalty. Borrowers are not required to use any specific form to exercise their right to cancel within the cooling-off period, and in certain cases, exercising this right is automatic.
In QC, borrowers do not have to sign specific clauses in the loan contract. Further, lenders are not required to review specific clauses, such as the credit rate.
When it comes to high-cost credit products like payday loans, BC and Quebec have slightly different rules and regulations to protect consumers:
| BC | QC | |
| Lender Licence Must Be Issued By | Consumer Protection BC | Office de la protection du consommateur |
| Lender Licence Validity | Initially valid for 6 months, & will expire each October 31st | 2 years |
| Interest Rate Threshold | 32% | 35% |
| Cooling-off period | 1 day | 10 days |
| Borrower must receive contract | When contract is signed | When contract is signed |
Most lenders within the payday lending sector are legitimate, but some are involved in predatory practices that cause consumers to get into debt they can’t get out of.
For instance, some lenders may approve all borrowers without doing any due diligence to make sure the loan can be comfortably paid off, while others charge exorbitant rates and fees. To help protect yourself from such lenders, here are some tips to help protect yourself:
Before you apply for a payday loan, keep the following tips in mind to avoid any financial mishaps:
Payday loans are convenient and easy to get approved for, but they’re very expensive. Only apply for a payday loan as a last resort, and if you do, make sure you’re financially capable of covering the loan amount and the high rate and fees that come along with it.
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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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