Canadian Payday Loan Association — Media & Policy Makers

Payday lenders, about midway between chartered banks and loan sharks, could soon be the provinces' problem to regulate, and that's as it should be.

Federal Justice Minister Vic Toews has stumbled on a rare occasion when the easy thing is also the right thing. Payday lenders' storefronts are everywhere in Canada, but regulating them has been partly a federal responsibility, partly a provincial one, and nasty operators have slipped through the cracks while each waited for the other to do something.

The provincial governments have responsibility for regulating payday lenders as businesses, setting the rules by which they carry on their operations -- except for the most important one. The federal government's Criminal Code caps the legal rate of interest at 60 per cent. Payday lenders usually charge exactly that for short-term loans of a couple of hundred dollars, then add fees and surcharges that aren't officially "interest." If they were, the effective annual interest rates would be more than 1,000 per cent.

Nobody's forced to take out a payday loan, and in practice the fees on a typical $300 loan might only be $30 or so -- a price thousands of people freely choose to pay. The authorities have chosen to turn blind eyes.

The industry has been populated by sharks, keen to take advantage of people regular banks don't serve as well as they used to. The practice of "rollovers," when a customer can't pay off one loan and gets it extended at double the fee, is particularly nasty; some payday lenders offer what they call "title loans" that are actually car-pawning agreements concealed by blizzards of legalese.

There are more conscientious payday lenders, who created the Canadian Association of Community Financial Service Providers (since renamed the Canadian Payday Loan Association) to improve the industry's image. Members commit to such things as no rollovers, clear language in contracts, and referring troubled customers to credit counsellors. But the association only claims about two-thirds of Canada's 1,300 payday lenders as members.

Mr. Toews is talking about taking up a Liberal plan to withdraw the much-ignored 60-per-cent limit in the Criminal Code as long as the provinces step in. Manitoba has long pressed for this.

It's about time. Payday loans aren't for everybody, but the people who take them out deserve the consumer protection as those who borrow from bigger institutions.

Those safeguards will only come once the federal and provincial governments sort out who's responsible for enforcing the rules

Payday lenders need real rules

Payday lenders, about midway between chartered banks and loan sharks, could soon be the provinces' problem to regulate, and that's as it should be.