Businesses like MoneyMart and CashMoney offer cheque cashing as one aspect of a range of financial services, including payday loans, tax refund loans, and debt consolidation. These types of businesses played a minor role in the financial marketplace prior to the 1990s, but have grown quickly since then. As of 2004, there were an estimated 1,200 cheque cashing/payday loan stores in Canada.[1]
Most of these businesses offer cheque cashing based on a rate that combines a flat “item” or “transaction” charge with a fee based on a percentage of the cheque cashed. A February 2007 comparison of cheque cashing rates for five cheque cashing/payday loan businesses revealed the following rates:
Institution
Percentage Fee(%)
Item Fee($)
Fee for Cashing a $500 Cheque ($)
MoneyMart
2.99
2.99
17.94
CashMoney
2.99
2.99
17.94
Unicash
2.50
3.99
16.49
Cash Club
4.90
None
24.50
Transexpress Cash
2.50
2.00
14.50
For example, a lone mother of two young children who was receiving a monthly allowance of $1166.00 under Ontario Works would pay $37.85 per month, or $454.20 per year, to cash her cheques at MoneyMart or CashMoney. By contrast, under new maximum fees set in the province of Manitoba, the fee for cashing a $500.00 cheque would be $13.00, and this hypothetical lone mother in receipt of an Ontario Works allowance would pay $26.32 per month to cash her cheque, for a total of $279.84 per year.
Until recently, the AFS sector was largely unregulated beyond the provisions of the Criminal Code dealing with criminal interest rate provisions,[2] and these have been rarely invoked. The rapid growth of the AFS sector has given rise to concerns on the part of some that some businesses may be engaged in predatory practices and preying on vulnerable consumers. There has therefore been considerable research and public policy debate concerning this sector.[3] Recent amendments to the Criminal Code permit provinces that seek designation to regulate payday lenders where the loan is for $1,500 or less and the term of the agreement is for 62 days or less. Manitoba, British Columbia, Saskatchewan, Nova Scotia and New Brunswick have all undertaken legislative initiatives in response to Bill C-26. The Canadian Payday Loan Association (CPLA), which represents 21 payday loan businesses, has adopted a Code of Best Business Practices, and has called for a national regulatory framework for payday lending that will both protect consumers and allow for a viable industry. The CPLA has taken no position on cheque cashing fees.
In the spring of 2007, the province of Ontario launched a public consultation to determine whether stakeholders believed that additional consumer protections were needed to deal with the payday loan industry; whether Ontario should consider a licensing regime for payday lenders; whether Ontario should seek designation under Bill C-26; and if Ontario did seek designation, how borrowing rates should be set. The scope of the consultation did not include cheque cashing fees.[4] In August 2007, the government of Ontario imposed new disclosure rules on payday lending operations, in order to ensure that consumers were aware of the cost and the terms for payday loans.[5]
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