Government wise to legislate limits on payday loans

  • PUBLICATION: The StarPhoenix (Saskatoon)
  • DATE: 2007.03.14
  • EDITION: Final
  • SECTION: Forum
  • PAGE: A10
  • SOURCE: The StarPhoenix

In a country where it’s a criminal offence to charge more than 60 per cent interest a year, it’s difficult to understand the rapid proliferation of "payday loan" outlets whose service charges translate into triple-digit annualized interest rates.

That’s why it’s good to see Saskatchewan take advantage of federal Criminal Code amendments that will allow provinces to regulate the payday loan industry and harmonize this province's rules with those in Manitoba and Nova Scotia to protect consumers, even if it’s from themselves.

Payday advances typically are for relatively small amounts (less than $1,500) for a relatively short periods of time, taken out by those who have paycheques coming in but run short of cash between pay periods.

Many people make arrangements with their financial institutions for lines of credit or overdraft protection to cover possible cash shortfalls, or even take out cash advances on their credit cards. While these measures can be expensive, they don’t come close to the fees paid by others who, either being poor money managers who simply have no concept of its value, or who can’t or won’t use bank services that can serve them better, rely on agencies such as payday loan shops to access cash.

The Canadian Payday Loans Association, which represents 24 companies that account for about 40 per cent of the industry across Canada, has called for a maximum fee of $20 for every $100 borrowed, saying those who charge more are "gouging" the consumer.

So, consider the case of someone who takes out a payday advance of $100, to be repaid when she gets paid in a couple of weeks, and is charged the $20 fee. That fee translates into an annualized interest rate exceeding 520 per cent, and this is what the payday loan industry considers as reasonable. Presumably, the gougers charge more.

Good on Justice Minister Frank Quennell for taking action to set maximum limits on the cost of these usurious loans and on the size of loans based on the borrower's net pay, prohibit lenders from charging fees not allowed under regulations or taking any security on their loans or requiring borrowers to sign over future wages.

The sooner the Payday Loans Act is passed the better. What will be equally useful is a public education program to inform consumers about the true costs of such loans and incorporating it into life-skills programs in high schools.