Consumers deserve to be protected against predatory lenders and unfair lending practices, and an Atlantic province is finally stepping up.
Newfoundland and Labrador is the first province in Atlantic Canada to introduce new legislation that would regulate high-cost credit lenders. Vulnerable consumers are often taken advantage of by predatory lenders and wind up drowning in a sea of mounting debt. But with this new law, consumers in Newfoundland will have protection from the government to shield them from being slapped with unfair sky-high charges on certain personal loan products.
What Does This New Law Include?
Newfoundland’s new regulatory framework will take effect on June 1, 2024. These regulations will detail the following:
- High-cost credit product interest rates
- Prohibitive practices
- Guidelines to enter into a loan agreement
- Licensing requirements
- Notification and document retention requirements
High-cost credit lenders will also be required to adhere to the Consumer Protection and Business Practices Act, along with the new High-Cost Credit Product Regulations, and the High-Cost Credit Product Licensing Regulations.
Who Does This Law Apply To?
The new legislation applies to lenders who offer high-cost credit products. Specifically, the law governs personal credit products with Annual Percentage Rates (APRs) exceeding 32%.
Lenders who charge at least 32% on loans are classified as high-cost credit lenders. These are the lenders who this new law in Newfoundland will oversee. This 32% APR threshold matches high-cost credit legislation in other provinces in Canada, including British Columbia, Alberta, and Manitoba.
Which Credit Products Does This Law Apply To?
Newfoundland’s new law applies to specific high-cost personal credit products with APRs exceeding 32%, including the following:
- Fixed credit products
- Open credit products
- Lease products
Examples of these high-cost products include:
- Title loans
- Lines of credit
- Personal installment loans
- Pawnshop loans
However, the new law does not apply to payday loans. A separate law governs these lenders.
How Will This New Legislation Protect Consumers In Newfoundland?
Newfoundland’s new high-cost credit laws will protect consumers in the following ways:
Licensing requirements. High-cost credit lenders will require licensing in Newfoundland. The license number should be visible, whether on a storefront or website.
Disclosure requirements. High-cost credit lenders will need to clearly disclose specific information about loan products at all physical locations. Or, on websites when business takes place online, or verbally when business is conducted via telephone.
Cooling-off period requirements. Borrowers will be allowed to have a four-day “cooling off” period whereby they can cancel a loan agreement without penalty.
Document retention requirements. Lenders governed under the new legislation will be required to hold onto specific documents about loans provided to borrowers.
Terms of agreement requirements. The terms of a high-cost credit product must be included in a written loan agreement.
Prohibited practices. High-cost credit lenders will not be permitted to take certain actions under the new legislation, such as:
- Offering borrowers incentives or prizes to enter a loan contract
- Promising that high-cost credit products will improve borrowers’ credit scores
- Require an assignment of wages from borrowers
- Collect payments before the payment due date
Why More Provinces Should Have A High-Cost Credit Legislation?
Subprime borrowers are often the target of predatory lending since their options are typically limited due to poor credit and other financial issues. With some form of legislation in effect, these consumers would be protected against lenders looking to charge exorbitant rates and fees and avoid falling into a seemingly never-ending pit of debt.
With better regulations, predatory lenders will be held accountable and borrowers will have the ability to fight unfair lending practices. This, in turn, can help make the alternative lending industry safer for borrowers with limited options.
Are There Any Other Provinces That Have Legislations For High-Cost Credit Lenders?
Yes, Newfoundland is the fifth province to introduce high-cost credit legislation. Other provinces that have similar frameworks in effect include British Columbia, Alberta, Manitoba, and Quebec.
Ontario is another potential contender and recently introduced a proposal to legislate business practices surrounding high-cost credit products. However, all provinces should be on board with establishing a framework to govern high-cost credit lenders and protect consumers.
Final Thoughts
Newfoundlanders have some peace of mind knowing that lenders have specific laws to follow when providing high-cost loan products. But all Canadians should have the same benefit. All other remaining provinces should follow Newfoundland’s lead and adopt their legislation regarding high-cost credit products to protect their consumers from predatory lenders.
