N.S. regulator begins hearings on rate structure for payday loan companies

PUBLICATION: The Canadian Press
BY: John Lewandowski
DATE: Monday, January 21, 2008

HALIFAX - A regulatory board in Nova Scotia began a week of hearings Monday to determine how much payday loan companies can charge borrowers, but the province's consumer advocate says there isn't enough data on which to base a decision.

The Canadian Payday Loan Association, which represents about 40 per cent of industry's operators, wants to charge up to $23 per $100 borrowing, plus operating costs and fees.

However, consumer advocate David Cameron said Nova Scotia's Utility and Review Board will have a tough time determining whether that is a fair rate because it doesn't have access to key information about loans made in the province.

"One of the things the (association) is advocating is that the rates be set on a cost-plus basis, but that being said it would make sense to us to have good cost data," he said.

"We believe that there isn't a lot of data here that is Nova Scotia-based and that's something the board is going to have to be concerned with."

Consumer groups have long accused provincial governments of doing little to prevent the poor from becoming trapped by crushing debt loads, saying some payday lenders charge rates and hidden user fees that amount to more than 1,000 per cent annually.

Cameron said the steep rates can create a spiralling debt problem.

"One of the things that we've become aware of is that sometimes people who have to routinely return to this source for financing to get themselves through a week or a month have difficulty getting out of that cycle."

In opening remarks to a three-member panel, the president of the Canadian Payday Loan Association said he knows the industry has become a target for criticism.

"Let there be no doubt that there are examples of payday loan customers who have been taken advantage of by unscrupulous payday loan companies that gouge the consumer, but this is not the experience for the majority of customers," Stan Keyes said.

Keyes said the association is the only national group that has worked with governments to introduce legislation to protect consumers, and the group plans to give the provincial board studies commissioned for similar hearings underway in Manitoba.

The association represents 40 per cent of the roughly 1,300 payday loan outlets in the country, Money Mart being the largest member with about 400 outlets nationwide.

In Nova Scotia, nine companies - only one of which is an association member - operate 29 outlets.

The board is also expected to tackle the apparent contradiction in provincial legislation that led to this week's hearings.

Changes to the Consumer Protection Act, passed in the fall of 2006, ban rollovers, the practice of extending outstanding payday loans for a fee or advancing new payday loans to pay off old ones.

Association secretary Norm Bishop noted the same bill makes provision for loan extensions.

"There appears to be an inconsistency in the legislation because at one point they prohibit rollovers but don't define rollovers," Bishop told the panel. "But then at another point they say the board will make provisions for extensions or renewal of loans."