Licence Appeal Tribunal
Safety, Licensing Appeals and Standards Tribunals Ontario
Tribunal d’appel en matière de permis Tribunaux de la sécurité, des appels en matière de permis et des normes Ontario
Appeal from the Notice of Proposal of the Registrar under Section 13 of the Payday Loans Act, 2008, S.O. 2008, c. 9 to revoke a licence and to refuse to renew a licence
Between:
2047829 Ontario Ltd. d/b/a Payday Plus Appellant
and
Registrar, Payday Loans Act, 2008 Respondent
DECISION AND ORDER
Adjudicator: Patricia Conway, Member
Appearances:
For the Appellant: Matthew Brumsey For the Respondent: Shane Gallagher, Registrar Michael Nicol, Counsel
Place and date of hearing: Belleville, July 22 & 23, 2019
REASONS FOR DECISION AND ORDER
Overview
1The appellant, 2047829 Ontario Ltd, carrying on business as Payday Plus, (hereafter Payday Plus) is opposing the Proposal of the Registrar to revoke and refuse to renew its licence to carry out payday loans under the Payday Loans Act, 2008, SO 2008, c. 9 (the Act). The Proposal to revoke was issued on September 25, 2018. Payday Plus served a Notice of Appeal of the Proposal to the Registrar on October 10, 2018. On the same date, Payday Plus applied to the Registrar to renew its licence, which was to expire on October 11, 2018. The appellant’s Notice of Appeal was not sent to the Tribunal, so no hearing date was set. The Registrar did not respond to the application to renew the appellant’s licence, expecting both the proposal to revoke and request to renew would be dealt with at a hearing date set by the Tribunal.
2The Registrar took a leave of absence until April 2019. When he returned, the Registrar sent a letter to the appellant together with a Notice of Proposal to refuse renewal of the appellant’s licence. The letter encouraged the appellant to contact the Licence Appeal Tribunal if it wished to oppose the Registrar’s proposed actions. The appellant did so. This appeal dealt with both proposals, to revoke and to refuse to renew.
3The Proposal is on two grounds: Subclause 10(1)(b)(iii) of the Act provides that an applicant is entitled to a licence under the Act except where the past conduct of its officers or directors affords reasonable grounds for belief that its business will not be carried on in accordance with the law and with integrity and honesty. The Registrar alleges that the past conduct of the appellant’s principal, Matthew Brumsey, provides those reasonable grounds. The second allegation, under Subsection 10(1)(c) is that the inspection history of the appellant affords reasonable ground to believe that the appellant will not carry on its business in accordance with the law and with integrity and honesty. The Registrar refers in particular to an inspection on August 29, 2018 in arriving at that conclusion.
4The appellant’s position is that it has always acted with honesty and integrity, and within the consumer protection spirit of the Act. The appellant admits to several offences having been committed. It asserts, however, that these resulted from a number of circumstances beyond its control. Specifically, the creator of its software was inept and dishonest, failed to back up his programs, and failed to properly document how to run and alter the system. As a result, the software was constantly malfunctioning and crashed after the employee left. This caused problems to the appellant in generating a loan agreement that is compliant with the very specific and detailed requirements of the regulation under the Act. In addition, the appellant’s administrator, a long-time and trusted employee, was discovered to have stolen from the appellant over a period of several years. The company was left scrambling to make payroll and was unable to pay for software improvements, renewal of licences, or administrative penalties. At the time of the August 2018 inspection, it had closed all but one of its offices and was trying to collect overdue loans.
5Mr. Brumsey claims that he has always tried to comply with the Act. He maintains that some of the inspectors who filed inspection reports on which the Registrar relies were mistaken in their allegations. He states that he and his staff asked the Registrar through its inspectors and staff for help in understanding what was required by the Act and in ensuring all forms used and all conduct of business complied with the Act. He states he has always operated his business with honesty and integrity. He admits he is not now in compliance with the Act and asks for time to bring his much-reduced operations into compliance.
RESULT
6After considering all the documents and all the evidence, I am satisfied that Mr. Brumsey has operated his Payday Plus business with honesty and integrity, with the interests and needs of his borrowers in mind. In some respects he has not complied with the precise and detailed requirements of the regulation under the Act. He has not always been successful in his efforts to adequately instruct and supervise his employees to ensure that they have complied with the Act and regulation. Perhaps most importantly from the Registrar’s perspective, Mr. Brumsey did not in the past comply with the financial disclosure requirements of the Act. He did not segregate the bank accounts for Payday Plus’s licenced activities, and he did not keep bank records for licenced activities at the branch office where the business was transacted. Now, his business has contracted and is limited to a single office in Trenton, Ontario. He has one employee. He needs time to bring his records into compliance with the Act and to bring his financial reporting to the Registrar up to date. I have concluded, based on all of the evidence, that he should be given time to do this.
ISSUES
7This matter raises the following issues:
- Does the past conduct of Mr. Brumsey afford reasonable grounds for belief that the appellant’s business will not be carried on in accordance with the law and with honesty and integrity?
- Is Payday Plus or Mr. Brumsey carrying on activities that are in breach of the Act?
- Do the past conduct and/or present manner of carrying on business of Payday Plus warrant revocation and refusal to renew its licence?
THE LAW
8Section 6 of the Act provides that no person or entity shall act as a lender unless he/it is licensed.
9Section 10(1) provides that an applicant is entitled to have the Registrar grant or renew a licence unless:
a. The applicant is a corporation and, i. The past conduct of its officers or directors …affords reasonable grounds for belief that its business will not be carried on in accordance with the law and with integrity and honesty; c. The applicant or an interested person or entity in respect of the applicant is carrying on activities that are...in contravention of this Act or the regulations.
10Section 29(1) provides:
A lender under a payday loan agreement shall ensure that the agreement is in writing and meets the prescribed requirements, if any, and shall deliver a copy of the agreement to the borrower no later than upon entering into the agreement.
11Section 35(1) prohibits concurrent or replacement payday loan agreements. At least 7 days must have passed since the borrower paid the full outstanding balance owing under a first agreement before a second loan agreement can be made.
12Section 37 states that all disclosure of information required under the Act must be clear, comprehensible and prominent. In addition, the information must be in a form that allows the borrower to retain it.
13Section 47 provides for inspections. A person designated by the Registrar may conduct an inspection, including entering and inspecting at any reasonable time the business premises of a licensee to ensure compliance with the Act and regulations. While carrying out the inspection, the inspector may access all money, valuables, pre-authorized debits and authorizations for future payments, documents and records of the licensee.
14Section 59 provides that where there is a contravention of a prescribed provision of the Act or regulation, an assessor may impose an administrative penalty against a licensee. The purpose of the penalty, which shall not exceed $10,000, is to promote compliance with the requirements established by the Act and regulations.
15The order made under section 59 may be appealed to a person designated by the Minister of Government and Consumer Services (the Minister). However, the contravention is treated as an absolute liability offence. The order may be filed with the Superior Court and enforced in the same manner as an order of the Court.
16Section 75 provides that the Minister may require payment of fees for a licence or renewal of a licence and may require a separate fee for each office of the applicant.
17Section 77 sets out the categories of regulations that may be made by the Lieutenant Governor in Council.
18Regulation 98/09 is a general regulation under the Act that prescribes various requirements in relation to payday loans.
19Section 11 of the regulation requires the licensee to maintain a separate bank account for its licensed activities and requires that a licensee must maintain a payday loans bank account where no other funds are deposited or disbursed at each of its locations.
20The regulation deals in section 12 with how and where documentation with respect to payday loans must be kept, and for how long, and states that all such documentation must be kept separate and must be retained in the office to which the documentation relates.
21Section 13 of the regulation requires a licensee to file with the Registrar financial statements regarding its payday loans business within 3 months of the end of its fiscal year
22Section 14 requires signs to be posted at the licensee’s place of business, and specifies the sign’s size, as well as its font size and content. The poster must be clear and visible to the borrower as soon as he enters the office.
23Section 18 prescribes the form and content of the payday loan agreement, and consists of over 4 full pages of text, including requirements with respect to font size.
24Section 32 prohibits the licensee from contacting anyone other than the borrower about an outstanding loan and dictates the only times within which such contacts may be made.
Evidence and analysis
25The Registrar relied on inspection reports and correspondence with the appellant to establish his case that the appellant has a longstanding history of contraventions of the Act. The Registrar was appointed in April 2017. He has no personal knowledge of the inspections that took place before that date. He did not call any inspectors to give evidence regarding their inspection reports. I note that under Section 47(7) of the Act, certified copies of inspection reports are admissible to the same extent as originals and have the same evidentiary value. The Registrar did not submit certified copies, except for one document, referred to later. I accepted the reports into evidence in light of the large discretion of an administrative tribunal to accept and weigh hearsay.
26In his evidence, Mr. Brumsey pointed to errors in some of the reports, such as the list of his offices being wrong, and an office being noted as no longer in operation in one report and open for business in another. He also stated that some of the comments in the reports were mere expressions of opinion, and he disagreed with the opinion. He stated that some of the statements alleged to have been made by his employees in the inspection reports were in fact not made or were wrongly understood by the inspectors. I have noted his objections and weighed the Registrar’s documentary evidence accordingly.
27The Registrar’s evidence, aside from introducing documents, focused on the history of payday loans legislation in the province and explaining his view of the various provisions of the present Act. Most important for this decision is his statement that the Act has been recognized as consumer protection legislation: its provisions must therefore be interpreted in light of that objective (see: The Cash Store Financial Services Inc. v Ontario (Consumer Services), 2013 ONSC 6440 (Div. Ct.). I have kept this purpose in mind in analysing the contraventions of the Act and regulation alleged.
28Mr. Brumsey cross-examined the Registrar, but not extensively, presumably in part because the Registrar had no personal knowledge of most matters since most of the reports and correspondence he tendered in evidence pre-date his appointment in April 2017. Mr. Brumsey appeared credible to me in his testimony although he was inclined to blame others – the inspectors, the Registrar, his own employees – for the difficulties he has experienced. He also has a strong view regarding the payday loans “industry” and regards some provisions of the Act and regulation as unhelpful to both lenders and borrowers. I have borne in mind that this hearing is not to critique the legislation, but to ensure that it is enforced fairly, remembering that its purpose is consumer protection.
29Mr. Brumsey was not cross-examined on his evidence. This has made it difficult to establish the facts, because the Registrar’s documentary evidence and the appellant’s evidence present different versions of events.
30I will initially review the evidence chronologically to convey an overall understanding of Payday Plus’s business and its difficulties with complying with the Act. This necessitates starting with some of the background provided by Mr. Brumsey and the Registrar.
Payday Plus’s business before the Payday Loans Act
31Mr. Brumsey started this payday loans business with his father in the late 90’s. At that time, there was little legislation. The business was a franchisee to a large franchisor with loan practices that Mr. Brumsey did not describe with any precision, but that he said were questionable. Payday Plus broke away from the franchisor, and thereafter was independent. Mr. Brumsey’s is a relatively small operation with a small volume of business in a number of small towns. At its largest, Payday Plus had 11 offices.
32In 2007, the regulation under the Consumer Protection Act (the CPA) was amended to set out disclosure rules for payday loans. The Registrar has provided some inspection reports from that period which he says show that even at that early date Payday Plus had a problem with compliance. Three exhibits (7, 8 and 9) were tendered for that purpose. Each of these is an inspection report relating to a different branch office. Each report says that the inspection was educational in nature, to help the borrower understand and comply with the changes to the regulation under the CPA.
33The inspectors’ notes indicate that the appellant’s employees sought the inspectors’ assistance in ensuring that its loan agreement and its poster complied with the requirements of the regulation. Although playing “catch up” with the regulatory changes, the appellant was, according to the author of one report, eager to comply, seeking help to comply and ultimately compliant. Exhibit 11, for example, an inspection report regarding a January 8, 2008 visit to the Port Hope office of Payday Plus states that the loan agreement and signage are compliant. It also notes that the paperwork for one loan includes a notice to employer regarding assignment of wages which the borrower is required to sign. The inspector reports that he has told the person in charge that this contravenes the CPA and is illegal. The inspector revisited the Port Hope office on January 21, 2008 and found that. The assignment of wages document was no longer part of the loan paperwork. This suggests to me that Payday Plus was willing to and did comply with statutory requirements.
34I do not find, as the Registrar asserts, that these reports are early evidence of unwillingness to comply or inability to comply. I find that the reports demonstrate that the company wanted to comply and was trying successfully to do so. It was having to change its forms and some practices after several years in business. I find that it is not surprising that this takes time.
The [Act](https://www.canlii.org/en/on/laws/stat/so-2008-c-9/latest/so-2008-c-9.html) is declared in force, April 1, 2009: the obligation to be licensed
35On April 1, 2009, the Act was declared into force. A notice enclosing the legislation was, according to the evidence of the Registrar, sent out to all lenders and loan brokers in the province, including the appellant. The letter gave notice that payday lenders must apply for a licence and pay the required fee within 90 days. If they did not apply and pay within the time period, they could apply later, but must stop all payday loan lending after the 90-day period.
36On November 5, 2009, the Registrar sent a letter stating that no application for a licence had been received from Payday Plus Enterprises Limited. It went on: “You are hereby directed to cease business as it relates to payday loans and brokering until such time as you are licensed”.
37At the hearing, Mr. Brumsey asserted that many of the notices from the Registrar or inspectors did not reach him. This letter did, and there is a handwritten note on the bottom of the letter stating “The above company is in stages of dissolution. There is no activity of any sort in this corporation”. The letter with this handwritten notation was sent back to the Ministry. At the hearing, Mr. Brumsey explained that Payday Plus Enterprises Limited was an inactive company. All business was transacted through the numbered company doing business as Payday Plus.
38I find the scribbled note troubling. I do not understand why Mr. Brumsey or his father or whoever wrote the note (it is not signed and no evidence was led on this point) did not supply the correct company name to the Ministry and explain why the company had not yet applied to be licensed.
39In his evidence, Mr. Brumsey said that he did not initially receive notice that the Act had been passed. He said that he became aware that Payday Plus had to pay a fee for each of its offices in order to be licensed. He testified that he explained to inspectors who visited his branch offices that he had to decide what offices he would have to close, presumably because their volume of business did not warrant the licensing fee. He was also gathering the money to licence the remaining offices. He testified that he and his father “maxed out” their credit cards to pay for licences. Mr. Brumsey was not challenged on this evidence. No oral evidence was led by either party on the cost of a licence per office, but Mr. Brumsey stated that the cost to licence all offices of Payday Plus was $11,000, and this was not challenged. He noted that his was a small operation set up in a number of small communities to help people who needed a small sum of money for a short time, and this was a large amount of money for the business to raise.
40The Registrar placed importance on the fact that Payday Plus continued to do business without being registered and noted that twice, first with the original application to be licensed, and again when the licence had to be renewed a year later, Payday Plus was operating without a licence or without a renewed licence. The Registrar referred to this as evidence that Payday Plus is ungovernable so that imposing conditions on its licence instead of revoking/refusing to renew its licence is not an option.
41I agree that Payday Plus was not in compliance with the Act at that time. However, the Registrar (not Mr. Gallagher, but the Registrar at the time) knew of these circumstances and yet chose to licence Payday Plus originally and then to renew its licence. Further, the Registrar did not impose any conditions on Payday Plus’s original licence nor on its renewed licence despite its failure to register in a timely way.
42I am not prepared to find that Payday Plus’s period of doing business without a licence affords reasonable grounds to believe that it will, if licensed, carry on its business in future in contravention of the law, or without honesty and integrity. The Registrar at the time apparently did not so regard it. Mr. Brumsey explained in his evidence that he and his father had some difficulty coming up with the licencing fees initially. He also stated that he did not realize that a further payment had to be made annually to stay licensed. I accept that there was no unwillingness to comply, but rather a temporary inability to comply that was remedied.
Contraventions of the Act noted in Inspection Reports
43The Registrar provided some 16 inspection reports covering a span of over 11 years. The inspection reports allege contraventions that, according to the Registrar, pose a significant risk of harm to payday loan borrowers. The Registrar alleges that the appellant has failed consistently to correct its behaviour. The Registrar points in its Notice of Proposal to “deficient payday loan agreements, inadequate or misleading disclosure, and making concurrent and replacement loans contrary to the Act”. He also cites failure to pay administrative penalties levied after an inspection in 2017 and another in 2018 and failure to respond to demands for payment, as evidence of ungovernability. I will consider each of these allegations separately.
Deficient payday loan agreements/inadequate disclosure
44In October 2013, Payday Plus’s head office was in Trenton. It had 9 branch offices in Cobourg, Renfrew, Brighton, Port Hope, Petawawa, Pembroke, Peterborough, Orillia and Lindsay.
45Following the instructions of the Registrar (ex 22), inspectors visited a number of Payday Plus offices and alleged many contraventions, which they reported.
46On February 13, 2014, an inspector visited the Cobourg office of Payday Plus. He prepared a detailed report and follow up reports (ex. 24). With respect to the payday loan agreements, he noted the following deficiencies: Section 18(1) of O. Reg. 98/09, paragraphs 1,3,4,8,9,10 and 12. Paragraph 1 states: “the table (showing the cost of lending) should be exactly as set out in the regulations and should not include any other information on that page of the agreement.” Paragraph 9 requires that the payday loan agreement must include paragraphs that are set out in the regulation detailing the borrower’s cancellation and refund rights under the Act. Failure to include the table precisely as set out in paragraph 1, or the cancellation rights as set out in paragraph 9 in a payday loan agreement can lead to administrative penalties.
47That inspection report includes entries regarding communications between Payday Plus and the inspector after the inspection and further visits to the Cobourg office. They detail that TS, a senior employee at Payday Plus, contacted the inspector after the inspection and requested a copy of the legislation. She was told to look online. Thereafter, she worked with this inspector and other inspectors to correct the deficiencies in the payday loan agreement, which included such items as the font of type to be used for headings and in the body of the agreement as well as more important items such as the contents of the cost of loan table and the requirement to include information concerning borrowers’ rights. The inspector noted in April 2015 that all of the deficiencies had now been corrected and the loan agreement complied with the Act.
48On April 23, 2014, two months after the Cobourg inspection, another inspector visited the Lindsay office of Payday Plus (ex 25a). He found the same deficiencies in the payday loan agreement as those noted in the Cobourg inspection and issued administrative penalties totalling $2,100 on April 28, 2014 (ex 25b).
49Mr. Brumsey appealed the Lindsay penalties by Notice of Appeal dated May 25, 2014, stating that the inspection occurred while Payday Plus was working to correct the deficiencies noted in the Cobourg inspection, which were the same as those noted in the Lindsay inspection. However, the notice of appeal was dismissed as it was filed out of time. Payday Plus paid the administrative penalty.
50I find that Payday Plus cooperated with inspectors under the Act to bring their agreements into compliance with the Act and operated with compliant payday loan agreements after April 2015 until 2017.
51An inspection of the Renfrew office on August 30, 2017 was carried out. The inspection report ( unlike the earlier inspection reports) was not tendered in evidence. A notice of contravention and an amended notice of contravention were made exhibits (ex. 26A and 26B). Contraventions of section 18(1) of the regulation, paragraphs 1, 5, 9 and 11 are alleged. An administrative penalty was issued and remained unpaid at the time of the hearing. I was not provided with the loan agreement that Payday Plus was using in August 2017. I cannot determine from exhibits 26A and 26B, which list provisions of the regulation that were allegedly contravened, how material to protection of the borrower these alleged contraventions are. For example, paragraph 1 of section 18(1) requires that the first page of the loan agreement must be a cost of loan table setting out certain information. Failure to set out all of the table is a contravention. Including anything in the table that is not set out in the regulation is also a contravention. Yet some of the table is only applicable to a borrower who is on his/her third or subsequent loan. If Payday Plus was not including in the table something that was not applicable to the borrower under that loan agreement, this is not a material contravention. If Payday Plus was not providing information essential to consumer protection such as the cost of borrowing, this is important and should be clearly in evidence. It is not.
52The inspector involved in the 2017 Renfrew inspection was not called as a witness. Mr. Gallagher was Registrar at the time of this inspection, but he offered no information regarding the inspector, the inspection or the contraventions alleged. He emphasized that the inspectors are independent of him, and his only role is to help them interpret the Act, if they ask. I would have found the evidence of at least the inspectors for the 2017 and 2018 inspections very helpful. As I have stated, I was not even provided with their inspection reports.
53In addition, failure to put into evidence the loan agreement that Payday Plus was using at the time of the 2017 inspection is most unhelpful. The Registrar stated that consumers were seriously prejudiced by the loan agreement Payday Plus was using, but I do not have that agreement. I am not prepared to find, without having a full copy of the loan agreement being used by Payday Plus, that the contraventions alleged in the Notices of Contravention existed nor, more importantly, that they were material contraventions that prejudiced consumer borrowers from Payday Plus. I note that the Registrar conceded in evidence that his office has not received any complaints from consumers against Payday Plus. While evidence of complaints in not necessary for me to find noncompliance with the Act or regulations, such complaints would have supported the Registrar’s position that consumers were being impacted by contraventions in Payday Plus’s loan agreement.
54The last inspection took place at the head office in Trenton on August 29, 2018. Once again, the inspection report was not tendered in evidence. The Notice of Contravention (ex 27a) following the inspection alleges that the payday loan agreements being used were deficient, failing to comply with section 18(1) of the regulation, paragraphs 1,2,3,4,8,9,10,11 and 12. A Notice of Administrative Penalties (ex 27b) levied as a result of the contraventions includes copies of several cost of loan tables under the loan agreement being used by Payday Plus. Ex. 27b is stamped as a certified copy of the original.
55I have compared the information set out in the loan table used by Payday Plus with the requirements for the loan table set out in section 18(1) of the regulation. The form for the cost of loan table used by Payday Plus sets out the details required by section 18(1) except those relating to a third or subsequent loan. I have no evidence as to whether this was a third or subsequent loan for any of the borrowers whose cost of loan table is provided. I find that the form of the cost of loan table is in all material respects compliant with the legislation.
56In addition to the table, there is other information on the first page of the agreement, and this is a contravention of the regulation. This information includes a place for the borrower to sign that he has received or refused a copy of the agreement, and a place where the borrower is to indicate the date he will repay the loan. There is also a place for the borrower to sign when he has repaid the loan, and a client receipt. I do not find these additions detract from the essential information. This is not a material contravention of the regulation.
57The individual cost of loan tables is filled out in handwriting in each agreement. The inspector examined a number of loan agreements and found five where the loan table was not completely filled out. In four of the five, the loan term in days was not filled out. The loan repayment date was filled out in all four but in two of those four the date of the loan was not filled in. This means that the Registrar must assume that these two loans, like the other two, are for a month, the usual period between paydays. Making this assumption, all of the loans are compliant with the maximum percentage cost of borrowing under the regulation at that time, 15 percent. Failure to set out the date of the loan in the cost of loan table is a contravention of the Act. I do not regard it as material to the consumer, because the borrower would know the date of the advance. I find that these are contraventions, but they are not material and do not prejudice the borrower, because the percentage charged does comply with the regulation. The fifth cost of loan table is dated December 24, 2015 and is completely filled in. After comparing it to the regulation, I conclude that there is no contravention of the regulation that I can identify, other than the loan table taking up only half the first page of the agreement rather than the whole of that page. I also note that in exhibit 24, an inspector stated that the Payday Plus loan agreement was fully compliant with the requirements of the regulation in April 2015. I conclude that the inspector in 2018 had a different opinion about the requirement of the regulation from the inspector in 2015.
58The 2018 inspector issued a penalty of $500 for each of these deficient loan tables. She also issued a $1000 penalty for Payday Plus’s failure to post its licence so that the certificate is visible to persons immediately upon entering the office as required by subsection 4(4) of the regulation. Mr. Brumsey testified that the licence was in fact posted in the inner office of the Trenton offices. This is where the Trenton branch’s payday loans are dealt with. The outer office is where other business of the office is conducted. Mr. Brumsey maintained that placement of the licence complies with subsection 4(4) and I agree. The inspector issued another Order of Administrative Penalty of $1000 (ex 41) for failure to ensure that the required poster is visible to borrowers immediately upon entering the office. That Order of Administrative Penalty (ex 41) attaches a photograph showing the poster clearly and prominently posted on the wall of what Mr. Brumsey identified as the interior office of the Trenton office, the location where all payday loans business is conducted. The poster could not be seen as a person came into the Trenton office, but if they were interested in a payday loan, they would go to the interior office, where the poster was immediately visible. I agree with Mr. Brumsey that this placement is sensible given the layout of the Trenton office, and find that it complies with the regulation.
59As to the balance of the contraventions alleged in the loan agreement, I would need to see a full loan agreement being used by Payday Plus to determine whether there are contraventions of the Act and regulation, and to assess their materiality. From the cost of loan tables that were provided (ex 27b), I note that Payday Plus’s operating name is set out as “$Payday Plus$” and this is listed as a contravention of the requirement that the lender’s legal operating name be set out in the loan agreement. I find that this is a technical contravention and would not mislead a borrower. On the evidence provided to me, I decline to find material contraventions of the Act and regulation in the loan agreement, by which I mean contraventions that might prejudice a borrower.
60Mr. Brumsey testified that Payday Plus had problems with its software which was developed by an employee hired for that purpose in 2004. The software produced forms used at all Payday Plus’s offices. This is why, according to Mr. Brumsey inspection reports at various locations allege identical contraventions of documentation being used by Payday Plus. The software programs frequently crashed. After the employee was terminated, the system could not be operated by anyone else, and information in the system could not be accessed. Payday Plus hired other companies to try to retrieve the information on the software but had limited success. Eventually, the company returned to manually producing its forms. Mr. Brumsey offered this evidence to explain why in 2017 and 2018 Payday Plus was once again experiencing difficulty with its loan agreements.
61As I have stated, the cost of loan table the company was using in 2017 and 2018 after the failure of the software does set out, in my view, the information any borrower wants: what amount he is borrowing, what amount of interest he is paying per $100, what amount he has to pay back, and when he has to pay it. The borrower can see the lending rate, and as long as that rate complies with the legislation, what I take to be the chief borrower protection objective is achieved.
Misleading disclosure
62With respect to the allegation of misleading disclosure, I asked the Registrar specifically what instances of misleading disclosure were being alleged. The Registrar was unable to refer me to any instance of misleading disclosure. I am troubled that so serious an allegation is being made without any evidence to support it. Misleading disclosure, if found, would certainly carry weight in my consideration of whether Mr. Brumsey’s conduct indicates that if licensed Payday Plus would not conduct itself with honesty and integrity.
Failure to pay administrative penalties
63The administrative penalties issued in connection with two inspections in 2017 and 2018 totalled $9,000 and remain unpaid. The Registrar’s submission is that failure to pay these amounts, and latterly failure to respond to demands for payment or even to accept registered letters demanding payment, is evidence that the appellant is ungovernable. I do not accept this submission. In his evidence, Mr. Brumsey told the hearing of the financial difficulties the company was having at this point. These included the failure of their software, already outlined, and theft from the company by a trusted employee. Payday Plus did not have the money to pay the administrative penalties. It should have contacted the Registrar to explain its situation rather than ignoring the penalties, but Mr. Brumsey stated that he was so occupied trying to hold the company together that he did not have time to file an appeal.
64I find that failure to appeal or pay is a contravention of the Act, but it results not from unwillingness to comply, but inability to comply. I accept that the Act does not distinguish between these two. However, in my view it is important to distinguish between them when considering whether evidence of past conduct affords reasonable grounds to believe that there will be future noncompliance. I find that there was, and is, a temporary inability to pay resulting from circumstances beyond Payday Plus’s control. I agree with the Registrar that Payday Plus cannot be licensed and cannot carry on a licensed business while the penalties remain unpaid. But given the circumstances, I am sympathetic to the appellant’s request to be given time to bring itself into compliance. I decline to find that failure to pay these amounts is evidence of the appellant’s lack of integrity or honesty, or an indication of a present or future unwillingness to carry on business lawfully in compliance with the Act.
Making concurrent loans contrary to the [Act](https://www.canlii.org/en/on/laws/stat/so-2008-c-9/latest/so-2008-c-9.html)
65One of the objects of the Act as explained by the Registrar is to educate consumers and to help them break the cycle of borrowing against their paycheque time after time. To that end, the Act prohibits making a second loan to a borrower until 7 days have passed since they paid back in full both the advance and the cost of borrowing on the first loan. Two of the inspection reports, exhibits 20 (Orillia, April 2013); 24 (Cobourg, February 2014); and one notice of contravention, 26 (Renfrew, 2017) state that Payday Plus is breaching this prohibition in the Act. The Registrar in his evidence stated that this is a serious contravention. It leads the borrower into a never-ending cycle of borrowing to pay back earlier loans.
66Mr. Brumsey told the Tribunal that this is not what Payday Plus was doing. He explained that the company would qualify the borrower, that is, determine whether and how much it could lend to the borrower. This is provided for in the Act. If the borrower qualified to be loaned 500 dollars, but the borrower only needed 100 dollars, the company lent 100 dollars at the prescribed interest rate and prepared a loan agreement to that effect. The cost of loan table in Payday Plus’s loan agreement sets out, in addition to the table required under section 18 of the regulation, the limit the borrower could borrow, and the amount left after the requested advance. If during the term of the agreement the borrower found that he/she needed more money, say another 50 dollars, this was treated as a further advance under the same loan. At the end of the loan period (the borrower’s payday) the borrower would pay back the total amount borrowed plus interest at the prescribed rate on the total advance. Mr. Brumsey stated that the company was helping borrowers to budget by giving them partial advances under the loan as they were needed.
67The question is, does the practice of Payday Plus as explained by Mr. Brumsey contravene the Act? I was not offered any case law by the Registrar nor by the appellant considering this issue, nor did the Registrar’s counsel make submissions on the point. In my view, Payday Plus’s practice was to offer a single loan under which it was prepared to make advances as required by the borrower over term of the loan. At the end of the loan period, interest was charged at the prescribed rate on the total amount of the loan. As I understand Mr. Brumsey’s evidence, at the end of the term of the loan, the borrower had no debt to Payday Plus. After 7days, the borrower was eligible for another loan. I accept Mr. Brumsey’s evidence that the borrower’s receiving only what he needed as he needed it out of the total advance available helped the borrower to budget. I find that it does not contravene the provisions of the Act concerning concurrent loans. No evidence was offered by Mr. Brumsey of how this loan was drawn up. Given the strictures of section 18 of the regulation, Payday Plus may have faced difficulties in this regard. However, without evidence, I make no finding.
Making rollover or replacement loans contrary to the [Act](https://www.canlii.org/en/on/laws/stat/so-2008-c-9/latest/so-2008-c-9.html)
68The allegation that Payday Plus made “rollover” loans is a separate issue. In two of the inspection reports, ex 20 and ex 24, the inspectors report questioning employees of Payday Plus on their loan practices. According to these inspection reports, two employees said that if at the end of the loan period the borrower needs more time to pay, he/she is required to pay the interest on the loan at the prescribed rate. Then at the end of another loan period, the borrower is required to pay the amount of the advance, plus interest on it again. This practice would put the cost of lending over the prescribed rate and breach the Act and the rights of the borrower.
69Mr. Brumsey denied forcefully that this practice was ever sanctioned by Payday Plus. He stated that the inspectors were mistaken and must have misunderstood the employees’ explanations. He stated that he trained his employees intensively for three days before they were left alone in a branch office but he conceded that he could not oversee them constantly thereafter as he travelled from office to office. He admitted that some of his employees may have engaged in practices that he had prohibited, but noted that he did everything he could to curb such practices when he became aware of them. He introduced three letters he wrote to specific employees and offices (ex 36, 37 and 38) instructing them on unacceptable practices and warning that non-compliance could lead to termination.
70A person of Mr. Brumsey’s experience should know his responsibilities as an employer in a highly-regulated activity. He is responsible for the acts of his employees while they carry out the duties. He is responsible for their breaches of the Act. It is not enough to train his employees; they must have whatever oversight is necessary to ensure their compliance. If the inspection reports are correct and correctly state what the inspectors were told, these are material contraventions of the Act which would lead me to conclude that Payday Plus’s loan practices may have contravened the law without the constant presence and attention of Mr. Brumsey. This can be accomplished if Mr. Brumsey is limited in his payday loans business to a single office.
Other contraventions of provisions of the [Act](https://www.canlii.org/en/on/laws/stat/so-2008-c-9/latest/so-2008-c-9.html) related to borrowers
71The inspection reports allege other failures to comply with provisions inserted in the Act and Regulation to protect borrowers. These include failing to give a full copy of the loan agreement to every borrower for every loan and engaging in prohibited contact with the borrower’s family or employer with respect to repayment of a loan. post Payday Plus’s licence and the poster required by the Regulation in the proper place. I will summarize my findings on each of these.
72I find Payday Plus’s practice of not forcing the full agreement on a borrower who does not want it is reasonable. The loan agreement is being made available. It remains available to the borrower in their file. There is no suggestion that Payday Plus was failing to disclose, or refusing to provide to the borrower information they wanted.
73A 2014 inspection report relates that when questioned about collection practices, an employee stated that if the borrower cannot be located, his family or employer may be contacted regarding his whereabouts. There is no evidence as to the frequency of such contact nor of whether the loan is mentioned in such contact.. The Registrar agreed that he has received no complaints regarding the appellant from any borrower. I recognize that this is an important borrower protection provision, designed to prohibit attempts to embarrass or harass the defaulting borrower into repayment. In my view, the evidence is not sufficiently clear and strong to prove a contravention of the Act. .
Bank accounts, financial statements and loan activity reports
74The Act has several provisions relating to bank accounts. It requires that each licensee retain a bank account that deals only with payday loan matters. The records of the bank account for each site office should be accessible at each site office. On Mr. Brumsey’s evidence, Payday Plus has never complied with this requirement. It has used its corporate bank account for all transactions it carries on under the Act and for other business. This has been brought to the company’s attention but has not been rectified. The segregated account requirement is essential to allow the Registrar and his inspectors to track the company’s licensed activities. The Act provides that an inspector must be able to inspect the bank account of the lender at any inspection. It also stipulates that each office must retain all records of regulated activities in the location where it occurred for two years. Inspection reports report employees of Payday Plus saying that the records of licensed activities are kept separate, but they are filed with the Trenton Office after a year.
75Mr. Brumsey offered no information or excuse to explain Payday Plus’s failure to keep a payday lending account or accounts segregated from its other business activities. This failure prevents the regulator from understanding and verifying how the licensee is carrying on business. This is a serious contravention and, absent explanation, indicates an unwillingness on the part of the licensee to be open with the Registrar and compliant with the Act.
76Mr. Brumsey explained that he did not keep an account at each of Payday Plus’s offices for the licenced activities at that location because he did not want employees to know how thinly capitalized the operations were.. This is not a valid reason for failing to comply with the statute. He pointed out that he only has one office now, so he would have no issue with complying now. I have taken this into account in arriving at my decision that Payday Plus’s operations should be limited to a single office.
77The Registrar also alleges that Payday Plus has contravened the Act by failing to provide financial disclosure that is required by the Act. The requirement to provide the company’s annual financial statements, unaudited, is clear and understandable to ensure that it has the means to carry on business lawfully and that borrowers are adequately protected. The company has not filed financial statements for 2017 or 2018. Mr. Brumsey stated that he could not say when those financial reports would be prepared.
78The requirement to provide an annual loan activity report stems from an administrative requirement made by the Registrar, as is permitted by the Act. The information is used by the Registrar to help in understanding the licensee’s business: the size of the loans, the frequency of repeat borrowers and the amount of loan activity the licensee does. Mr. Brumsey has not filed these reports for 2017 and 2018.
79Payday Plus’s failure or inability to provide such basic and essential financial information to inform the Registrar of the viability of the appellant’s business and the details of its licensed activities is very serious. Failure in this important area indicates that Payday Plus cannot at present conduct its licensed business within the law.
80This issue concerning the keeping of segregated bank accounts and providing financial disclosure to the Registrar leads me to conclude that
DECISION AND ORDER
81I have set out the allegations, the evidence and my findings and concerns with respect to the issues raised on this appeal.
82I conclude that Mr. Brumsey’s past conduct does not afford reasonable grounds for belief that he will not act with honesty and integrity and in accordance with the law in the future. I do conclude that he is currently contravening the Act and its regulations as I have itemized. I have also concluded that to ensure that he will comply with the requirements of the Act with respect to keeping separate bank accounts for licenced operations at each of Payday Plus’s locations and to ensure that he is able to maintain proper oversight of employee practices with respect to licenced operations, Mr. Brumsey should be limited to operating a single office. In that way, Payday Plus will not encounter the problems Mr. Brumsey admitted to having experienced with his branch office employees, and Mr. Brumsey will not have concerns about the company’s confidential financial information being accessible to employees.
83I decline to order the revocation of Payday Plus’s licence, as the Registrar proposes. At the same time, the appellant cannot be allowed to participate in a regulated industry unless its finances and transactions related to the industry are made transparent to the Registrar, and compliant with the Act. It is clear that the appellant needs some time to do this. Therefore, I order as follows:
a. The licensed operations of the appellant shall be suspended for a period of six months commencing at the date of issuance of this Order. b. Within that time, the appellant shall bring itself into compliance with the requirements of the Act and its regulations with respect to the filing of financial statements and loan activity reports and the maintenance of its bank account and banking records. c. The administrative penalties levied against the appellant must be paid within that period. d. At the end of the suspension period the appellant may resume its operations at a single office only.. e. Should the appellant fail to comply with the above conditions within the time for compliance, the Registrar’s proposal to revoke Payday Plus’s licence shall be carried out.
LICENCE APPEAL TRIBUNAL
Patricia Conway, member
Released: October 2, 2019