New laws to regulate consumer loans and lines of credit that meet the definition of a “high-cost credit product” will come into effect in Manitoba on September 1, 2016. After this date, a consumer lender who offers, arranges or provides a high-cost credit product in Manitoba will be subject to licensing, disclosure, record-keeping and other requirements that are similar, in some respects, to the requirements under payday lending laws. The new laws represent a significant departure from the harmonized cost of credit disclosure laws that apply in many other jurisdictions, including Manitoba, that would otherwise apply to these types of credit products. Highlights of the new laws are discussed in this bulletin.
What is a high-cost credit product?
A high-cost credit product is a loan of money, or a line of credit or similar credit product that meets certain criteria. These criteria can be grouped into four general categories:
- A loan of money or line of credit with an annual interest rate that exceeds 32 percent;
- An unsecured loan for a principal amount of C$5,000 or less, repayable over a term not exceeding two years and carries both an interest rate of up to 32 per cent and provides for the payment of a high-cost credit fee. A “high-cost credit fee” is defined broadly to mean any fee, charge or penalty payable to the lender or a third party (for example a brokerage fee, administrative fee, a charge to access funds, cash card fee, a charge for exceeding the credit limit or a fee relating to the secured personal property);
- An unsecured line of credit with a maximum credit limit of C$5,000, with one or more of the following criteria:
- A loan or line of credit that is secured by personal property pledged as collateral and registered under The Personal Property Security Act, where the proceeds of the loan or line of credit are not used to purchase the secured personal property, and where the borrower is or may be required to pay a high-cost credit fee.
a) The borrower is or may be required to pay a high-cost credit fee The borrower requires authorization, permission or approval from the lender or a third party to access the funds
b) The borrower must repay the principal or any other amount according to a schedule that corresponds or is linked to when the borrower regularly receives income
c) The repayment amount in any 30-day period includes one or more repayments totalling at least 10 per cent of each advance or outstanding balance of the principal
It is important to note that credit cards and margin loans are specifically excluded from the definition of a high-cost credit product.
A lender that offers, arranges or provides high-cost credit products will be required to obtain a licence to operate in Manitoba. If the lender operates stores in Manitoba, a separate licence will be required for each location.
Lenders must post prominent signs at each location identifying their products as high-cost credit products and listing each component of the cost of credit, among other requirements.
The form and content of a loan for a high-cost credit product differs in several significant ways from the form ordinarily required for a consumer loan. These differences include:
- A requirement that all disclosures must be separately listed and prominently displayed
- Disclosure of the cooling off-period (discussed below)
- That the loan must state it is for a high-cost credit product
- For a line of credit, that the lender must disclose the total cost of credit based on the maximum credit available and assuming the loan is repaid in 30 days
- A requirement to disclose the borrower’s right to receive documents, including the high-cost credit agreement, before entering into it and be given a reasonable amount of time to review each document and ask questions
- A requirement that only certain key information be included on the first page of the loan agreement
- A requirement that the borrower must sign each page that includes any required disclosures
These requirements mean that a national lender who uses a harmonized form in English Canada and who offers high-cost credit products in Manitoba will no longer be able to use its English Canada form in connection with these products. In addition, the director must approve the form of loan agreement to be used by the lender.
The new laws acknowledge that, increasingly, loan agreements are being entered into electronically, including via mobile devices. A helpful provision exempts online lenders from the requirement to provide an opportunity to ask questions before entering into the loan agreement. However, other requirements are quite prescriptive. For example, certain key disclosures must be displayed using a white background and a purple border on the user interface. Another problematic provision in the online context requires lenders to advance funds immediately in some circumstances.
A borrower has the right to cancel a high-cost credit agreement within 48 hours, excluding Sundays and other holidays.
The above represents highlights of the new laws. However, lenders will need to be aware of additional requirements regarding prohibited activities, processing of pre-authorized debits, use of the borrower’s information, and record keeping requirements, among others.
By Elizabeth Sale and Ora Morison (Student-at-Law), Blake, Cassels & Graydon LLP