Bill lets provinces regulate payday lenders

  • PUBLICATION: Calgary Herald
  • DATE: 2006.10.07
  • EDITION: Final
  • SECTION: Calgary Business
  • PAGE: C3
  • SOURCE: The Canadian Press
  • ILLUSTRATION: Photo: Herald Archive; Bloomberg / Effective rates chargedby payday loan outlets on short-term borrowings can hit 1,000 per cent on an annualized basis, including service charges.

The federal government has introduced Criminal Code changes that would end the legal uncertainty over high-interest short-term lending by the booming payday loan industry.

The bill presented Friday would give the provincial governments authority to regulate payday loans, which typically involve lending a few hundred dollars to a get borrowers through to their next payday.

Justice Minister Vic Toews said Friday the proposed legislation gives provinces the tools they need to protect consumers from what he called "questionable business practices."

It is illegal under federal law to charge annual interest of more than 60 per cent. Yet, the effective rates charged by payday loan outlets on short-term borrowings can amount to 1,000 per cent on an annualized basis once service charges are included. There are also fears borrowers can be trapped in a cycle of revolving debts.

Meanwhile, the industry has grown into a business estimated to lend $2 billion a year to two million Canadian clients. George VanderBurg, minister of government services in Alberta and one of the ministers who encouraged the federal government to put controls on payday business, said Friday he supported the initiative.

"I would have preferred national rules provided by the federal government," he said. "It doesn't look like we're going to get that but at least we'll have the opportunity, under the proposed legislation right now, to enact some of our own rules and regulations."

The Conservative government's proposed legislation would allow provinces that have legal protections for payday loan customers to permit interest charges above the Criminal Code's 60 per cent threshold.

Payday loan companies have complained that limiting small short-term loans to 60 per cent interest would not enable them to cover even basic administration costs.

The current legislation deals with the cap on the lending rate, but not with the brokerage fees that are also charged. "It's all about consumer protection, and anywhere where there's lack of controls, there's people that are taken advantage of," VanderBurg said.

The proposed legislation appears likely to get all-party consent and rapid passage through the Commons.

The Canadian Payday Loan Association, an industry group representing 850 of the 1,350 outlets offering these short-term loans, welcomed the bill, saying it "will ensure consumer protection and the ongoing viability of this important industry."

Association president Michael Thompson said the group, which has been calling for government regulation, will work with the provinces as they prepare their rules.

The biggest operator in the business, National Money Mart Co., also welcomed the government's action. Money Mart, a subsidiary of U.S.-based Dollar Financial Corp. (NASDAQ:DLLR), added that the provincial regulations will have to "balance consumer protection with the continued importance and viability of this industry." The Consumers' Association of Canada has expressed doubts about the proposed legal change, warning of a "hodgepodge" of provincial regulations that would leave consumers in a worse position.

The consumers association said borrowers are adequately protected by the existing Criminal Code provision, and it suggested that the federal government enforce the usury law on short-term loans.