Ontario has established specific laws and regulations governing payday loans. These rules are intended to establish requirements for lenders and provide protections for people who use payday-loan services. Understanding these protections can help consumers recognize what information they should receive and what practices lenders are permitted to use.
The primary legislation is Ontario’s Payday Loans Act, 2008. Payday lenders and payday-loan brokers must be licensed, and lenders must follow requirements relating to agreements, costs, advertising, repayment and collection practices.
One of the most important rules concerns the cost of borrowing. Ontario currently limits the maximum cost of borrowing for payday loans to $14 per $100 borrowed. Lenders also have restrictions concerning additional goods or services connected to a payday loan.
Ontario also limits the size of a payday loan. A lender generally cannot provide a payday loan exceeding 50% of the borrower’s net income. This requirement is designed to place a limit on the amount that can be borrowed through this type of short-term credit.
Borrowers have cancellation rights as well. Generally, a payday-loan agreement can be cancelled within two business days without providing a reason or paying a cancellation penalty. The legislation specifies the timing and procedures associated with cancellation.
There are also rules governing payments and collections. For example, Ontario restricts certain collection practices when a borrower has not met the terms of a payday-loan agreement. The province states that lenders cannot use threatening or intimidating language or excessive and unreasonable pressure. There are also restrictions on how frequently a lender can contact a borrower in certain circumstances.
Ontario has rules concerning dishonoured payments as well. Effective January 1, 2025, the maximum fee that payday lenders can charge for a dishonoured payment is $20.
Another protection is the extended payment plan. If a borrower takes out three payday loans within a 63-day period, the lender must provide the option of an extended payment plan. The repayment structure depends on the borrower’s payment schedule and is designed to spread repayment across multiple pay periods.
Consumers who believe a payday lender has violated Ontario’s rules can file a complaint with the province’s consumer protection authorities. Ontario encourages borrowers to verify a lender’s licence before taking out a loan and to retain copies of their agreements and communications.
These regulations do not remove the cost associated with payday borrowing. Instead, they establish a legal framework governing how payday loans can be offered and administered in Ontario. Consumers should still compare alternatives, review the total cost and make sure they understand the repayment obligations before accepting a loan.
