The role of the courts in policy making – payday lending in Canada

Court cases can drive policy makers forward and encourage legislation to be made to regulate or outlaw certain practices. The payday loan industry in Canada was initially unregulated but now provinces have the power to legislate to control the industry. How have the courts in Canada dealt with payday lenders? Did the courts help push this legislation forward? Have they contributed towards regulation of this industry?

Although courts can contribute to policy making there has been fair few prosecutions of payday lenders in Canada’s courts. There appears to be only one case in which a criminal prosecution was bought for charging interest rates over and above that provided for in the Criminal Code.

In 2006, in Winnipeg, a lender was charged under Section 347 of the Criminal Code as it was alleged it was charging interest rates in excess of 2000% per annum. The Criminal Code only allows for 60% (and now provinces can also set their own rates which are often lower). In the end the lender in question pleaded guilty and was fined $100,000.  However, there has been no large scale prosecution of offending corporations under the Criminal Code – this is probably because the permission of a provincial attorney general is required before a prosecution can go ahead. So, on this basis, payday lenders appear to have avoided criminal prosecution in the clutches of the Courts. Research done for parliament notes that up until 2006 no prosecution was authorized due to the fear that payday lenders would back out – leaving borrowers with no alternatives but to use a loan shark. The political thinking seems to have been that at least payday loans were at least legal in part – unlike loan sharks who operate in the criminal underworld.

More recently however the courts have used their powers in private cases through cases involving tort and the interpretation of lending contracts –  for example, the interpretation of clauses relating to interest rates and other controversial issues such as rollovers. Payday lenders were given a wake-up call by stern judicial messages in small cases. Then by the 2000s there were a number of class action law suits (a class action win by borrowers could mean an unsuccessful payday loan provider was, at the least, unable to collect on a large number of loans). The courts were also starting to favour the arguments of the borrowers over the lenders. This, no doubt, concerned the payday lenders.

In the light of this pressure from the courts it seems that the Canadian Payday Loan Association, the trade body for over 400 responsible lenders like payday loan Canada lender, in 2004 began to lobby for provincial regulation. No doubt this lobbying was bought about due to unfavourable decisions from the courts which could have destroyed the industry. In the light of the courts decisions a more certain regulatory framework was desirable.

Therefore it can be said that the courts of Canada did play a vital role in securing the regulation of payday loans in Canada. It prompted the industry to agree to the regulation by the provinces which we see in operation today.

4 Responses to “The role of the courts in policy making – payday lending in Canada on “The role of the courts in policy making – payday lending in Canada”

  • I’ve got a pay day loan that charges 240 dollars every two days from my salary. I simply lost my job and cant pay it what must i do?

  • Can you receive a pay day loan with no bank account. I’ve got a direct deposit bank card from social security.

    Can a pay day loan be deposited on your bank card?

  • Are pay day loan companies you can find online trustworthy? For those who have used one, were built with a bad or good experience, please tell me?

  • Has anybody ever become a pay day loan? I’m in desperate situations and may certainly pay this back by next payday, however, I’m not sure which pay day loan company to believe. Any suggestions?

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