Province to restrict payday lenders
Legislation introduced Tuesday will allow the province to enforce stricter guidelines and penalties on payday lenders.
- By Jennifer Wilson <jlwilso2@dal.ca>
- Posted: Nov. 8, 2006, 12:56 pm AT
Payday lenders, such as The Cash Store or Money Mart, serve almost two million Canadians every year.
But lately, these businesses have been accused of inflating interest rates.
As a result, in October the federal government moved to change the Criminal Code to allow provinces to become more active in regulating payday lenders, which advance money based on the borrower's next paycheque.
On Tuesday, Nova Scotia took the first step when Service Nova Scotia Minister Jamie Muir introduced amendments to the Consumer Protection Act.
The amendments would force all payday lenders to:
- Provide the borrower with full disclosure of all fees, charges and interest rates associated with the loan and
- their right to cancel
- Provide the borrower a period to cancel the loan without cost
- Allow the borrower a free loan if the lender charges fees more than the amount cited
- Prominently display loan costs at outlets
- Prohibit rollover loans -- borrowing money to pay off other loans
The province has designated the Utility and Review Board to determine the maximum interest and fees lenders can charge. Lenore Bromley, a spokesperson for Service Nova Scotia, says the legislation will offer improved consumer protection. "Consumers will now know exactly what fees and the total cost of borrowing prior to signing for a loan," Bromley says. "If a lender overcharges the cost of borrowing or imposes charges not specified in the disclosure document, the borrower would not be liable for the cost of borrowing and is entitled to a refund of monies. The Registrar of Credit could order a refund where warranted."
Other provincial governments are also planning to enact payday loan legislation.
Why now?
Kevin Cox, a journalist with Allnovascotia.com, says that at any one time close to 1000 Nova Scotians have payday lender loans. Last year, Cox reported on one case of consumer dissatisfaction. William McFadden of Amherst complained in August of last year he went to get a $100 loan on his disability pension. The Cash Store loaded his loan card, the only way for the borrower to get the money. When he went to withdraw the money, he only got an $80 loan from the $104 he spent.
The province investigated McFadden's case, Cox says, and found that the interest rates violated the Consumer Protection Act. According to the Criminal Code, the maximum annual interest rate is 60 per cent. McFadden's interest rate, were it allowed to compound annually, would have worked out to more than 500 per cent.
The case went to court, where the province tried to suspend the payday lender's licence. The Cash Store appealed, and is awaiting a verdict. In the meantime, it is still operating 12 locations in Nova Scotia.
The appeal is based on the assertion that the Cash Store gets its money from Rent Cash, a publicly traded company, which charges its own fees. When one splits the interest rate between the two companies, neither one adds up to 60 per cent.
Cash Store employees have been instructed by their head office not to divulge any information on the recent legislation. Attempts to contact head office resulted in an automated message referring callers to their local stores.
It's time -- Canadian Payday Lenders Association
The Canadian Payday Lenders Association says it's about time provinces introduced legislation to restrict "the bad apples."
Stan Keyes, the association's president, says, "Overall, I applaud the Nova Scotia government for moving so quickly on this legislation. We're crying out to be regulated."
Keyes says the association already has a Code of Best Business Practices that complies with, or is even tougher than, provincial legislation.
Canadian Payday Lenders Association members comply with provincial laws, offer privacy protection, advertising standards and allow a maximum loan of $1,500 for a term of no longer than 31 days. They don't allow for "rollovers." They also allow for the equivalent of the cooling off period allowed in the legislation, which they call the right to rescind. All members are subject to an ethics commissioner and mystery shoppers, and get hefty fines if they don't comply with the established practices.
The Cash Store is not a member.
Keyes says that interest rates tend to be exaggerated. For members, with a maximum loan period of 31 days, an annual interest rate will never accrue. He compares citing an annual interest rate for payday lenders like saying the late fees for movie rentals have an annual interest rate of 550 per cent.
In Nova Scotia 16 of the payday lenders are association members. That leaves 12 non-members. Nationwide, there are 1,350 retail payday outlets, of which about 500 are association members.
Keyes's only criticism of the legislation is that it's not tough enough. He says, "If we're going to clean up this industry, let's get tough with those companies who would say one thing and do something detrimental. If there's no justified reason why that consumer didn't get the loan for the amount cited, let's suspend their licence."
Keyes says, "We're already meeting a high standard and we want to see the bad apples fall away, close up shop, because we're being tarred with the same brush and we don't want to be in the same league as those who would gouge a consumer.