Regulation of high-cost credit products to protect consumers
Tuesday, November 23, 2021 10:00 AM
Financially vulnerable British Columbians who use high-cost financial services to make ends meet will soon have enhanced protections and access to more education resources.
“The pandemic has heightened financial pressures for many British Columbians, and we want to be there to help protect people from predatory lending practices,” said Mike Farnworth, Minister of Public Safety and Solicitor General. “This new framework will provide regulatory oversight of the alternative financial services industry – before consumers borrow or sign up for a high-cost credit loan they need to know the risks, so they are able to make an informed decision that is right for them.”
Under a new framework that will come into force on May 1, 2022, companies that offer or facilitate high-cost credit products, such as high-interest instalment loans and lines of credit above 32% interest, will require annual licensing and regulation by Consumer Protection BC. The framework is part of 2019 amendments to the Business Practices and Consumer Protection Act.
The changes also establish new transparency requirements and borrower protections. Rules prohibit certain fees and practices, set requirements for credit agreements and establish borrower rights and remedies. The framework aligns with the model for payday lenders, which are already regulated by the province.
A consumer financial education fund will be established under the act to enhance consumer financial awareness throughout the province. The fund, which also will come into effect May 1, 2022, will be paid for by the industry as part of their annual fees and be administered by Consumer Protection BC.
These changes fulfil commitments made as part of government’s 2018 Consumer Financial Protection Action Plan to strengthen consumer protections and improve affordability for the most financially vulnerable people in British Columbia. The plan included legislation to establish new financial protections for consumers that use high-cost financial services, payday loans and government cheque-cashing services.
Consumer Financial Protection Action Plan:
Online resources for borrowing money:
Information about B.C. consumer protection laws – Consumer Protection BC:
A backgrounder follows.
New provincial legislation is coming into force to regulate lenders of high-cost credit products. The changes, which will take effect on May 1, 2022, will:
- establish a new framework to license and regulate lenders of high-cost credit products, such as high-interest instalment loans over 32% APR and lines of credit over a 32% annual interest rate;
- prescribe key aspects of the new high-cost credit framework, such as definitions, licence application fees and exemptions;
- ensure transparency by requiring high-cost credit agreements to disclose key terms and conditions, how fees are calculated and the total cost of borrowing;
- set clear and consistent rules for high-cost credit grantors, such as prohibitions on hidden fees, loan enticements and use of the borrower’s personal information for marketing purposes;
- establish borrower rights and remedies, including allowing one full business day for a borrower to reconsider and cancel a high-cost credit product without penalty;
- provide enforcement and compliance tools to ensure the rules are followed;
- create the consumer financial education fund, which will be a new fund dedicated to providing financial literacy for British Columbians and increasing compliance with financial consumer protections in the Business Practices and Consumer Protection Act; and
- require high-cost credit grantors and payday lenders to contribute to the fund as part of annual fees payable to Consumer Protection BC.
As the Province’s consumer protection authority, Consumer Protection BC will administer the new framework and consumer financial education fund. Consumer Protection BC has a mandate for regulating designated sectors and delivering consumer education. It has an escalating model for enforcement that ensures businesses operate in compliance with consumer protection laws in the province.
Companies that provide high-interest financial services were consulted on the proposed framework and the impact it would have on business practices. The legislation and regulations coming into force can be viewed on the BC Laws website.
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