Payday-loan paralysis

  • PUBLICATION: Times Colonist (Victoria)
  • DATE: 2007.01.08
  • EDITION: Final
  • SECTION: Comment
  • PAGE: A6
  • SOURCE: Times Colonist

Solicitor General John Les was offended last May when critics said the government was failing to regulate payday lenders properly.

The blame lies with Ottawa for not dealing with the serious issue, he said.

"When the provinces have the power to make 'payday lenders toe the line,' the B.C. government will act quickly to do exactly that," Les said.

That's not happening. Parliament has now passed legislation giving provinces the power to regulate the payday loan industry. Senate approval is assured.

But Les now says his ministry might not be able to get regulatory legislation ready before the spring of 2008. That's not quickly in the real world.

Les acknowledged last May that unsophisticated consumers needed protection from loans that carried effective interest rates of more than 1,000-per-cent annual interest.

The government knew about the problem and the legislative solutions. Manitoba had passed model legislation. It required companies to warn customers in clear language about the high cost of loans and allow them 48 hours to change their minds. Fees were to be regulated by the Public Utilities Board. Interest rates are to be capped once the federal law was changed.

The B.C. NDP introduced legislation based on the Manitoba model last spring. The government wouldn't pass the bill, but Les said he supported its approach.

Payday lenders serve a useful function, providing small short-term loans to people with jobs, but without access to any other form of credit. When they need money to buy medicine or fix a car, the lenders are there.

The borrowing costs are huge. The companies say the risks are too.

The industry has grown into a major financial force. It lends some $1 billion a year to two million Canadians, mostly unsophisticated borrowers. And it has remained almost entirely unregulated.

For some borrowers, the results have been disastrous. Repaying one loan leaves them unable to make it through to the pay cheque, so they pay more fees to renew the loan and sink deeper in debt. An Ottawa court heard in 2005 about a man who borrowed $280 and owed $551 within a month as renewal fees and interest mounted.

Les has said the legislation is needed. He has recognized the usefulness of the laws already in place in Manitoba. He has had a year to prepare.

If the government really is incapable of introducing payday loan legislation before 2008, something has gone seriously wrong.