Some payday loan stores welcome regulation; Gov't rules would keep 'unscrupulous' lenders in check: industry association
- PUBLICATION: The Edmonton Journal
- BY: Mike Sadava
- SECTION: Alberta
- PAGE: B5
- DATE: Friday, April 4, 2008
EDMONTON - The province could soon regulate payday loan companies, a move welcomed by critics and an industry association.
The number of stores offering high-cost, short-term loans has expanded by leaps and bounds in recent years as Canadians spend more and save less, while banks have closed branches and opted out of much of the small, short-term loan business.
The $2-billion industry now boasts 1,350 stores across Canada, including 170 in Alberta.
Several provinces, including Manitoba, Saskatchewan and Nova Scotia, have legislation governing the industry. Ontario introduced its legislation this week, but in Alberta payday loan stores are unlicensed and unregulated.
Under the Criminal Code, it is illegal to charge more than 60-per-cent interest annually on a loan, but the payday companies get around this by charging various fees. For instance, the online "loan calculator" of Cash Mart Corp. shows that a borrower of $500 will have to pay back $605, including interest and administrative fees, on their next payday. That amounts to well over 500 per cent per year.
Chris Laurence of the Better Business Bureau said Thursday that the northern Alberta office has received more than 3,000 inquiries about what the companies are allowed to do, and 33 complaints were filed.
Some companies don't clearly explain all the charges to their customers. Some companies purposely make the loan come due on the day before payday to trap the borrower into taking out another loan, Laurence said.
The province has met with industry representatives and various groups, and both sides agree there should be licensing, as well as limits to how much they can charge.
Eoin Kenny, spokesman for Service Alberta, said the province should be able to get a broad cross-section of the public through its consultation meetings, and doesn't think there is a need for public hearings.
The consultation process included the industry, poverty action groups, consumer groups and "everyone who contacted the ministry (on this issue) over the past few years," Kenny said.
The department will collect information to help develop regulations until April 21, he said.
Under an amendment to the Criminal Code last year, loans charging more than 60 per cent are allowed only if the payday lender is provincially regulated and licensed, and the loans are short-term. The Canadian Payday Loan Association has been pushing for consistent provincial regulations across Canada.
Association president Stan Keyes, a former federal Liberal cabinet minister, said the industry is looking for balance in the legislation between protecting consumers and allowing a viable, competitive industry.
The association represents about 40 per cent of the industry and has a voluntary code of conduct, but there are still lenders with dubious practices such as "rollovers," where a borrower takes out a second loan to pay off the initial one, and has to pay another round of fees as well as high interest.
"There are payday lenders who are unscrupulous and charge excess fees," Keyes said. "Once the province brings in regulation and legislation, and gets approval from the federal government, these payday lenders will either comply or close their doors."
Harvey Voogd, executive director of Vibrant Communities, a poverty reduction network, said payday loan companies are a fact of life in our consumer society, but they have to be licensed and regulated, or else enforcement is difficult.
If the industry wants to be treated like financial institutions, "then they have to be in line with what is expected from ATB, Servus Credit Union and the RBCs of this world," Voogd said.