Tougher rules for overdue loans in code: But 25 per cent of payday lenders don't belong to industry association

  • The Edmonton Journal
  • Fri 10 Jun 2005
  • Page: E3
  • Section: Business
  • Byline: Ron Chalmers
  • Source: The Edmonton Journal

EDMONTON - A group of payday loan companies is toughening its code of conduct and pressing for government regulation.

Bob Whitelaw, president of the Canadian Association of Community Financial Service Providers, said Thursday that its current code prohibits roll-overs, or renewals, of payday loans -- which have an average maturity of only 10 days. It also requires full and accurate disclosure of costs, fair collection practices and privacy protection.

But one-quarter of Canada’s approximately 1,000 payday loan stores do not belong to the association.

Whitelaw wants compulsory licensing and regulation which could build on the association’s code.

That code -- displayed in every member store -- is being strengthened to require interest-rate reductions when loans are not paid off by the agreed maturity date.

The code does not specify maximum interest rates or service charges, and the association has not asked government to set such limits.

Whitelaw does want the federal government to resolve the uncertain legality of current charges. Most lenders charge interest at close to an annual rate of 60 per cent -- the maximum allowed by the Criminal Code. They also charge fees that equate to much higher rates.

Whitelaw argues that the fees are justified by the costs of processing and collecting the loan. The annual interest rate is misleading, he says, because it typically applies to a loan of less than $300, borrowed for less than two weeks.

“Governments have been studying the industry for at least five years,” he said.

Unfortunately, federal officials have said they won’t change the law without support from all provinces -- which would administer it.

Whitelaw hopes that recent surveys of borrowers and the Canadian public will strengthen the industry image.

American studies have found that most payday-loan borrowers are employed with middle incomes, he said. Their main reasons for borrowing are to meet unexpected expenses, to avoid late charges on bills, and to avoid writing NSF cheques.

Whitelaw thinks similar Canadian findings will reveal that his industry provides a convenient service to a broad cross-section of consumers at less cost than pawn shops.

“It’ss like the 7-Eleven of financial services,” said Norm Bishop, secretary to the association’s board.