Pay day loan companies in Ontario are regulated by Ontario's Consumer Protection Act (CPA) and Canada's Interest Act. The maximum rate of interest in Canada is 60%. Any charge in excess of this amount is usuary and a criminal act. The CPA defines interest or the cost of borrowing as the difference between the amount you get and the amount you have to pay back whether this is expressed in the contract as interest, loan fees, insurance. Processing cost, etc.
What is 60% per annum. It is 5% per month. If you borrowed $700.00 for two weeks, the interest at 60% per annum is $10.50. Most of these payday loan places charge 25% of the amount of the debt or $175.00 over the 2 week period. This is an illegal amount of interest.
How do they get away this? The government does not prosecute them because the entire industry would be shut down leaving a huge number of people with no source of credit.
What do you do? Pay the pay day loan people the $700.00 plus $10.50 for every two weeks you have the money. Tell them exactly what you are doing and dare them to take you to court. I would like to see them prove that $175.00 interest over 2 weeks is not illegal. They will not take you to court because the risk is to high.
When you borrow from a payday lender, they often ask the borrower to sign a voluntary wage assignment. This document allows the payday lender to send this document to an employer in the event of default to obtain payment. These wage assignments are illegal in Ontario under the Wages Act. These companies are looking for stupid employers who do not know any better. An employer can only deduct from an employee's wages an amount ordered by a Court or a statutory deduction. If they process an invalid wage assignment, it is the employer's responsibility to compensate his employee not the payday loan company. Only credit unions and Caisse Poppulaires can legally use wage assignments in Ontario. I mention this only because you mentioned that your wages were being garnished by another company.
Lowtax4eva stated in her response that 50% is the maximum amount that can be garnished in Ontario. This is incorrect. The Wages Act states that 80% of wages are exempt leaving 20% for an ordinary debt. Only in case where the debt is for child support or maintenance can 50% be attached.
Make sure you employer does not honour the wage assignment used by the payday loan company!! If they think they have to, you would be doing them and your fellow employees a big service to correct them.
Finally, garnishments are not cumulative. If one creditor is getting 20%, the next one does not get another 20%. They must share 20%.
As you can tell, I have general dislike for loan sharks.
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