URB sets payday loan limit
- PUBLICATION: The ChronicleHerald.ca
- BYLINE: Clare Mellor
- DATE: Friday, August 1, 2008
Consumers in Nova Scotia aren’t about to see a big change in the price of taking out payday loans.
The Nova Scotia Utility and Review Board has decided to let competition in the marketplace keep the costs of loans in check and on Thursday set the maximum cost of borrowing at $31 per $100 borrowed. The $31 includes all non-optional fees tied to the loan.
The board also set loan default fees at a maximum of $40 per loan. As well, interest on loans in default cannot exceed 60 per cent annually.
Payday loan rates in Nova Scotia range from about $15 to $35 per $100, according to evidence submitted to the board.
"The maximum rate set by the board must be sufficiently high to allow the marketplace to function properly, while also preventing lenders from charging excessive fees and charges," the board says in a 105-page decision released Thursday.
The rate decision, the outcome of a five-day hearing in Halifax in January, contrasts sharply with a recent decision in Manitoba that set a much lower maximum borrowing rate.
Two major players in the Canadian payday industry, Money Mart and Cash Store Financial Services Inc., applauded Nova Scotia’s rate decision.
"Today’s ruling represents a ceiling on rates. It ensures that no loan shall ever cost more than $31 per $100, but most players will compete with each other to provide lower rates to attract consumers requiring this service," said Stan Keyes, president of the Canadian Payday Loan Association, which represents just Money Mart in this province.
That Hamilton-based association, which formerly intervened in the Nova Scotia hearings, had recommended to the board a much lower ceiling of $23 to $25 per $100 borrowed, plus a fee to cover regulatory costs, Mr. Keyes said.
But the association is happy with the decision, he said Thursday in Halifax.
Michael Thompson, a spokesman for Cash Store, said that company is still analyzing the decision but that its "initial reaction is very positive."
"We had recommended that the board take a market-based approach and they set a cap that would be high enough for existing operators to operate and also to encourage competition to enter the market. We believe they have done that."
Nova Scotia is the second province after Manitoba to set maximum rates for payday loans since changes were made to a federal law giving provinces the authority to regulate the industry.
The Manitoba Public Utilities Board ruling drew the ire of the industry but applause from many consumer groups in April, when it set maximum rates at 17 per cent of the first $500 borrowed, 15 per cent on the second $500 and six per cent on loans over $1,500.
Cash Store, a publicly traded company based in Edmonton, has sought leave to appeal the decision before Manitoba’s Appeal Court.
Nova Scotia’s board says "it places no weight" on Manitoba’s decision, which debates the morality of payday loans.
It is not the board’s task "to place its own view on the morality of an industry above that of the elected federal and provincial legislatures," it says. "Parliament and the Nova Scotia legislature have determined that payday loans can be legally made at loan costs in excess of 60 per cent."
Last year, federal legislation was enacted allowing the payday industry an exemption from a Criminal Code provision that makes it illegal to charge over a 60 per cent annual interest rate. But that exemption only applies in provinces that begin regulating the industry on their own.
Service Nova Scotia and Municipal Affairs, which administers the Consumer Protection Act, presented no evidence at the hearings; nor did consumer groups. Some advocates for low-income Nova Scotians said they did not have the resources to intervene.
Only time will tell whether consumers will end up paying more or less for payday loans, said Halifax lawyer David Cameron.
Mr. Cameron was appointed by the province to represent consumers at the hearings after it became clear no other consumer groups would intervene. He argued that the board did not have enough evidence to set a rate.
"There is evidence certainly before the board to support (there is a competitive market) in the greater metro area, but whether that is really the case when you get into smaller towns and communities across the province, I think that remains, at least for me, very much an open-ended question."
The maximum rates will not be enforced until new regulations to the Consumer Protection Act are proclaimed this fall. The new rules also include measures to protect payday loan consumers, such as a prohibition on roll-over loans and strict loan disclosure rules.
Payday loans are defined as those less than $1,500 taken out for 62 days or less. The typical payday loan is less than $300 for a two-week term.