The city of Kingston is taking steps to limit the number and location of payday loan businesses and to educate consumers about the potential downside of taking short-term, high interest loans.
In one of their final acts before the municipal election, city councillors approved a new bylaw on Oct. 2 that aims to regulate payday loan stores within municipal borders.
The changes were made possible following the passage of provincial amendments in Bill 59, which expands municipal authority over payday loan establishments.
While Kingston has moved swiftly to impose local rules, Hamilton was the first city to regulate about 30 such businesses operating within its city limits. Hamilton hopes to eventually whittle down the number to 15. Other cities are looking at similar bylaws.
WATCH: Hamilton looking to limit pay day loans businesses
Kingston’s revamped licensing bylaw, which takes effect Jan. 1, 2019, will allow the city to;
- issue licenses to payday loan establishments every year for a fee,
- limit their number and location to no more than one per Electoral District for a total of 12 in the city,
- require those businesses to install posters that provide clients with easy-to-read debt reduction information and education.
Kingston currently has a total of seven payday loan businesses, mainly located in clusters of storefronts on Princess Street and Bath Road, operating under the business names such as Money Mart, Cash4You and Cash Money.
“These clusters are often located near areas with higher volumes of low-income housing and low-cost retail,” according to a city staff report.
The new bylaw has a grandfather clause that allows existing payday companies to remain in place – even with more than one in some electoral districts – provided the owner applies for the annual business license and complies with the bylaw requirements. That includes the placement of posters inside the storefronts that will detail both credit counselling information and the chartered banks’ annual consumer loan rate.
City officials say it’s important for consumers to know the interest that’s charged to them when securing a payday loan.
Payday loans are short-term, small-dollar loans that are intended to bridge a borrower through a cash shortfall until the receipt of their next paycheque.
Staff point to numerous studies from the Canadian and Ontario governments that show the comparatively high cost of payday loans compared with other forms of borrowing and accessing credit.
“Borrowers of payday loans, who are often of a low-income socio-economic demographic, can expect to pay interest on their loans at an annual percentage rate of over 300 percent.”
A municipal Poverty Roundtable found that payday loan firms are a “significant concern.” According to their figures, a $300 loan can accumulate up to $1,638 in interest in one year, which is equal to an interest rate of 546 per cent. This is in comparison to an average credit card rate of 21 percent with an annual cost of $63.
Another troubling statistic, according to the Poverty Roundtable’s research, is that 55 percent of those who use the service take out loans to cover routine or necessary expenses, adding to the cycle of debt and poverty.
In addition to expanding the municipality’s authority, Bill 59 includes regulations that remain under provincial authority as of July 2018. These require payday loan businesses to:
- have a mandatory extended payment plan for borrowers with three or more loans with the same lender within a 63-day period,
- establish a loan limit of 50 percent of a borrower’s net pay per loan,
- disclose the cost of borrowing as an annual percentage rate in advertisements and agreements,
- cap the maximum fee for cashing government-issued cheques at $2 plus one per cent of the face value of the cheque, or $10, whichever is less, and issue a mandatory receipt when cashing government-issued cheques.
The city of Kingston will charge payday loan businesses an initial licensing fee of $300 to cover the expenses of inspection/enforcement, administration costs, zoning verification and the communication and public outreach program. The yearly renewal cost is set at $150.