Vol. 144, No. 14 — July 07, 2010

Registration

SOR/2010-136 June 17, 2010

CRIMINAL CODE

Order Amending the Order Designating Manitoba for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code

P.C. 2010-761 June 17, 2010

Whereas Manitoba 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;

Whereas the Lieutenant Governor in Council of Manitoba 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);

Whereas the Governor in Council made the Order Designating Manitoba for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code (see footnote c), as requested by the Lieutenant Governor in Council;

And whereas Manitoba has amended certain legislative measures referred to in that Order;

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 d) of the Criminal Code (see footnote e), hereby makes the annexed Order Amending the Order Designating Manitoba for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code.

ORDER AMENDING THE ORDER DESIGNATING MANITOBA FOR THE PURPOSES OF THE CRIMINAL INTEREST RATE PROVISIONS OF THE CRIMINAL CODE

AMENDMENT

1. Section 2 of the Order Designating Manitoba for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code (see footnote 1) is replaced with the following:

2. This Order comes into force at 12:00 a.m. on the first day on which the following are in force:

(a) section 147 of The Consumer Protection Act, C.C.S.M. c. C200, as enacted by section 3 of The Consumer Protection Amendment Act (Payday Loans), S.M. 2006, c. 31; and

(b) the Payday Loans Regulation, Man. Reg. 99/2007 as amended by Payday Loans Regulation, amendment, Man. Reg. 50/2010.

COMING INTO FORCE

2. This Order comes into force on the day on which it is registered.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Order.)

Executive summary

Issue

For a number of years, concerns have persisted in relation to unfair practices associated with the payday lending industry. Concerns have included the extremely high costs of borrowing, abusive collection practices and the inadequate disclosure of contractual obligations. The Government of Manitoba is acting to address these concerns by implementing legislative measures to protect recipients of payday loans. The Lieutenant Governor in Council of Manitoba has asked the Governor in Council to designate the province pursuant to subsection 347.1(3) of the Criminal Code. With designation, Manitoba will be able to implement its legislative measures fully, including by setting limits on the cost of borrowing. An Order Designating Manitoba for the Purposes of the Criminal Interest Provisions of the Criminal Code (SOR/2008-212; hereafter, the “Designation Order”) was made in 2008, but subsequent amendments to Manitoba’s legislative measures protecting recipients of payday loans have necessitated an amendment to the coming into force provision of the Designation Order.

Objectives

The Designation Order has not yet come into force. The Designation Order was drafted to come into force simultaneously with the coming into force of Manitoba’s legislative measures respecting payday lending. These measures are specifically described in the Designation Order. After the Designation Order was made, but before the Manitoba legislative measures could be brought into force, Manitoba made amendments to those measures. This Order (hereafter the “Amending Order”) amends the coming into force section of the Designation Order so that Manitoba is designated upon the coming into force of its amended legislative measures.

Description

This Amending Order amends the Designation Order, which was made pursuant to subsection 347.1(3) of the Criminal Code, and designates Manitoba for the purposes of section 347.1 of the Criminal Code. The Designation Order forms one aspect of a legislative scheme that 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, in respect of certain narrowly defined payday lending agreements, was viewed by many jurisdictions as being necessary in order for them to enact measures to regulate the payday lending industry at the provincial level.

The Designation Order, as amended by the Amending Order, takes effect when all of the following provisions are in force in Manitoba:

(a) section 147 of The Consumer Protection Act, C.C.S.M., c. C200, as enacted by section 3 of TheConsumer Protection Amendment Act (Payday Loans), S.M. 2006, c. 31; and

(b) the Payday Loans Regulation, Man. Reg. 99/2007 as amended by Payday Loans Regulation, amendment, Man. Reg. 50/2010.

Background on Manitoba ’s request for designation

On August 31, 2007, the Government of Manitoba requested from the federal government a designation for the purposes of section 347.1 of the Criminal Code. This request was made, on behalf of the Lieutenant Governor in Council for Manitoba, by the Manitoba Minister of Finance, to the federal ministers of Justice and Industry.

In his request, the Manitoba Minister of Finance noted that Manitoba had passed legislative measures that, once fully in force, would provide a number of substantive protections for recipients of payday loans, including a limit on the total cost of borrowing under payday loan agreements. Under the legislation described by the Manitoba Minister in his request, the Manitoba Public Utilities Board (“PUB”) was mandated to carry out hearings to determine an appropriate cost-of-borrowing limit. Following hearings in 2007 and 2008, the PUB issued its Order 39/08 Setting Maximum Charges for Payday Loans, on April 4, 2008, (hereafter the “PUB order”). Most notably, the PUB order set a limit of $17 for every $100 borrowed, for the first $500 borrowed.

The legislative measures met the criteria 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.” Therefore, a designation was made, via the Designation Order, which was to come into force when the Manitoba Government brought its legislative measures into force, which was expected to happen some time in the autumn of 2008.

Before this could occur, however, during the summer of 2008 a payday lender sought leave to appeal the PUB order, and sought stay of that order pending the appeal. The Government of Manitoba did not bring its legislative measures into force pending the outcome of the leave to appeal and the stay request. On January 2, 2009, the Manitoba Court of Appeal granted the company leave to appeal the PUB order and stayed the PUB order pending the outcome of the appeal.

Subsequently, on April 9, 2009, the Manitoba Government introduced Bill 14, the Consumer Protection Amendment Act (Payday Loans), and on June 4, 2009, the Bill received Royal Assent. The Bill rescinds the PUB order and empowers the Lieutenant Governor in Council to make regulations governing the maximum cost of credit for payday loans. The effect of the new legislation is to render moot any further appeal respecting the PUB order.

With Bill 14, the consumer protections are the same protections as were in the 2007 legislation, including cost of credit disclosure requirements, a cooling-off period whereby recipients may cancel the loan without cost within 48 hours of receiving the loan, a payday lender licensing regime, and measures to establish a maximum amount on the total cost of borrowing. Bill 14 also adds some new protections. Most notably, it enables the regulation of Internet payday loans.

The Manitoba legislative measures in question are very narrow in scope, applying only to payday lenders, and therefore have no effect on other sectors. Similarly, the federal designation has no wider impact on the application of section 347 of the Criminal Code, 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 the application of section 347 of the Criminal Code, the criminal interest rate provision, and section 2 of the Interest Act 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 an amount not exceeding $1,500 and the term of the agreement does not exceed 62 days;

(b) the payday lender is licensed or otherwise 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 its 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, to seek a designation, the provincial/ territorial minister responsible for consumer affairs writes to the federal ministers of Justice and Industry and requests it. 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 that demonstrate that it has legislative measures in place to protect recipients of payday lending, including that the payday lender is licensed or otherwise specifically authorized to enter into a payday loan agreement 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 as to whether to issue 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, the designation cannot be granted until such time as a specific maximum cost 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 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 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 Manitoba for the purposes of section 347.1 of that Act.

Benefits and costs

There are no costs or benefits associated directly with implementation of the Designation Order and the Amending Order. Any costs or benefits would be accrued by Manitobans by virtue of the implementation of the provincial legislative measures. There will be some regulatory cost for payday lenders in the province, most concretely in the form of an annual licensing fee for each payday lending store ($5,000), payable to the province.

There will be other impacts on payday lenders resulting from the new cost-of-borrowing limit of $17 per $100 loaned. Thus, those payday lenders who currently charge more than that limit will have to lower their charges to consumers in order to continue doing business. At the same time, the payday lenders will benefit from increased regulatory stability.

Consumers of payday loans in Manitoba 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 becomes 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 (S.C. 2007, c. 9). Bill C-26 came into force upon receiving Royal Assent on May 3, 2007, and added section 347.1 to the Criminal Code.

F/P/T 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 in order 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 that 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.

These consultations played an important role in orienting federal, provincial and territorial responses to this issue, including the development and subsequent enactment of Bill C-26. Many jurisdictions indicated that an exemption scheme was 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.

At the federal level, the pre-publication period of Manitoba’s Designation Order gave stakeholders an opportunity to comment on the Designation Order. One set of comments was submitted by a payday lending company during that pre-publication period. The comments received cited several concerns with the PUB order. These include the following:

• that the PUB order fails to protect recipients of payday loans as required by section 347.1 of the Criminal Code; and,
• that consumers will be forced to seek multiple loans because the PUB order limits the amount that can be loaned to 30% of a consumer’s pay.

The submissions received during the pre-publication process did not necessitate changes to the Designation Order. Manitoba’s legislative measures met the criteria for designation under section 347.1 of the Criminal Code. Specifically, the province had enacted consumer protection legislation and regulations to protect recipients of payday loans and a limit on the total cost of borrowing had been prescribed. The conditions precedent had, therefore, been met. These conditions continue to be met with the amended Manitoba legislative measures.

Further consultation occurred at the provincial level with respect to Manitoba’s decision to set the maximum cost of borrowing under payday loan agreements at $17, under the amended provincial regulatory framework. The Manitoba Consumers’ Bureau carried out a consultation on this matter in August and September 2009, during which stakeholders were provided with the opportunity to comment.

Implementation, enforcement and service standards

The Designation Order, as amended by the Amending Order, comes into force on the first day upon which Manitoba’s legislative measures relating to payday loans, including the cost of borrowing limit, 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 Manitoba continues to have measures that protect recipients of payday loans, including maximum cost of borrowing charges. If at some point measures that meet those criteria are no longer in effect in the province, 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 Designation Order is to ensure that Manitoba has the flexibility to protect recipients of payday loans within the province. Evaluating the effectiveness of the Manitoba legislative measures 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 Manitoba 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 the required provincial measures were found to be 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
SOR/2008-212

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

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

Footnote 1
SOR/2008-212

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