N.B. mulls limits for payday loans; Cap on interest and fees expected by 2009
- PUBLICATION: Times & Transcript (Moncton)
- SECTION: News
- BYLINE: Marc Hudon
- DATE: Wednesday, August 6, 2008
Unscrupulous payday loan companies will continue to gouge New Brunswickers until government limits the amount of fees and interest lenders can charge customers, says the president of the Canadian Payday Loan Association.
Stan Keyes said rules to regulate payday loans have yet to change despite new legislation that requires companies to tell customers the total cost of borrowing money.
"It's open season on the consumer in New Brunswick until the provincial government determines a rate cap," he said, adding lenders are still free to rollover loans and continue charging exorbitant interest rates.
A rollover is when a payday loan company extends an outstanding loan for a fee or by advancing a new loan to pay off the existing debt.
Keyes said some payday loan companies are able to cash in because the principal continues to grow while sky-high interest accrues.
Nova Scotia recently became the second province to set limits on payday loans, capping the maximum cost of borrowing at $31 on $100, including fees and interest.
Manitoba set its cap at $17 on $100.
Other provinces such as British Columbia are also mulling the idea of capping fees and interest.
Valerie Kilfoil, a spokeswoman with the Department of Justice and Consumer Affairs, said the Energy and Utility Board will be responsible for establishing the cap.
She said the Liberals hope to have limits in place by early 2009.
"Rollovers will be prohibited and there will be a cap on the percentage of a borrower's next pay that can be lent," said Kilfoil, adding that in some cases interest on loans has topped 3,000 per cent.
Mel Fruitman of the Consumers' Association of Canada said payday loan companies target a cross-section of consumers.
"It appears as though people who once used pawn shops are turning to these people," he said.
"It's extremely lucrative. These businesses have popped up all over the place."
Fruitman said a hard cap on fees and interest will force many ruthless payday loan companies to change their business models.
Keyes said that's the plan, adding his group has been pushing for regulation and legislation for years.
He said the new rules will force all payday loan companies to operate more like banks by charging a default fee and interest for an outstanding balance until it is paid.
"It ensures consumer protection measures," he said. "Regulations allow for a viable, competitive industry."
The industry is mired with a bad reputation because there are many unethical lenders who should not be in business.
He said regulation means payday loan operators who don't comply with the rules will be stripped of their licence.
According to industry statistics, about two million Canadians used payday loans in 2006.