Province to cap payday loan rates
New rules to be in force by summer
- BYLINE: Larry Kusch
- SOURCE: Winnipeg Free Press
- DATE: April 24, 2010
The province is taking the pain out of payday loans.
New rules governing payday loan companies -- expected to come into force this summer -- are expected to slash borrowing costs in half.
How we stack up
Maximum that can be charged on the principal of a $100 loan:
- Province, Maximum, Annual % rate for a 12-day loan
- Nova Scotia $31, 943%
- British Columbia $23, 700%
- Alberta $23, 700%
- Saskatchewan* $23, 700%
- Ontario $21, 639%
- Manitoba* $17, 517%
* Announced rates; in other provinces rates are already in force
-- Source: Province of Manitoba
The Selinger government announced Friday it will cap interest rates and all other charges on payday loans at $17 per $100 loaned out. Companies would be prohibited from lending more than 30 per cent of the net value of a customer's paycheque.
Consumer Affairs Minister Gord Mackintosh said the new provisions would provide Manitoba consumers with the lowest rates in Canada for such loans. "We've adopted the strongest controls in the country," he said.
The announcement drew praise from consumer advocates and a scathing attack from the payday loans industry, which has mushroomed in Manitoba in recent years. The two biggest operators -- Money Mart and Cash Store Financial -- have a total of 30 stores in Winnipeg.
Stan Keyes, president of the Canadian Payday Loan Association, said the rules would make it tough for consumers to obtain credit in an emergency.
The maximum interest rates would be below industry costs in Manitoba, and the restriction on loan sizes would be so tight it would prevent many customers from obtaining credit.
"Stores will close. Companies will fold. And, who's going to suffer? The consumer," Keyes said from Hamilton.
An earlier attempt by the province to regulate the payday loans industry through the Public Utilities Board got sidetracked in court. The province then brought in legislation last year that would allow it to regulate the industry directly. On Friday, it announced the new regulations.
The new rules would require that terms and conditions of payday loans are clear and understandable. They would also prevent lenders from making unauthorized withdrawals from a borrower's account or use rewards or incentives to entice customers. Internet lenders would also have to play by the same rules.
Gloria Desorcy, executive director of the Manitoba branch of the Consumers' Association of Canada, said the group is "very pleased" there's "finally some protection in place" for consumers using payday loan services.
"That, for us, is a huge victory," she said.
But Desorcy and other consumer advocates noted the new capped rate -- which requires federal approval -- is still very high.