With 511 storefront locations in Canada and another 25 in the U.K., the Cash Store Financial Services Inc. is easily this country’s largest homegrown purveyor of payday loans. So when the company announced in February that it was giving up payday lending in Ontario—by far its largest market—some were understandably confused; this would be like McDonald’s giving up not just hamburgers, but food.
Beginning last month, all 178 Cash Store and Instaloans (the two brands the Cash Store operates under) locations in Ontario began offering lines of credit, not payday loans, to consumers looking for short-term financial help. The company, which also offers lines of credit in Manitoba, has billed the move as a product revolution. But to critics it smacks of a possibly desperate effort to dodge payday lending laws that restrict what it can charge.
By offering lines of credit, the Cash Store believes it can put itself beyond the reach of provincial regulators and back under the federal thumb. If the company is right, other payday lenders could flock to the new model, overturning a years-long effort to regulate the payday lending industry in Canada.
Ottawa shunted responsibility for payday loans onto the provinces in 2007. A year later, Ontario capped the total amount that payday lenders can charge in fees and interest at $21 per $100 loaned. It’s that restriction that has landed the Cash Store in trouble. The company charges fees, many tied to cash cards it hands out, that can push the total cost of borrowing well over the legal limit. Because of that, the province moved to strip the company’s payday lending licence earlier this year—a sanction that could cripple its operations in Canada’s largest province.
The Cash Store is appealing that effort. But its real gambit here is its new line of credit. By extending term lengths and loan sizes, the company believes it can move outside the technical definition of a payday loan. No one from the company was available to speak on the record for this story. But according to information it provided, the new product offers credit for an introductory six-month term at 59.9% annual interest (just below the federal usury cap of 60%) plus a $21 fee per $100 loaned. Crucially, the bulk of the money extended—90% of it—has to be paid back on the first payment. To critics, including ACORN Canada and the Ontario Ministry of Consumer Affairs, that sounds a lot like a payday loan.
But “looks like a payday loan” may not be the same as “is a payday loan,” at least not under the law. And until a judge decides one way or the other, that could be all that matters, for the Cash Store and, possibly, for the rest of the industry too.