‘Strictest’ payday loan rules set
- BYLINE: Paul Turenne
- SOURCE: Winnipeg Sun
- DATE: April 23, 2010
The Manitoba government introduced a regulation Friday capping payday loan interest at $17 per $100 borrowed, with a maximum loan amount of 30% of a person’s paycheque.
The new rules should be in effect by sometime this summer, although the exact date is not yet known.
“It’s the strictest regime in Canada,” said Consumer Affairs Minister Gord Mackintosh. “We’re trying to tackle practices where payday lenders were charging $40 on a $100 loan. We’re comfortable moving in this direction.”
Former federal revenue minister Stan Keyes, now president of the Canadian Payday Loan Association, said the limit will mean payday loan stores will close and customers will have fewer places to turn for credit.
Keyes said an independent study showed the average payday loan in Manitoba costs the company more than $26 per $100 to provide.
“They’re not making the profits you think they’re making,” he said. “It’s just such a misunderstood industry.”
The new rules mirror recommendations made more than two years ago by the provincial Public Utilities Board, which had been tasked to come up with a scheme to regulate the payday loan industry. Implementation of the rules was delayed after a firm called The Cash Store was granted leave by the Manitoba Court of Appeal in January 2009 to challenge the PUB’s authority to set rates. The government then changed the law to take the authority out of the PUB’s hands and put it into its own, using the PUB’s recommendations as a guide.
Manitoba’s rate will be the lowest among the provinces that have regulations in place. The federal government granted the provinces the power to regulate payday loans in 2006, and so far Nova Scotia, B.C., Ontario, Alberta and Saskatchewan have put programs in place, with maximum rates ranging from $21 to $31.
Manitoba’s $17 limit will include all fees.
The $17/$100 doesn’t represent a 17% interest rate, as interest is usually calculated on an annual basis and payday loans are typically short-term. Paying $17 per $100 on a 12-day loan, for example, is actually a 517% interest rate.
Canada’s Criminal Code considers any loan with more than 60% annual interest to be criminal usury, but when the federal government allowed the provinces to set their own maximum rates, it also allowed those rates to trump the Criminal Code.
Manitoba’s new rules still require federal approval, but Mackintosh said he expects that to come soon, adding the new rules should come into effect this summer