Vol. 145, No. 21 — October 12, 2011
SOR/2011-204 September 30, 2011
Order Designating Saskatchewan for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code
P.C. 2011-1108 September 29, 2011
Whereas Saskatchewan 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 Saskatchewan 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, His 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 Saskatchewan for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code.
ORDER DESIGNATING SASKATCHEWAN FOR
THE PURPOSES OF THE CRIMINAL INTEREST RATE
PROVISIONS OF THE CRIMINAL CODE
1. Saskatchewan 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. Central Time or — in that part of the province in the Mountain Time zone — Mountain Time, on the first day on which the following are all in force:
- (a) sections 5, 18 and 19 of The Payday Loans Act, S.S. 2007, c. P-4.3; and
- (b) section 14 of The Payday Loans Regulations, R.R.S. c. P-4.3 Reg. 1.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Order.)
Issue: Payday loans are small short-term consumer loans, generally for about $300–$400, to be repaid in approximately 10 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. The designation Order responds to Saskatchewan’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 Saskatchewan 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 Saskatchewan.
Cost-benefit statement: The Order facilitates the implementation of improved consumer protection in Saskatchewan. 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 falls 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 co-ordination and cooperation. With respect to domestic co-operation and coordination, the Order is made as a result of a request by the Lieutenant Governor in Council of Saskatchewan.
Performance measurement and evaluation plan: Evaluating the effectiveness of the Saskatchewan 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 Saskatchewan 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 legislative measures are no longer in effect.
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 Saskatchewan is acting to address these concerns, by implementing legislative measures to protect recipients of payday loans. The Lieutenant Governor in Council of Saskatchewan has asked the Governor in Council to designate the province pursuant to subsection 347.1(3) of the Criminal Code. With designation, Saskatchewan will be able to implement its legislative measures fully, including by setting limits on the cost of borrowing.
Designating Saskatchewan 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 usually 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.
The Order designates Saskatchewan for the purposes of the criminal interest rate provisions of the Criminal Code. The 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 the Province brings into force all of the following provisions:
- Sections 5, 18 and 19 of The Payday LoansAct, S.S. 2007, c. P-4.3; and
- Section 14 of The Payday Loans Regulations, R.R.S. c. P-4.3 Reg. 1.
Background on Saskatchewan’s request for designation
On June 1, 2010, Saskatchewan’s Minister of Justice and Attorney General wrote to the Federal Ministers of Justice and Industry, noting that the Lieutenant Governor in Council of Saskatchewan had formally requested designation of the Province by the Governor in Council for the purposes of section 347.1 of the Criminal Code.
In the request, the Saskatchewan Minister of Justice and Attorney General referred to that province’s legislative measures which, once fully in force, would provide a number of substantive protections for recipients of payday loans in Saskatchewan, including a limit on the cost of borrowing for payday loan agreements. The protections in ThePayday Loans Act and ThePayday Loans Regulations include, inter alia,
- prohibitions on rollovers (repeat loans, which can become particularly expensive for consumers) and on concurrent loans;
- a cooling-off period that allows consumers to cancel their loans without charge if they choose to do so by the end of the next business day following the day the loan was provided;
- specific contractual disclosure requirements, such as disclosure of the complete cost of borrowing expressed as an Annual Percentage Rate;
- a licensing requirement;
- a prohibition on providing a payday loan in excess of 50% of a borrower’s net paycheque; and
- a maximum cost of borrowing limit of $23 per $100 borrowed.
These legislative measures will be brought into force by proclamation on a date to be determined.
The Act and Regulations fulfill 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 Saskatchewan legislative measures are narrow in scope, applying only to payday lenders, and therefore have 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, 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 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 as to 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 legislative measures.
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 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/territorial legislative measures, including the cost of borrowing limit, are made by the provincial/territorial legislatures and authorities, and the content of such measures may therefore vary from one province/territory 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 would 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 or territory 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 Saskatchewan 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 will be accrued by Saskatchewan residents and payday lenders by virtue of the implementation of the provincial legislative measures. There will be some regulatory costs for payday lenders in the province, most concretely in the form of an annual licensing fee for each payday lending store, payable to the province.
There will be other impacts on payday lenders resulting from the new cost of borrowing limit of $23 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 regulatory stability that has been absent up until the present time.
Consumers of payday loans in Saskatchewan 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.
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 came into force upon receiving Royal Assent on May 3, 2007, and added section 347.1 to the Criminal Code.
The 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 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.
The Government of Saskatchewan conducted extensive consultations in 2007 before The Payday Loans Act was introduced and passed. Over 30 stakeholders, including the major payday lending industry association, individual payday lenders, consumer associations, advocacy groups, legal representatives, and academics were consulted. Responses were received from a variety of individuals and organizations consulted.
A similar consultation process was undertaken in late 2009 respecting The Payday Loans Regulations. Over 45 organizations, along with all payday lenders in the province, were consulted. The cost of borrowing limit of $23 per $100 loaned had already been determined by the province and was not part of the consultations. However, when the government set the rate, it relied on consultations carried out in British Columbia and Alberta respecting their limits, which Saskatchewan adopted. No comments were received specifically in regard to the cost of borrowing limit. Many comments were received and a number of modifications were brought to the regulatory proposals as a result.
Comments received during the pre-publication period
The Order was pre-published for a period of 30 days in Part Ⅰ of the Canada Gazette on December 18, 2010. A Canadian payday lending company set out the following comments, not only with the Saskatchewan Order, but with all designations pursuant to the Criminal Code, section 347.1, to date:
- that the Governor in Council bears a burden of reviewing and evaluating the appropriateness of the cost of borrowing limit chosen by the province, and
- the Governor in Council’s review of designation applications to date has not secured regulatory certainty for the payday lending industry, which the company describes as a primary policy objective of section 347.1.
Notwithstanding the company’s concerns, it is the responsibility of the provinces and territories to determine the content of the regulatory regimes that they intend to apply to the payday lending sector. When the province or territory meets the criteria for designation as set out in section 347.1, then designation is appropriate.
Implementation, enforcement and service standards
The Order comes into force on the first day upon which those elements of Saskatchewan’s regulatory framework that are referenced in section 2 of the Order have 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 is to monitor to ensure that Saskatchewan 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 Order is to ensure that Saskatchewan has the flexibility to protect recipients of payday loans within the province. Evaluating the effectiveness of the Saskatchewan regulation 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 Saskatchewan 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 are no longer in effect.
Criminal Law Policy Section
Department of Justice
284 Wellington Street
Senior Policy Analyst
Office of Consumer Affairs
235 Queen Street
S.C. 2007, c. 9, s. 2
R.S., c. C-46
S.C. 2007, c. 9, s. 2
R.S., c. C-46