When you need urgent cash and have close to none savings, quick, short-term loans seem like an interesting choice. Perhaps, they have several benefits to offer for sure.
For example, online payday loans are available without any collateral. Moreover, people with bad credits can also avail themselves of these loans.
The process for applying for an online payday loan is purposely kept simple and paperless. To your surprise, the whole process can be fulfilled within minutes and you can receive the loan amount in your account almost instantly. You can, for sure, click here to learn more on online payday loans in Ontario if you want to. That being said, it is noteworthy that these loans come with relatively higher interests to be paid.
What has changed?
While the centralized and non-centralized banks, alike, have been slashing lending rates, there seems to be no relief from payday loan lenders. Although, these loans are now considered to be essential services.
This year, since the pandemic has struck the world, people have been exhausting their savings. And with little relief in the vicinity, it makes sense to take out a payday loan, even if it comes with a high price to pay.
Notably, it is not only the high-rate of interest these lenders levy but also the high fees that the borrowers need to pay.
In a report published on CTVNews.ca, an Ontario-based woman stated that she had taken out a payday loan at a 48% rate of interest. She further added that, though the rates were pretty high, she managed to fix her personal finances with the loan.
She also explained that paying such a high rate of interest was disheartening at first.
How is this a problem?
High processing fees and interests might not seem like a big issue at first sight, but believe it, these mount up in the longer run.
To put this into perspective, businesses and individuals have been equally affected by the pandemic. With income sources choked up, people are already struggling to make the ends meet. On top of this, high fees and interest rates can further burden the borrowers.
Besides, if unable to repay the loan, borrowers are further exploited with penalties. Of course, this also reflects on their credit history.
All in all, a major reform to the Payday Loans Act, 2008 was needed.
Keeping in mind the current scenario, the Ontario government has proposed changes to protect payday loan borrowers. The new reforms intend to cap interest rates and fees on default loans. This could be a gamechanger for workers and families who use payday loans.
In particular, small families and daily wagers can now keep more of their hard-earned money to themselves.
The reforms were included in the COVID-19 Economic Recovery Act, 2020.
Post the reforms, Lisa Thompson, the Minister of Government and Consumer services gave a statement to the press- “Our government remains committed to protecting Ontarians during these unprecedented times, now and in the future.”
All these reforms were also included in the Payday Loans Act, 2008, as already mentioned.
Capping the rate of interest
Following this new reform, lenders would not be allowed to charge more than 2.5% interest per month. It is noteworthy that this interest is non-compounded. Market experts opine that these reforms would provide much-needed relief to borrowers who cannot repay their loans in time.
Ideally, if a borrower fails to repay a debt there are heavy penalties levied on the loaned amount. For instance, some lenders can charge up to 5% due charges for each day the payment is delayed.
A lower rate of interest could also mean that borrowers can now easily arrange for their dues. Thus, avoiding any late payment penalties, or even high interest to be paid.
Capping the processing fees
Another reform proposed in the act was to reduce the processing fees. While earlier, some lenders were charging as high as $100 for processing a loan of up to $2500, now the maximum fees have been reduced to $25.
Apart from processing fees for loans, the maximum fees to be paid are also established for dishonoured or bounced cheques, along with pre-approved debits.
Of course, this could further ease the financial troubles for borrowers. Having to pay high fees, and that too when there already exists tough financial boundaries can be disheartening.
Minister Thompson, further explained in her statement, “Throughout COVID-19, and beyond, our primary objective has been to ensure the people of Ontario have what they need to provide and care for their families and loved ones without additional stressors.”
Ontario joins 6 other jurisdictions
With these reforms coming into action, Ontario would join 6 other jurisdictions having similar capping on payday loan lenders.
The other jurisdictions that have a similar capping on default loans include British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, and Newfoundland and Labrador.
According to further reports, government agencies are also conducting a review of the Consumer Protection Act. Notably, this would be a first-ever comprehensive review in 15 years.
The review would enable borrowers to make safer financial choices, especially the ones who use alternative lending options.
With all these reforms surfacing during times when financial management is one of the biggest concerns for every family, the situation is expected to improve. If implemented and executed correctly, these reforms will not only protect borrowers but also encourage them to borrow more.
According to economic experts, the more a country’s citizens borrow, the more economic activities boost. It needs no saying that with more cash in hands, people will make purchases. And it will eventually boost Canada’s economy.
But at the same time, the noteworthy fact is that most of the payday lenders are unregulated. Although the government agencies are trying to regulate the sector as much as they can, there are still many loops that need to be covered.
Hopefully, in the coming years, we will get to witness some major reforms that not only regulate but generalize the borrowing options for Canadians.