ARCHIVED — Order Designating British Columbia for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code

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Vol. 143, No. 21 — October 14, 2009

Registration

SOR/2009-278 October 1, 2009

CRIMINAL CODE

P.C. 2009-1629 October 1, 2009

Whereas British Columbia has legislative measures that protect recipients of payday loans and that provide for limits on the total cost of borrowing under a payday loan agreement;

And whereas the Lieutenant Governor in Council of British Columbia has requested that the Governor in Council designate that province for the purposes of section 347.1 (see footnote a) of the Criminal Code (see footnote b);

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Justice and the Minister of Industry, pursuant to subsection 347.1(3) (see footnote c) of the Criminal Code (see footnote d), hereby makes the annexed Order Designating British Columbia for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code.

ORDER DESIGNATING BRITISH COLUMBIA FOR THE PURPOSES OF THE CRIMINAL INTEREST RATE PROVISIONS OF THE CRIMINAL CODE

PROVINCE DESIGNATED

1. British Columbia is designated for the purposes of section 347.1 of the Criminal Code.

COMING INTO FORCE

2. This Order comes into force at 12:00 a.m., Pacific time or — in that part of the province in the Mountain time zone — Mountain time, on the first day on which all of the following are in force:

(a) the Business Practices and Consumer Protection (Payday Loans) Amendment Act, 2007, S.B.C. 2007, c. 35, except for the following:

(i) sections 112.12 to 112.15 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, as enacted by section 4,

(ii) sections 5 and 6, and

(iii) paragraph 189(4)(f.6) of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, as enacted by section 8;

(b) sections 5.1 and 7.3 of the Business Practices and Consumer Protection Regulation, B.C. Reg. 294/2004, as enacted by B.C. Reg. 57/2009; and

(c) the Payday Loans Regulation, as enacted by B.C. Reg. 57/2009.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Order.)

Executive summary

Issue: Payday loans are small short-term consumer loans, generally for about $300 to $400, to be repaid in approximately ten days along with the cost of borrowing, when the loan recipient receives his or her next pay. Concerns have arisen about questionable business practices and the high cost of borrowing associated with such loans. This designation Order responds to British Columbia’s concerns with respect to consumer protection in the payday lending industry by facilitating the provincial regulation of the industry in that province.

Description: This Order, made pursuant to subsection 347.1(3) of the Criminal Code, designates British Columbia for the purposes of section 347.1 of the Criminal Code. Section 347.1 provides that the Governor in Council shall designate a province for the purposes of that provision, if the province meets certain criteria. The province must have legislative measures that protect recipients of payday loans, including limits on the total cost of borrowing for such loans. The Order is made at the request of the Lieutenant Governor in Council of the province.

Cost-benefit statement: The Order facilitates the implementation of improved consumer protection in British Columbia. Consumers there will benefit from the implementation of a limit on the cost of payday loans ($23 per $100 loaned), and a number of other regulatory requirements to protect recipients of payday loans. Costs will be accrued principally by payday lenders, who will have to adjust their business practices according to the new provincial requirements.

Business and consumer impacts: There is no federal administrative burden associated with the Order. Any administrative burden would fall to the provincial government, which will be responsible for the enforcement of provincial consumer protection law. Other business and consumer impacts are as described in the cost-benefit statement.

Domestic and international coordination and cooperation: There are no implications with respect to international coordination and cooperation. With respect to domestic cooperation and coordination, the Order is made as a result of a request by the Lieutenant Governor in Council of British Columbia.

Performance measurement and evaluation plan: Evaluating the effectiveness of the British Columbia framework in protecting that province’s payday lending recipients is the responsibility of the province itself, as the matter falls within its jurisdiction. However, the Government of Canada will monitor to ensure that British Columbia continues to have legislative measures that meet the criteria of subsection 347.1(3). A revocation order in accordance with subsection 347.1(4) would be made if required provincial measures are no longer in effect, or if the Lieutenant Governor in Council of the province asks the Governor in Council to revoke the designation Order.

Issue

For a number of years, concerns have persisted in relation to unfair practices associated with the payday lending industry. These concerns include the extremely high costs of borrowing, abusive collection practices and the inadequate disclosure of contractual obligations. The Government of British Columbia is acting to address these concerns, by passing legislative measures to protect recipients of payday loans. The Lieutenant Governor in Council of British Columbia has asked the Governor in Council to designate the province pursuant to subsection 347.1(3) of the Criminal Code. With designation, British Columbia will be able to implement its legislative measures fully, including setting limits on the cost of borrowing.

Objectives

Designating British Columbia for the purposes of section 347.1 of the Criminal Code ensures the province has the flexibility it requires to regulate the payday lending industry as it deems appropriate. Given that the cost of borrowing charges for typical payday loans often exceed the 60% criminal interest limit set out in section 347, representatives of some provinces have expressed the concern that provinces may face difficulty in regulating and licensing the provision of such loans (as opposed to prohibiting them outright), because to do so would essentially result in the licensing of an activity that is prohibited by the Criminal Code.

Description

The Order designates British Columbia for the purposes of the criminal interest rate provisions of the Criminal Code. This Order forms one aspect of a legislative scheme which exempts certain payday loan agreements from the application of section 347 of the Criminal Code and section 2 of the Interest Act. An exemption from section 347 of the Criminal Code was viewed by many jurisdictions as being necessary in order for them to enact measures to regulate the payday lending industry, including setting a clear limit on the total cost of borrowing.

The Order takes effect on the first day upon which all of the following are in force:

(a) the Business Practices and Consumer Protection (Payday Loans) Amendment Act, 2007, S.B.C. 2007, c. 35, except for the following:

(i) sections 112.12 to 112.15 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, as enacted by section 4,

(ii) sections 5 and 6, and

(iii) paragraph 189(4)(f.6) of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, as enacted by section 8;

(b) sections 5.1 and 7.3 of the Business Practices and Consumer Protection Regulation, B.C. Reg. 294/2004 as amended by B.C. Reg. 57/2009; and

(c) the Payday Loans Regulation, as enacted by B.C. Reg. 57/2009.

British Columbia plans to bring into force its legislative measures on November 1, 2009.

Background on British Columbia’s request for designation

On March 2, 2009, the Government of British Columbia requested, via an Order in Council, designation by the Governor in Council for the purposes of section 347.1 of the Criminal Code. On March 12, 2009, British Columbia’s Minister of Public Safety and Solicitor General wrote to the federal Ministers of Justice and of Industry, to convey this request to the attention of the Governor in Council.

In his letter, the Minister of Public Safety and Solicitor General noted that British Columbia had passed legislative measures which, once in force, would provide a number of substantive protections for recipients of payday loans in British Columbia, including a maximum cost of borrowing charge. The British Columbia legislation, the Business Practices and Consumer Protection (Payday Loans) Amendment Act, 2007, received Royal Assent on November 22, 2007. The protections in this legislation include, inter alia,

  • prohibitions on the granting of rollovers (repeat loans, which can become particularly expensive for consumers);
  • a cooling-off period that allows consumers to cancel their loans without charge at any time before the end of the next day that the payday lender is open for business following the date on which the borrower receives the first advance on the loan; and
  • specific contractual disclosure requirements, such as disclosure of the complete cost of borrowing expressed as an Annual Percentage Rate, as well as a requirement to place a sign inside each store clearly indicating the costs of a payday loan.

In addition, the province has established a cost of borrowing limit of $23 per $100 loaned.

This legislation fulfills the requirements for designation as set out in subsection 347.1(3) of the Criminal Code which states that “the Governor in Council shall, by order and at the request of the lieutenant governor in council of a province, designate the province for the purposes of this section if the province has legislative measures that protect recipients of payday loans and that provide for limits on the total cost of borrowing under the agreements.”

The regime is very narrow in scope, applying only to payday lenders, and therefore has no effect on other sectors. Similarly, the federal designation has no impact on the application of section 347, outside of a narrowly defined set of payday lending agreements provided by payday lenders that are licensed by the province.

Background on the designation process

The designation process plays an important role in determining whether section 347 of the Criminal Code, the criminal interest rate provision, and section 2 of the Interest Act will apply to certain payday loan agreements. Section 347 of the Criminal Code makes it an offence to enter into an agreement for, or receive payment of, interest at an effective annual interest rate exceeding 60%.

Under section 347.1 of the Criminal Code, a payday loan agreement will be exempt from section 347 when

(a) the payday loan is for $1,500 or less and the term of the agreement is 62 days or less;

(b) the payday lender is licensed or otherwise specifically authorized by the province or territory to provide payday loans; and

(c) the province or territory has been designated by the Governor in Council.

In order for a province or territory to be designated by the Governor in Council, the province or territory must

(a) request, through their Lieutenant Governor in Council, the federal designation; and

(b) enact legislative measures that protect recipients of payday loans and provide for a limit on the total cost of borrowing under payday loan agreements.

In practical terms, the provincial/territorial minister responsible for consumer affairs writes to the federal Ministers of Justice and Industry and requests designation. Accompanying its letter, the province/territory provides

(a) a copy of its order in council, issued by the Lieutenant Governor in Council seeking designation for the purpose of section 347.1; and

(b) the provincial/territorial legislation and, as applicable, regulations which demonstrate that it has legislative measures in place to protect recipients of payday loans, including that the payday lenders are licensed or otherwise specifically authorized to enter into payday loan agreements and that the legislation provides for limits on the total cost of borrowing.

Upon receipt of the letter and a determination of whether the criteria for designation have been met, the Ministers of Justice and Industry make a joint recommendation on whether to grant the designation via Order in Council. If approved, the coming into force of the federal Order in Council may be tied to a future named event, such as the coming into force of the provincial/ territorial legislation.

At the time of sending the provincial/territorial request for designation, it is sufficient for the province/territory to have a mechanism in place for setting a maximum cost of borrowing for payday loans. It is not necessary that the province/territory already have set the maximum cost of borrowing, at that time. However, final approval of the designation cannot be made until such time as a specific maximum cost of borrowing limit has been determined by the province/territory. The subsequent coming into force of the designation then coincides with the coming into force of the provincial/territorial legislative measures.

Decisions respecting the content of the provincial legislative and regulatory measures, including the cost of borrowing limit, are made by the provincial legislatures and authorities, and the content of such measures may therefore vary from one province to another. It is nonetheless the case that, as a consequence of federal/provincial/territorial collaboration on this issue for a number of years, the legislative and regulatory protections for borrowers are very similar throughout much of Canada, although the cost of borrowing limits have varied somewhat.

A designation Order may be revoked pursuant to subsection 347.1(4) of the Criminal Code if the province no longer has in force measures that meet the criteria set out in section 347.1, or if the Lieutenant Governor in Council of the province asks the Governor in Council to revoke the designation Order.

Once designated, a province may, from time to time, modify the content of its regulatory regime. However, as long as the modified measures meet the criteria set out in section 347.1, there is no need for the Governor in Council to revoke the designation pursuant to subsection 347.1(4).

Regulatory and non-regulatory options considered

Subsection 347.1(3) of the Criminal Code states clearly that an Order in Council is the only mechanism available to designate the province of British Columbia for the purposes of section 347.1 of that Act.

Benefits and costs

There are no costs or benefits associated directly with the Order. Any costs or benefits are accrued by British Columbians by virtue of the implementation of the provincial regulatory framework. There will be some regulatory costs for payday lenders in the province, most concretely in the form of an annual licensing fee of $750 for each payday lending store, payable to the province. British Columbia’s maximum cost of borrowing charge will be $23 per $100 loaned — a limit established by the Lieutenant Governor in Council following extensive consultation and analysis.

There will be other impacts on payday lenders resulting from the new cost of borrowing limit. According to British Columbia officials the costs in the current payday lending market in the province range from $15 to $30 per $100. Those payday lenders that currently charge more than $23 per $100 will have to lower their charges to consumers in order to continue doing business. At the same time, the payday lenders will benefit from regulatory stability that has been absent up until the present time.

Consumers of payday loans in British Columbia will benefit to the extent that charges for payday loans are lowered. Benefits to consumers also include greater consumer protection, as an industry that was not regulated to date will become subject to new requirements for disclosure and contracting, and prohibitions on certain business practices such as rollovers.

Consultation

Extensive federal, provincial and territorial (F/P/T) discussions, along with public consultations, took place over a period of nine years leading up to the development of Bill C-26, An Act to amend the Criminal Code (criminal interest rate) (S.C. 2007, c. 9). Bill C-26 added section 347.1 to the Criminal Code and came into force upon receiving Royal Assent on May 3, 2007.

The federal, provincial and territorial governments first discussed the exemption of payday loans from the application of section 347 of the Criminal Code in 1998.

In 1999, after initial discussions among F/P/T Ministers responsible for Justice, F/P/T Consumer Ministers, represented federally by the Minister of Industry, asked the Consumer Measures Committee, a working group of senior F/P/T officials, to examine issues surrounding the alternative consumer credit industry. This industry includes, for example, pawnbrokers and rent-to-own outlets, in addition to payday lenders.

In 2000, the Consumer Measures Committee conducted a public roundtable in Vancouver, bringing together stakeholders from industry and consumer organizations to gather their views about appropriate means of regulation of the alternative credit market. This roundtable was followed by a questionnaire sent to major payday lenders with the objective of gaining more information on how the payday lending industry operates.

In 2002, the Consumer Measures Committee held a public stakeholder consultation to examine possible amendments to section 347 of the Criminal Code to accommodate regulation of the payday lending industry. In 2004 and 2005, the Consumer Measures Committee consulted the public again to examine the appropriate elements of a consumer protection framework to regulate the payday lending industry. Both consultations involved direct mailings to major industry and consumer groups as well as other interested parties. In addition, the consultation documents were made available to the general public via the Internet.

These various consultations showed that the majority of stakeholders from industry agreed that amendments to the Criminal Code, which permit certain payday loan agreements to be exempt from section 347, accompanied by an applicable consumer protection regulatory framework, would be an appropriate approach. This view was also held by the majority of consumer groups and most academics consulted. Some consumer groups, however, indicated that there should be no exemption from section 347, and that the provision should be strictly enforced by the provinces and territories.

British Columbia has engaged in extensive public consultations in developing its consumer protection measures respecting payday lending. In June 2006, provincial government officials met in Vancouver with consumer organizations, payday lenders and other interested organizations to discuss the alternative lending sector, particularly payday loans. In addition to those formal sessions, payday lenders, lender associations and consumer groups provided further input to the ministry, Ministers and Members of the Legislative Assembly prior to the introduction of Bill 27, The Business Practices and Consumer Protection (Payday Loans) Amendment Act.

The decision with respect to a maximum cost of borrowing limit was preceded by

  • a study of the available literature on the costs, to lenders, of providing payday loans in British Columbia and Canada, as well as a study of the available general literature on the industry and its clientele; and
  • consultations with industry and consumer stakeholder organizations where the effect of various possible maximum cost of borrowing limits was discussed.

This Order was published in the Canada Gazette, Part I, on Saturday, June 27, 2009. No comments were received.

Implementation, enforcement and service standards

If a decision to issue a designation Order is made, federal officials would inform British Columbia officials immediately. The Order would come into force on the first day upon which British Columbia’s legislative framework relating to payday loans has fully come into force. The province will notify the industry and the public of the new requirements and protections in accordance with its own normal regulatory practices.

The protection of consumers within the payday lending industry is a matter of provincial jurisdiction. Therefore, the task of the Government of Canada, once the designation is made, is to monitor to ensure that British Columbia continues to have measures that protect recipients of payday loans including maximum cost of borrowing charges. If, at some point, such measures are no longer in effect, then the Governor in Council would revoke the designation in accordance with subsection 347.1(4) of the Criminal Code.

Performance measurement and evaluation

The objective of the Order is to ensure that British Columbia has the flexibility to protect recipients of payday loans within the province. Evaluating the effectiveness of the British Columbia framework in protecting that province’s payday lending recipients is the responsibility of the province itself, as the matter falls within its jurisdiction.

However, the Government of Canada will monitor to ensure that British Columbia continues to have legislative measures that meet the criteria of subsection 347.1(3). A revocation order in accordance with subsection 347.1(4) would be made if required provincial measures are no longer in effect.

Contacts

Paula Clarke
Counsel
Criminal Law Policy Section
Department of Justice
284 Wellington Street
Ottawa, Ontario
K1A 0H8
Telephone: 613-957-4728
Fax: 613-941-9310
Email: paula.clarke@justice.gc.ca

David Clarke
Senior Policy Analyst
Office of Consumer Affairs
Industry Canada
235 Queen Street
Ottawa, Ontario
K1A 0H5
Telephone: 613-957-8717
Fax: 613-952-6927
Email: david.clarke@ic.gc.ca

Footnote a
S.C. 2007, c. 9, s. 2

Footnote b
R.S., c. C-46

Footnote c
S.C. 2007, c. 9, s. 2

Footnote d
R.S., c. C-46