Order Designating Newfoundland and Labrador for the Purposes of Section 347.1 of the Criminal Code: SOR/2018-257
Canada Gazette, Part II, Volume 152, Number 25
SOR/2018-257 November 23, 2018
P.C. 2018-1439 November 22, 2018
Whereas Newfoundland and Labrador has legislative measures that protect recipients of payday loans and that provide for limits on the total cost of borrowing under a payday loan agreement;
And whereas the Lieutenant Governor in Council of Newfoundland and Labrador has requested that the Governor in Council designate that province for the purposes of section 347.1 footnote a of the Criminal Code footnote b;
Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Justice and the Attorney General of Canada and the Minister of Industry, pursuant to subsection 347.1(3)footnote a of the Criminal Code footnote b, makes the annexed Order Designating Newfoundland and Labrador for the Purposes of Section 347.1 of the Criminal Code.
Order Designating Newfoundland and Labrador for the Purposes of Section 347.1 of the Criminal Code
1 Newfoundland and Labrador is designated for the purposes of section 347.1 of the Criminal Code.
Coming into Force
2 This Order comes into force on the first day on which the following Newfoundland and Labrador legislative measures are all in force:
- (a) An Act to Amend the Consumer Protection and Business Practices Act, S.N.L. 2016, c. 46;
- (b) Payday Loans Regulations;
- (c) Payday Loans Licensing Regulations.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Order.)
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. For a number of years, some consumer advocates, regulators, as well as Canadians generally have expressed concerns about unfair practices associated with the payday lending industry, including extremely high costs of borrowing. The Government of Newfoundland and Labrador is acting to address these concerns by implementing legislative measures to regulate the industry and protect recipients of payday loans. As the effective annual interest rate for these loans often exceeds the criminal interest rate of more than 60% per year, 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, Newfoundland and Labrador will be able to implement its legislative measures fully, including setting limits on the cost of borrowing.
Newfoundland and Labrador’s request for designation
On August 9, 2017, the Newfoundland Minister of Service NL wrote to the federal Minister of Justice and Minister of Innovation, Science and Economic Development noting that the Lieutenant Governor in Council of Newfoundland and Labrador had formally requested designation of the province by the Governor in Council for the purposes of section 347.1 of the Criminal Code.
Newfoundland’s request referred to that province’s legislative measures which, once in force, would provide a number of substantive protections for recipients of payday loans in Newfoundland and Labrador, including a limit on the cost of borrowing for payday loan agreements. The protections in An Act to Amend the Consumer Protection and Business Practices Act, the Payday Loans Regulations, and the Payday Loans Licensing Regulations 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 $21 per $100 borrowed.
These legislative measures will be brought into force by proclamation on a date to be determined.
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 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
- the payday loan is for $1,500 or less and the term of the agreement is 62 days or less;
- the payday lender is licensed or otherwise specifically authorized by the province or territory to provide payday loans; and
- 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
- request, through their lieutenant governor in council, the federal designation; and
- 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 copy of its order in council, issued by the lieutenant governor in council seeking designation for the purpose of section 347.1; and
- 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.
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).
Newfoundland and Labrador will be the ninth 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); Prince Edward Island (2014); and New Brunswick (2017).
Designating Newfoundland and Labrador 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.
The Order designates Newfoundland and Labrador 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 Newfoundland and Labrador.
The Order will take effect on the first day upon which the province brings into force all of the following provisions:
- An Act to Amend the Consumer Protection and Business Practices Act, S.N.L 2016, c. 46;
- Payday Loans Regulations; and
- Payday Loans Licensing Regulations.
The “One-for-One” Rule does not apply to the Order, as there are no direct effects on administrative burden arising from the designation of Newfoundland and Labrador. 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.
Small business lens
The small business lens does not apply to this proposal, as the federal designation itself will have no effect (e.g. administrative and compliance costs) on small businesses.
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 Innovation, Science and Economic Development) 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 civil society 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 Newfoundland and Labrador has consulted with relevant stakeholders, including payday lenders, regarding the proposed regulation of payday lending in the province through An Act to Amend the Consumer Protection and Business Practices Act (which received royal assent in December 2016) and the associated payday lending regulations. Consultations included the publication of proposed rules for payday loans, and of the maximum rates and fees. Newfoundland and Labrador 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.
Under section 347.1 of the Criminal Code, a designation must be made where the lieutenant governor in council of a province has requested it, and they have demonstrated that they have legislative measures in place to protect recipients of payday loans and that provide for a limit on the total cost of borrowing.
The Newfoundland and Labrador 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.
There are no costs or benefits associated directly with the Order. Any costs or benefits accrued by Newfoundland and Labrador residents and payday lenders are by virtue of the implementation of the provincial legislative measures, which this designation merely facilitates. 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 $21 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 Newfoundland and Labrador 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.
Implementation, enforcement and service standards
The Order will come into force on the first day upon which those provisions of Newfoundland and Labrador’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 Newfoundland and Labrador 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.
Criminal Law Policy Section
Department of Justice Canada
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Office of Consumer Affairs
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