Customers in Ontario needing a payday loan may be left with fewer choices following recent enforcement of procedures in Canada regulating how that industry operates. The case of the Cash Store, a popular payday loan lender based in Edmonton, has shown many how a popular business model can be brought to its knees based on the determinations of the bureaucracy. The company has recently appealed determinations made by the Ministry of Consumer Affairs that Ontario’s registrar revoke the licenses of the company’s main lending products, effectively driving it out of business. Clearly, they are not the only lender operating in Ontario but this will still have a negative effect on competition. That said, considering every lender in the province charges the same rate, it could be argued that competition has had no positive effect thus far.
Payday loans have been popular because they offer a convenient cash advance, often under emergency circumstances, to borrowers unable to qualify for financing on a conventional basis. The usually small or “micro” level of the loans is also not traditionally provided by lenders, making it ideal for workers unable to borrow large amounts, who are willing to accept its higher interest rate and fees. The Ministry of Consumer Affairs, pursuant to recent legislation, demanded that such operations provide loans of this nature directly by cash, instead of through electronic transmission to the borrower.
The Cash Store refuses to comply with this regulation, citing safety concerns for both employers and borrowers. Others point out the regulatory change forces such companies to have more cash on hand, a situation causing the Cash Store to transition from having a net income of nearly $1 million in 2011, to reporting a net loss of $1.7 million by the end of 2012. Many consumers fear the loss of this company is making it more difficult to obtain alternative financing of this type within the province and elsewhere in Canada. The Cash Store has also claimed that regulators have attempted to stop them from selling products other than payday loans.
Some opponents to the legislation leading these regulations suggest the changes came about at the behest of the banking industry, to protect its bottom line from payday lenders, who are doing a better job accessing this borrower market than traditional lenders are. Consumers for now will have to be extra diligent in seeking out rival payday lenders willing to operate under the changes, or consult with banks about specialty products they may offer that are similar to a payday loan.