TORONTO - American-based payday loan companies will move into Ontario in a big way now that the province has set an "astronomically high" maximum charge of $21 for every $100 borrowed, a public watchdog group warned Monday.

Ontario's new maximum fee for payday loans kicks in Tuesday, the last in a series of new regulations the Liberal government said were designed to better protect consumers.

The Ottawa-based Public Interest Advocacy Centre said the changes will end up protecting payday loan companies more than consumers. A spokesman for the payday companies disagrees with the criticism.

"It's more the big businesses that have been protected (and) the little guys can operate at that rate, because it's so high, and probably not go out of business," said John Lawford, a spokesman for the advocacy group.

"It's astronomically higher than a bank or credit card company (could charge). It's not even in the same league."

Ontario announced a series of regulation changes in March that took effect earlier in the year, including a two-day cooling off period to cancel a loan without penalty, and a ban on so-called rollover loans in which borrowers take out a second loan before the first is paid.

The Canadian Payday Loan Association welcomed the new regulations and said they strike a fair balance by protecting consumers against unscrupulous lenders without hindering the industry, but dismissed Lawford's criticism of the rate itself.

"What justifies him saying the rate is too high?" asked association spokesman Stan Keyes. "If he has any kind of evidence to justify that statement, please bring it forward."

Ontario's new regulations were good for consumers, agreed Lawford, but "the rate is what matters."

The annual rate on a 10-day loan is about 700 or 800 per cent, said Lawford, which means consumers could end up stuck in a never-ending cycle of borrowing from payday loan companies.

"At that rate it's going to be hard, people are going to have to take two or thee or eight or ten (loans) a year, so I don't think there'll be many folks that will get out of it," he said.

"If it's something that's socially iffy, do you want people to be making really fat profits off it?"

The government points out payday loans by their very nature are short-term, most lasting about 10 days, and says that comparing their interest rates with annual interest rates is like pointing out that a $200 hotel room would cost over $70,000 a year.

Manitoba allows payday loan companies to charge a maximum of $17 dollars per $100 borrowed, British Columbia and Saskatchewan allow charges of up to $23, while Nova Scotia's maximum is $31 for every $100 borrowed, which puts Ontario in the midst of the pack at $21.

"You'll see now American companies come flooding in here," predicted Lawford.

"There's this patchwork now where they can make pretty decent money in most provinces, maybe a little less in Manitoba, and sort of laughably high in Nova Scotia."

Competition from the United States or Canada will be good for consumers if the new players come into the market and offer lower rates than Money Mart and others already involved in payday loans, said Keyes.

Ontario Consumer Services Minister Ted McMeekin was unavailable to comment Monday, but a spokesman said the province's maximum rate of $21 per 100 borrowed was the amount recommended by an advisory board which did consult with consumer advocates.

Most provinces have taken steps to regulate the payday loan industry after the federal government shifted responsibility to them in 2007.

Quebec effectively banned payday loan outlets by limiting the annual interest rate they can charge to 35 per cent.

Canadians borrow about $2 billion a year through payday loan stores. There are about 1,350 such outlets in Canada, more than half of them in Ontario.