Payday loan: your rights

Image of puppet sitting in chair with his legs crossed, hands on his lap.What you need to know before you take out a short-term, cash advance payday loan from a retail store or online.

 

How it works

A payday loan is:

  • usually a small value loan taken out for a short time, typically until your next payday
  • loaned at a retail store or online
  • the most expensive consumer loan in Ontario
  • an unsecured loan (you cannot put any property as collateral or guarantee for the loan, you need to provide the lender with a post-dated cheque or a pre-authorized debit)

Most lenders do not do credit checks before issuing payday loans. They usually ask borrowers to:

  • prove 3 months of continuous employment
  • give proof of address (e.g., they can ask to see a utility bill)
  • have a chequing account

Costs

Payday loans are an expensive form of credit. Before getting a payday loan, you should consider other ways to borrow money (e.g., from family or friends, a bank or credit union or your credit card).

Payday lenders can charge you up to $21 for every $100 that you borrow, this means:

If you borrow $300 for 2 weeks: Payday loan
(fee)
Credit card
(fee with interest at 23%)
1 loan will cost $63 $2.65
2 loans will cost $126 $5.29
4 loans will cost $252 $10.59
6 loans will cost $378 $15.88

The law

The Payday Loans Act helps protect people who take out payday loans.

Under the act:

  • you can’t be charged more than $21 for every $100 that you borrow
  • you can’t be sold or offered any goods or services other than the payday loan
  • you have 2 business days to cancel a contract for a payday loan without  any penalty (e.g., paying a fee) and without having to give a reason
  • “rollover” loans are not allowed (this means you can’t roll what you owe on a payday loan into a second payday loan. This is because you can’t get another payday loan from the same lender before paying your first loan in full)

Rules for payday lenders

Payday lenders must:

  • be licensed with the Government of Ontario and follow the rules set by the Payday Loans Act
  • include specific information on the first page of your contract
    • the amount you are borrowing
    • the number of days that your loan is for
    • what you will pay to borrow the money
  • never ask for or accept payment by automatic deduction from your paycheck (assignment of wages ) 
  • display a poster and give out a flyer that explain the cost of taking out a payday loan over time

A lender can’t:

  • contact you more than 3 times a week (not including regular mail) or on holidays
  • contact your spouse, family, household members, relatives, friends,  neighbours, or acquaintances at any time
  • process a post-dated cheque or pre-authorized debit more than once if it will result in your financial institution charging you any fees, like overdraft or fees for insufficient funds (if a lender does this, you are entitled to recover these fees from the lender and would not pay the cost of borrowing the loan)
  • use threatening or intimidating language
  • use excessive or unreasonable pressure

File a complaint

If you believe that a payday lender has broken the rules, you can file a complaint with us.   

Find a licensed lender

Before you get a payday loan:

  • always check that a lender is licensed (don’t take out a loan unless you see an Ontario license number, even if borrowing from retail stores or online lenders)
  • be aware that there are companies that pose as online payday lenders but are actually “lead generators” that collect personal information from people looking to get a payday loan and then sell it to an actual payday lender (sharing this kind of information can put you at risk of identity theft)

Check if a payday lender is licensed

Repayment plan

Before you take out a payday loan, make sure to: 

  • plan to have enough money in your account to repay the loan and on the day it is due
  • understand how much you will pay for the loan if it’s overdue

Ask the right questions

Before you get a pay day loan, you should ask:

  • how much will it cost me to borrow this money?
  • how much will I be charged if I don’t pay the loan back on time?
  • is this payday lender licensed and in good standing?
  • am I being charged more than $21 for every $100 that I’m borrowing?
Updated: September 30, 2014