A day late and a dollar short
- PUBLICATION: The Hamilton Spectator
- DATE: Tuesday, April 2, 2008
"A day late and a dollar short" is an apropos description of the province's move to finally regulate the payday loan industry.
It's taken too long for Queen's Park to react to exponential growth in the unregulated business of providing short-term loans. Adding injury to insult, the legislation unveiled this week is missing a vital component -- a cap on interest rates.
The government says it is waiting for a recommendation from an advisory panel, and there will be a cap in place by the time the legislation is passed. That's serving up a half-cooked meal. It's difficult to formulate a response to legislation that has a large gap in it.
For all that, at least the government is moving on this issue. Rogue lenders have been given free rein for far too long. The payday loan industry sprung up to meet a real and legitimate need. But some people are being gouged by unscrupulous operators.
Most payday loans are for a few hundred dollars and paid back within two weeks. People -- rich or poor, highly educated or illiterate, professional or working poor -- sometimes need a relatively small loan, to be repaid out of their next paycheque, for a sudden expense such as an emergency car repair or vet bill, or a costly prescription.
There are many Canadians who can't call on credit cards, savings or family for quick credit. Banks aren't interested in them -- in fact this country simply doesn't "do" so-called microcredit.
With no other alternatives, people needing short-term cash can go to a payday lender. If all goes according to plan, they pay back the loan within two weeks, pay somewhere around $20 to $25 in interest and fees, and everyone is happy. But sometimes other expenses arise ...
That's when a loan can now get "rolled over" -- essentially becoming a loan on a loan. Exorbitant interest and fees can quickly become so high that the principal is not paid off. The proposed legislation will prohibit concurrent or back-to-back loans, and also prevent lenders from charging "unreasonable" cancellation or default fees.
Parts of the industry have formed the Canadian Payday Loan Association (CPLA), which has tried self-regulation. Membership is voluntary, however, and only 269 of 700 storefront operations belong. The government has to step in and regulate the entire industry.
CPLA president Stan Keyes says customers are not "vulnerable and poor," but well educated, responsible and knowledgeable. We'll take him at his word, but keep in mind that those findings are from the association's "responsible" member companies. There is also the reality that most payday loan offices are in the city core or poorer neighbourhoods. As the saying goes, you fish where the fish are.
We mandate our governments to provide consumer protection not because people are too dumb to make their own informed decisions, but because desperation can open people to exploitation. We try to prevent that. In this industry, government regulation is essential.