Payday loans are small, short-term, and high interest loans. They are a very expensive way to borrow money. You may wish to speak with a credit counsellor about other, lower cost ways to borrow money, such as a loan from a line of credit or a cash advance on your credit card.
Credit counsellors are listed under 'Credit and Debt Counselling' in the yellow pages of the telephone book, or look online. The Financial Consumer Agency of Canada has information to help you compare the costs of different ways to borrow money.
This page talks about your rights if you get a payday loan. It gives legal information only, not legal advice.
Q - What is a payday loan?
A payday loan is a loan of $1500 or less. The loan term cannot be more than 62 days. Most payday loans are for $300 or less, and are for short periods, from a few days to a few weeks.
To get a payday loan you usually give the lender:
- a cheque to cover the loan plus fees, postdated to your next payday; or,
- permission to take the total amount owing out of your bank account on your next payday (this is called pre-authorized debit).
Q - How much can a lender charge for a payday loan?
In Nova Scotia the most a payday lender can charge is $25 for every $100 you borrow, as long as you pay the loan back on time. This is called the maximum 'total cost of borrowing'.
Q - What is the total cost of borrowing?
Your total cost of borrowing is the total amount the loan will cost you, if you repay the loan on time.
The cost of borrowing includes:
- administration fees
- cheque cashing fees
- pre-authorized debit fees
- fees for issuing or loading a cash card
- cash card transaction fees
- agent or broker fees.
Whether they are called fees, commission, interest or something else, it all adds up to the total amount that the loan will cost you.
The total cost of borrowing cannot be more than $25 for every $100 you borrow. For example, if you borrow $300, a payday lender cannot charge you more than $75 as the total cost of borrowing. In this example the most you would be required to repay is $375, if you repay the loan on time. If you do not repay the loan on time, you will be charged interest on the amount you still owe. The interest rate will be the amount specified in your loan agreement for default, up to a maximum of 60%. In addition, you may be charged a default penalty of up to $40.
Payday lenders must have a poster in their store giving an example of the total cost of borrowing, like the table below:
PAYDAY LOANS ARE HIGH COST LOANS
||$300 loan for 14 days
|Total Cost of borrowing:
|Total to repay:
||$300 plus $75 = $375
|Annual Percentage Rate:
||APR = 651.79%
Q - Who licenses payday lenders?
Payday lenders are regulated and licensed by Service Nova Scotia and Municipal Relations ('Service Nova Scotia') to offer, arrange or give payday loans in Nova Scotia. Lenders must follow the rules in the Consumer Protection Act and regulations in order to get, keep or renew a license. Licenses must be renewed every year. As of May 1, 2012, internet payday lenders are also regulated in Nova Scotia, and must have a permit from Service Nova Scotia to arrange or provide internet payday loans in Nova Scotia.
In certain situations Service Nova Scotia may refuse to give or renew a license, or may suspend or cancel a license.
Click here for a list of licensed payday lenders in Nova Scotia, or call Service Nova Scotia at 1 800 670-4357 to check whether a particular payday lender is licensed to operate here.
Q - What information must the lender give me?
A payday lender must give you the following information:
- the lender's contact information
- contact information for Service Nova Scotia
- the date the loan is made
- the total amount of money you are borrowing
- the total amount you must repay, and when it is due
- if you are paying by instalments, the amount of and due dates of each payment
- details of any fees, charges, commissions, interest, penalties for the loan
- your total cost of borrowing, including interest and other fees
- the maximum cost of borrowing allowed ($25 per $100)
- the annual percentage rate ('APR')
- the interest payable as a percentage rate
- charges you would have to pay if the loan is not repaid by the due date, including the maximum charge allowed ($40 per loan, maximum interest on outstanding balance is 60%)
- any interest payable for extending or renewing the loan
- your rights if the payday lender charges more than they are allowed to charge
- how to cancel your payday loan, including the form to use to cancel
- a copy of your loan agreement.
The information must be clear, easy to understand, and in writing.
You and the lender must both sign your loan agreement. Read it carefully before you sign.
If you get a cash card the lender must give you the card terms and conditions in writing, including the amount of credit on the cash card, and any card expiry date or extra charges for using the card at a place other than the payday lender.
Q - Is there a cooling-off period?
Storefront location payday loan:
There is a one day cooling-off period after signing a payday loan agreement. You may cancel a payday loan at any time before the end of business on the day after you get the money or could access the money. This means the next business day. For example, if you get the money on a Friday and the business is closed until Monday, you would have until the end of business on Monday to cancel the loan.
Online payday loan:
You may cancel an online payday loan within 48 hours after you get or could access the money.
There is no penalty for cancelling a payday loan within the cooling-off period, and you do not have to give a reason for cancelling.
Q - How do I cancel a payday loan?
You may cancel the loan during the cooling-off period, without giving a reason and without penalty.
You may also cancel at any time if:
- you were not told about your cancellation rights
- you were not given all of the information the lender is required to give you (see 'What information must a lender give me?').
You must cancel the loan in writing, and repay any money owing. The lender should have given you a form to use to cancel. You may use that form to cancel the loan, or give your own written notice to the lender saying you are cancelling the loan. It is best to deliver it in person, and keep a copy for your records.
A payday lender cannot charge a cancellation fee.
Once you cancel the loan in writing and repay any money owing, or return an unused cheque or cash card, the payday lender must give you a receipt to confirm that the loan has been cancelled.
If you agreed to buy insurance on the loan, and the lender paid the premium, you will also need to pay the pro-rated amount of the insurance premium.
Q - Can I repay the loan early?
Yes. You can repay the full amount of the loan at any time before it is due.
A payday lender is not allowed to charge a fee or penalty for early repayment. If a payday lender charges you a fee for early repayment, you are entitled to have that fee refunded. Contact Service Nova Scotia if you were charged a fee or penalty for early repayment.
Q - Can I extend or renew my loan?
If you have not paid back everything you owe by the due date, you and the payday lender can make a deal to extend or renew the loan, as long as you are only charged interest. A payday lender can charge interest on an extended or renewed loan, but cannot add other fees or charges.
Q - Are there other things a payday lender cannot do?
A lender cannot:
- require you to buy insurance in order to get a loan
- require security for a payday loan (for example, make you sign an agreement that says they can take your car if you can't repay the loan)
- require undated or post-dated cheques for more than you would owe on the due date for repayment, including interest and fees
- give you a new payday loan if you already owe money to them
- set the due date for repayment before your next pay day
- charge a penalty or fee if you repay the loan early. You have a right to a refund if you are charged extra for early repayment
- require a wage or other income assignment (for example, make you sign an agreement that says your employer can deduct money from your pay and give it to the lender if you can't repay the loan)
- grant rollovers . A rollover is a second payday loan to pay out an original payday loan which you can't pay, or an extension or renewal of your payday loan that adds extra fees or charges, other than interest. Extensions or renewals that only charge interest are allowed.
Contact Service Nova Scotiafor more information or to make a complaint.
Q - What happens if I don't pay back the loan when it is due?
If you cannot pay back the loan when it is due you are in default. You will be charged interest on the amount you still owe. The interest rate will be the amount specified in your loan agreement for default, up to a maximum of 60%. In addition, you may be charged a default penalty of up to $40.
The payday lender must follow the rules in the Consumer Protection Act and Consumer Creditors' Conduct Act when trying to collect money from you.
A payday lender cannot:
- Make collect calls to you
- Contact you if you have written telling them to contact your lawyer
- Use documents, notices or letters which are made to look like court forms
- Pretend to represent the police or sheriff
- Threaten you or use abusive or intimidating language
- Harass you or your family, for example, by calling every 15 minutes
- Try to collect the debt on a Sunday or any day before 8:00 am or after 9:00 pm
- Give misleading or false information to anyone about you, including your employer
- Threaten or try to make things difficult for you at work, or at any of your family members' workplaces
- Ask you for or require you to enter into a wage assignment, or an assignment of any other kind of income. A wage assignment is a deduction from your paycheck, with the money deducted going directly to the lender.
A payday lender may have a collection agency contact you about the debt. Click here for information about dealing with collection agencies.
A payday lender has the right to sue you for the amount you owe, plus interest and any court fees. You should speak to a lawyer if you are being sued.
Q - Where can I get more information?
- If you have questions or a complaint about a payday lender, contact:
Service Nova Scotia and Municipal Relations
- Nova Scotia Utility and Review Board 2011 decisions about payday loans:
February 1, 2011 - payday loans
May 4, 2011 - online payday loans