On the Radar: New protections when getting payday loans

October 4, 2018

New protections when getting payday loans

This summer, some of the rules for payday lenders were changed to give borrowers more protection.

This month's On the Radar outlines some of the main rules and highlights what's new.

What are payday loans?

Payday loans are aimed at people who can't get loans from banks or credit unions.

Payday lenders advertise that they give "quick cash" with no credit check and no need for anyone to guarantee the loan.

They usually lend money only until the borrower's next payday. So payday loans are most often for short terms like 14 to 30 days.

How much can payday lenders charge?

Payday loans are the most expensive type of consumer loan.

Charging more than 60% annual interest on a loan is usually a criminal offence. But payday lenders can charge far more than this.

As long they follow certain rules, they can charge up to $15 for every $100 they lend. Their advertising must tell borrowers this and how much they would charge to lend $500.

What's new

Starting in July 2018, payday lenders must also tell a borrower the annual interest rate their charges work out to. Because the term of the loan is short, this can be a very high rate, such as 300% or more.

Their advertising must show what this interest rate would be for a 14-day loan. And the agreement borrowers sign must show what the interest rate works out to for their actual loan.

How much can someone borrow?

In Ontario, payday lenders don't offer loans for more than $1,500. This is because if they lend more, they can only charge up to 60% annual interest.

Read more: On the Radar: New protections when getting payday loans