SOR/2017-40: New Brunswick for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code — Order Designating Criminal Code
REGISTRATION OF FEDERAL REGULATION - VIA PART II OF THE GAZETTE
March 24, 2017
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Order.) Executive summary Issues: Payday loans are small short-term consumer loans, generally for about $300–$500, 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 borrow... (Click for more)
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Published on April 19, 2017
SOR/2017-40: New Brunswick for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code — Order Designating Criminal Code
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Order.) Executive summary Issues: Payday loans are small short-term consumer loans, generally for about $300–$500, 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 New Brunswick’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 designates New Brunswick 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. This designation enables provinces or territories to legislate and regulate the payday lending industry. 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 New Brunswick. Cost-benefit statement: The Order facilitates the implementation of improved consumer protection in New Brunswick. Consumers there will benefit from the implementation of a limit on the cost of payday loans ($15 per $100 loaned). Costs will be accrued principally by payday lenders, who would 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 coordination and cooperation. With respect to domestic cooperation and coordination, the Order will be made as a result of a request by the Lieutenant Governor in Council of New Brunswick. Performance measurement and evaluation plan: Evaluating the effectiveness of New Brunswick’s 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 New Brunswick 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. Issues For a number of years, some consumer advocates, regulators, and Canadians generally have expressed concerns about 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 New Brunswick is acting to address these concerns, by implementing legislative measures to protect recipients of payday loans. The province’s Lieutenant Governor in Council has asked the Governor in Council to designate the province pursuant to subsection 347.1(3) of the Criminal Code. With designation, New Brunswick will be able to implement its legislative measures fully, including setting limits on the cost of borrowing. Objectives Designating New Brunswick 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, section 347.1 recognizes 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 New Brunswick for the purposes of the criminal interest rate provisions of the Criminal Code. The Order exempts certain payday loan agreements from the application of section 347 of the Criminal Code and section 2 of the Interest Act. The Order will take effect on the first day upon which the province brings into force all of the following provisions: An Act Respecting Payday Loans, S.N.B. 2008, c. C-3; and Payday Lending Regulation — Cost of Credit Disclosure and Payday Loans Act. Background on New Brunswick’s request for designation On June 29, 2016, New Brunswick’s Minister of Finance wrote to the federal Minister of Justice and Minister of Innovation, Science and Economic Development noting that the Lieutenant-Governor in Council of New Brunswick 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 New Brunswick Minister of Finance referred to that province’s legislative measures which, once in force, would provide a number of substantive protections for recipients of payday loans in New Brunswick, including a limit on the cost of borrowing for payday loan agreements. The protections in An Act Respecting Payday Loans, the Payday Lending Regulation — Cost of Credit Disclosure and Payday Loan Act and the Financial and Consumer Services Commission Rules 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 within a specified period; specific contractual disclosure requirements; a licensing requirement; and a maximum cost of borrowing limit of $15 per $100 borrowed. These legislative measures will be brought into force by proclamation on a date to be determined. These measures were first developed in 2009, and amended since that date, and though they have received royal assent they have not yet been proclaimed (thus are not yet in force). The Act and Regulations, once in force, 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 New Brunswick 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 Minister of Justice and Minister of Innovation, Science and Economic Development 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 Minister of Justice and the Minister of Innovation, Science and Economic Development 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 the provincial/territorial request for designation is sent, 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 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 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 shall be revoked pursuant to subsection 347.1(4) of the Criminal Code if the province no longer has measures in force 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). New Brunswick will be the eighth province designated pursuant to subsection 347.1(3). Previously designated provinces are Nova Scotia, Ontario, and British Columbia (whose designations came into force in 2009); Alberta and Manitoba (2010); Saskatchewan (2012); and Prince Edward Island (2014). 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 New Brunswick 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 New Brunswick 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 $15 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 or risk being prosecuted. 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 New Brunswick will benefit to the extent that charges for payday loans are lowered. Benefits to consumers also include greater consumer protection, as an industry that has not been regulated to date will become subject to new requirements for disclosure and contracting, and prohibitions on certain business practices, such as rollovers. Small business lens The federal designation itself will have no effect (e.g. administrative costs or burden) on small businesses. “One-for-One” Rule There are no direct effects on administrative burden arising from the designation of New Brunswick. Any such effects arise from the province’s regulatory framework. The regulation of the payday lending industry falls squarely with the province’s responsibility, and therefore the level of administrative burden on such lenders is a matter for the province itself to consider. 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 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 pawnbrokers and rent-to-own outlets, in addition to payday lenders. In 2000, the Consumer Measures Committee conducted a public round table 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 round table 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 permitting 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 New Brunswick consulted with the public and with payday lenders in regard to the proposed regulation of payday lenders in the province. An Act Respecting Payday Loans initially received royal assent in April of 2008, and was amended in 2014 and 2016. Consultation occurred periodically between 2008 and 2016. In addition, New Brunswick’s Financial and Consumer Services Commission, which is the Crown Corporation responsible for the regulation of payday lenders, provided notice to stakeholders in 2015 of draft Rules respecting licensing requirements and fees for payday lenders, and a chance to comment. A draft regulation on rates and fees for payday lenders was also published for comment by the Government of New Brunswick in June of 2016. New Brunswick officials also note that they learned a great deal from the experiences of other provinces that had previously moved ahead with regulation of the industry. Implementation, enforcement and service standards The Order will come into force on the first day upon which those provisions of New Brunswick’s Act and Regulations noted above under “Description” 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 officials of the Justice and Innovation, Science and Economic Development departments, once the designation is made, is to monitor to ensure that New Brunswick 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 New Brunswick has the flexibility to protect recipients of payday loans within the province. Evaluating the effectiveness of the New Brunswick regulatory 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 ensure that New Brunswick 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 no longer in effect. Contacts Paula Clarke Counsel Criminal Law Policy Section Department of Justice 284 Wellington Street Ottawa, Ontario K1A 0H8 Telephone: 613-957-4686 Fax: 613-941-9310 Email: [email protected] Gregg Whetton Senior Policy Analyst Office of Consumer Affairs Small Business, Tourism and Marketplace Services Sector Industry Canada 235 Queen Street Ottawa, Ontario K1A 0H5 Telephone: 343-291-3053 Fax: 343-291-1880 Email: [email protected] 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
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