An Open Letter to Hon. Tracy MacCharles, Minister of Government and Consumer Services

Toronto, Canada, August 18, 2017 – Canadian Lenders Association (CLA) responds to The Putting Consumers First Act (Consumer Protection Statute Law Amendment).

The CLA provides Canadian lenders the tools to innovate and to foster safe and ethical lending practices. As an association that represents both business-to-business as well as the business-to-consumer lending sector, we advocate for measures that strengthen consumer protection at home and in the marketplace.

We ask the Minister to consider that following the global financial crisis in 2008, incumbent large-scale lenders with very low-cost financing from their parent banks exited the marketplace due to regulatory amendments that impacted their capital reserves. This departure deprived consumers access to non-prime credit. Over the past ten years, many innovative lenders have entered the market to welcome back these underserved customers and offered them an alternative to the high cost of payday loans and credit card debt.

The Ontario consumer wins when availability is expanded and the barriers to entry are lowered. The consumer loses when innovative lenders cannot compete with cost of capital, scale and efficiency.

Innovative lenders have provided a tremendous benefit to the Ontario consumer, allowing for a healthy and competitive marketplace in compliance with section 347 of the criminal code. Companies that operate efficiently and provide innovative lending solutions, inherently optimize their interest rates to provide consumers the best possible options. While new market entrance may differentiate their business by competitive speed, approval rates or loan size, one of the key factors in winning the consumer is lower cost of capital.

The CLA works with best-of-breed lending associations in more advanced innovative lending markets globally. We ask the Minster to consider that when the United Kingdom attempted to categorize the lending industry they settled on 99 per cent as the red line of deemed “high cost”. Establishing 35 per cent is considerably far from that mark and makes the existing regulation of 60 per cent in the criminal code extremely viable.

The CLA believes that a healthy marketplace provides consumer choice. As policy makers, we ask you to provide an economy that encourages competition, innovation and more credit availability to all consumers.

In specific response to The Putting Consumers First Act (Consumer Protection Statute Law Amendment) we encourage the Minister to consider the following:

Proposed Definition of High-Cost Instalment Loans, as outlined in the Amendment, will lead to a restriction in the supply of credit in the marketplace for the consumers most in need of alternative credit options.

  • It is of critical importance that we recognize the likely impact on the availability and supply of credit to Ontario consumers. As lenders are forced to adjust to tighter regulations on interest rates, this will ultimately result in the marginal customers, whom are often most in need of access to credit, to simply be denied. Limiting access to perceived “high cost” credit essentially removes availability and supply to higher risk borrowers and eliminates a way for them to rebuild and re-establish credit. While Ontario is not looking to eliminate lending over 35 per cent in this proposal, labeling these products as high cost and adding further regulation will inevitably push lenders to move up market and leave some consumers stranded for supply to credit, putting further pressure on them and their families during difficult financial periods.

Responsible Lending Standards, as outlined in the Amendment, are part of a safe and sustainable lending economy, but may lead to poorer lending decisions and restricting the supply of credit.

  • A lender’s business will grow if the company applies rigor to its lending process to ensure all loans are provisioned to borrowers that have the financial ability to repay the loan. Lenders in the CLA take great pride in the custom models they develop that consider thousands of characteristics used to establish a customer’s credit worthiness and affordability. By attempting to standardize the methods used to establish affordability, this will cause a tightening in the supply of credit and lead to poor lending decisions. Furthermore, finding a standardized approach that is suitable for consumers from ‘all walks of life’ across the province will be incredibly difficult given the vast differences in consumers living expenses. As such, the CLA strongly encourages the use of Option 3, which allows lenders to apply the most suitable methods possible to each lender and borrower’s unique circumstances.
  • If more rigor is required in this process, the CLA believes a straight allowance of 35 per cent of net income is the easiest and most transparent for the borrower, while allowing lenders to still establish unique limits based on a consumer’s personal circumstances.

Limits on Costs Outside of Interest, as outlined in the Amendment, places lenders at a significant disadvantage to other companies selling those identical optional services in the market place.

  • Optional services should be clearly optional and open to cancel at any time without penalty; however, placing a cap on the costs of optional services could result in a significant reduction of the benefits of those services. When the price of a product is constrained beyond market driven prices, the product quality ultimately suffers and consumers most in need of them suffer most. These products are often designed to help consumers during dramatic life events such as job less, disability or death. These products are typically custom designed for the type of borrower.
  • Further to the points mentioned above, price caps on optional services puts innovative lenders at a significant disadvantage to traditional lenders selling these identical products in the marketplace, leading to unfair competition and stifling the growth of innovative financial services in Canada.

We appreciate the thought and consideration provided by the Minister on this crucial issue. We too are focused on standards and practices that will strengthen services for the consumer. We ask that the province gives due consideration to the points underlined in this letter.

We ask the Minister to include the CLA and our members in any onward going dialogue. We believe that our goals are aligned. Along with the Minister, we are committed to building a vibrant and sustainable lending economy for the Ontario consumer.


Gary Schwartz

President of the Canadian Lenders Association

About the Canadian Lenders Association

The Canadian Lenders Association (CLA) supports the growth of companies in the Canadian market that are in the business of lending, or providing other means of credit, to small businesses and individuals by non-conventional or innovative means to exchange ideas and explore ways of improving the sector;  encourage principled and professional practices by innovative lenders; educate the public at large about innovative lending;  encourage individual potential borrowers to be informed about the appropriateness of innovative lending to the borrowers’ circumstance; and to advocate on behalf of, and represent the interests of innovative lenders.


Gary Schwartz
416 505-7410