ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-482242
DATE: 20140212
BETWEEN:
The Director designated under the Ministry of Consumer and Business Services Act
Applicant
– and –
The Cash Store Financial Services Inc., The Cash Store Inc., and Instaloans Inc.
Respondents
William Manuel and Kevin Hille, for the Applicant
Timothy Pinos and Jason Beitchman, for the Respondents
HEARD: November 29, 2013
Morgan J.
I. The payday loan question
[1] Is it a line of credit or is it a payday loan? That is the difficult question of characterization posed in this Application.
[2] The Respondents are a group of related companies that offer loans to the public on a retail basis. They were previously licensed as a payday lender under the Payday Loans Act, 2008, SO 2008, c. 9 (the “Act”), but this license lapsed in July 2013. In 2013 the Respondents restructured their business in Ontario, and began offering a newly fashioned financial product called a “Basic Line of Credit” (“BLOC”) to their customers.
[3] The Applicant is the public official who is authorized under section 54(1) of the Act to apply to this court for an order “if it appears to the Director that a person or entity is not complying with this Act or the regulations”.
[4] The Applicant alleges that the BLOC product is in name a line of credit but in substance a payday loan, and that as such it is subject to the numerous consumer protection provisions built into the provincial regulatory regime for payday loans. The Respondents contend that the BLOC product is a true line of credit that fills a market need since larger American subprime banks pulled out of Canada in the wake of the recent recession, and that as such it is outside the Applicant’s jurisdiction under the Act.
[5] If the Act applies to the BLOC, the Respondents would need to be licensed under the Act in order to offer this product to the public in Ontario. Furthermore, the Respondents’ business would be caught by Ontario Regulation 98/09, as recently amended by Ontario Regulation 316/11 (the “Regulation”). The Regulation includes the cost of goods and services (i.e. service fees) in the calculation of the maximum cost of borrowing, it restricts certain goods and services by means of its definition of prohibited loans, and it requires lenders to provide funds in cash to customers. These provisions would potentially impact on the Respondents’ business practices and would require changes in the terms of the BLOC.
[6] The history and policy underlying the Act and the Regulation, along with the process of the Regulation’s enactment, have been thoroughly analyzed and upheld by the Divisional Court in Cash Store Financial Services Inc. v Ontario (Minister of Consumer Services), 2013 ONSC 6440. As the Divisional Court put it at para 30, the Act was enacted in 2008 by Ontario as a package of consumer-oriented “legislative measures that protected the recipients of payday loans and ensured that the costs associated with these loans did not exceed certain limits.”
[7] This Application is the latest in what appears to be a running battle between the parties. As indicated, the Respondents were at first licensed under the Act, but the introduction of the Regulation impacted in a way that the Respondents found onerous. They then challenged the Regulation in Divisional Court on the grounds, inter alia, that the government had not adequately consulted with them as a business affected by the Regulation. The Court, as indicated, upheld the Regulation. At the same time as seeking judicial review of the Regulation, the Respondents re-designed their products and gave up their license on the view that the new BLOC offering did not fall within the Act’s ambit.
[8] The question now is whether the product offered to the public by the Respondents has been designed in such a way that it is outside the terms of the Act and avoids the impact of the Regulation. The Respondents accuse the Applicant of pursuing it relentlessly and of attempting to regulate it even after it changed its business model from payday loans to something altogether different. The Applicant, for its part, insists that it has caught the Respondents offering the same old product in deceptively new wrapping.
[9] For the reasons that follow, I agree with the Applicant that the BLOC amounts to a “payday loan” under subsection 1(1) of the Act. Although the contest is a close one, it is evident to me that this time the persistent regulatory cat has caught the clever business mouse.
(continued verbatim in full…)
Morgan J.
Released: February 12, 2014
COURT FILE NO.: CV-13-482242
DATE: 20140212
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
The Director designated under the Ministry of Consumer and Business Services Act
Applicant
– and –
The Cash Store Financial Services Inc., The Cash Store Inc., and Instaloans Inc.
Respondents
REASONS FOR JUDGMENT
E.M. Morgan J.
Released: February 12, 2014