If you’re planning on taking out a loan, working with legitimate lenders is the most important thing you can do. We’re going to tell you why and explain the risks of borrowing money from unlicensed lenders.
Take your time
Responsible borrowing can be a good thing, but sometimes loans can get you in trouble. Before you make a decision, take some time to weigh your options and explore what is out there. There are lots of factors to consider before you borrow money: Things to think about before you take out a loan.
Regardless of what type of lender you work with, it’s important to make sure you know what type of loan you are getting, understand your loan agreement, and know whether you’re borrowing money from a legitimate business. Verifying that you are borrowing from a law-abiding and regulated business may be the most crucial step in the loan process.
Banks and credit unions: If you are borrowing money or taking out a loan from a federally regulated financial institution, such as a bank or credit union, they must follow certain rules and operate within the laws set by the Financial Consumer Agency of Canada (FCAC).
Payday lenders: A payday loan is a short-term loan with high fees that make it an expensive way to borrow money. With these loans, you can’t borrow more than $1,500 and it must be repaid within 62 days.
If you’re taking out a payday loan, it’s incredibly important to make sure the business you are borrowing money from is licensed. This means they are inspected and must comply with certain laws. It also means you are more likely to have success exercising your rights under BC’s consumer protection laws if the business breaks the rules.
The risks of borrowing money from unlicensed lenders
- If a lender is not licensed when they are required to be, they are already operating outside of the law – potentially like a scam or criminal enterprise
- There’s a chance your loan agreement is also not compliant with the rules and your annual percentage rate (APR) could be more than 60%, which is the legal maximum set by Canada’s Criminal Code
- If you don’t pay your debts on time, unlicensed lenders may follow illegal collection behaviour, such as sending non-stop threatening emails, repeatedly auto-dialing your place of work, and continuing to operate outside of the law
- Your options may be limited. If you need help or want to exercise your rights, it can be difficult to enforce the rules when a business is not licensed, has no real business address, and refuses to follow the law in the first place, leaving you with few options
Find out now: Check if your payday lender is licensed.
Where to go for help
Unlicensed lenders: If you are dealing with a business that is unlicensed and operating illegally, please report it to your local police. Be aware that it is often difficult to resolve issues when dealing with intentionally unlicensed lenders.
Banks and credit unions: If you believe that a federally regulated bank isn’t respecting your rights, you can file a complaint with the FCAC. Learn how to file a complaint about banks and credit unions.
Licensed payday lenders and high-cost credit grantors: If you borrowed money from a licensed payday lender or licensed high-cost credit grantor and are having issues, please read through our resources on our website to learn about your rights when it comes to payday loans and high-cost credit products. If you believe the business is breaking the rules after reading through that information, you can submit a complaint to us directly.
Where to go for more information
We license payday lenders in BC and regulate certain aspects of their business practices. Read through our resources on our website to learn about your rights when it comes to payday loans. If you believe a licensed payday lender is breaking the rules after reading through that information, submit a complaint to us directly.
Financial advice and information on most other loans aren’t something we can help you with but there are other options to consider. The Financial Consumer Agency of Canada has tons of information to help you make informed borrowing decisions and they regulate financial institutions in Canada.
You may also be interested in speaking to your financial institution or a financial advisor to see if they can offer you personalized advice on your financial situation.
About Consumer Protection BC
We’re a not-for-profit provincial regulator. The laws we oversee capture your rights when it comes to credit reporting, debt collection, payday loans, high-cost loans, and certain aspects of debt repayment services. Find out more about us and the other industries and transactions we oversee by exploring our website.
More debt and borrowing resources
How to make a plan to manage your debt
Comparing different debt relief options
The impact of debt on your credit report
How to improve your credit score
How to build healthy financial habits
Things to think about before you take out a loan
Understanding the cost of your loan
The rules for payday lenders in BC
The risks of borrowing money from unlicensed lenders
Buy now, pay later plans: what you need to know
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