Canadian Payday Loan Association — Media & Policy Makers

Regulation needed for payday loans industry

Hamilton Spectator

Mon 08 May 2006

Page: A17

Section: Forum

Byline: Michael Thompson

Source: The Hamilton Spectator

Canada is one of the few countries in the world that doesn’t regulate payday loans. As a result, the industry -- examined by Hamilton Spectator reporter Wade Hemsworth last month -- operates in a legal vacuum, and consumers are unprotected from the bad apples in the industry.

The Canadian Payday Loan Association has worked with federal and provincial governments to implement regulations for all payday lenders. We now see signs that governments are moving in the right direction.

Federal Minister of Justice Vic Toews said last month that he would "seriously consider" a proposal by the government of Manitoba to quickly regulate the growing payday loan industry. Manitoba is recommending a simple solution to end the inter-jurisdictional wrangling that has - for the past seven years - prevented governments from regulating for a viable industry, and protecting consumers.

Manitoba has figured out faster than other governments that payday loans are moving into the financial services mainstream. About two million Canadians now use a payday loan every year. More than 80 per cent, according to a poll by Environics Research, are satisfied with the service.

More Canadians have access to payday loans than ever before and, put another way, payday lenders - even the unscrupulous ones - have more access to Canadians than ever before. Yet, somehow, the industry - a financial service that now generates over half a billion dollars in business every year - is still not regulated. It operates under an outdated section of the federal Criminal Code, one never designed to regulate payday loans.

Neither the federal nor provincial governments have a regulatory tool specific to payday loans. To make matters worse, the Criminal Code actually prohibits Canada’s provinces - who actually have the responsibility for consumer protection - from regulating the price of a payday loan.

That’s the logic behind Manitoba’s proposal: that provinces should have the authority to set consumer protection standards and regulate the price of a payday loan. Although the CPLA takes issue with some aspects of the Manitoba proposal, we support this initiative.

Unfortunately, Ontario appears reluctant to embrace Manitoba's approach. And this could mean the end of a practical proposal to protect consumers from coast to coast. Ontario's reluctance could allow for ongoing abuses of payday loan consumers by unscrupulous lenders.

For example, The Spectator article profiled a payday loan customer named Cathy, who recently found herself in a terrible cycle of "rollover loans" - saddled with an ever-increasing mound of interest, fees and debt - after taking out a payday loan.

Honest players in the industry know "rollovers" are bad. Founding members of the CPLA banned the practice two years ago. That said, the association can only monitor the behaviour of its 800 members. In the absence of government regulation, 500 more payday lending stores can go on, happily ignoring the strict consumer protection measures promoted by the Association.

That is why the industry, its customers, and all Canadians need the leadership of the federal government and provinces such as Manitoba - and Ontario - to put the bad apples out of business.

Michael Thompson is president of the CPLA, based in Ottawa.