Cash Store fights Ontario over legality of 59% "lines of credit"

Payday loans in disguise?

Here’s an update to a story I wrote in March on the ongoing war between the government of Ontario and Cash Store Financial Inc., one of the two largest payday loan providers in Canada.

In February, the province moved to strip Cash Store’s payday loan license, claiming the fees it charges customers vastly exceed the limits established by provincial law. The Cash Store is appealing that move. But in the meantime, it’s also offering a new product that it hopes will take itself out of provincial jurisdiction entirely: instead of “payday loans,” it’s now offering “lines of credit.” This is from my original story:

Beginning last month, all 178 Cash Store and Instaloans (the two brands the Cash Store operates under) locations in Ontario began offering lines of credit, not payday loans, to consumers looking for short-term financial help. The company, which also offers lines of credit in Manitoba, has billed the move as a product revolution. But to critics it smacks of a possibly desperate effort to dodge payday lending laws that restrict what it can charge.

[…] By extending term lengths and loan sizes, the company believes it can move outside the technical definition of a payday loan … [T]he new product offers credit for an introductory six-month term at 59.9% annual interest (just below the federal usury cap of 60%) plus a $21 fee per $100 loaned. Crucially, the bulk of the money extended—90% of it—has to be paid back on the first payment. To critics, including ACORN Canada and the Ontario Ministry of Consumer Affairs, that sounds a lot like a payday loan.

On Friday there was finally some movement on this front: on June 7, the Ontario Ministry of Consumer Services formally asked a judge to decide one way or the other. The filed an application in Ontario Superior Court seeking a declaration that, according to a ministry press release:

  •   the company’s basic line of credit product is a payday loan and therefore subject to provincial regulations;
  •   the company must obtain a payday loan broker licence, under the Payday Loans Act, to act as a loan broker of the basic line of credit
  •   the company cannot act as a loan broker of the basic line of credit without the required licence.

The actual documents for the application aren’t yet publicly available. (At least they weren’t as of this morning when I went down to the courthouse to check.) I’ll post them here when they are.

For Cash Store, there’s a lot at stake. Ontario is its largest market. If the province succeeds in stripping its payday loan license and keeps jurisdiction over its lines of credit, it could be all but shut out of the province.

Peter Block, a spokesman for the company, says Cash Store actually acted first, asking the court on April 29 to certify that its lines of credit are not payday loans. “These well-received products are completely new to the market,” he wrote in an email. “We have been receiving inputs from our customers and other stakeholders, including the Government of Ontario. We are open to making changes that further benefit our consumers. I can’t say any more on this at this point because the matter is before the courts.”

Regardless of what they’re called, the new Cash Store products aren’t exactly revolutionary. In form, they’re pretty similar to “installment loans,” an old product in the U.S. that’s regaining popularity as states crack down on payday lenders. For more on that, read this recent ProPublica investigation.