B.C. should act on pay-day loans: Borrowers need protection against abuses even if Ottawa is reluctant to do the job
- Times Colonist (Victoria)
- Thu 25 May 2006
- Page: A12
- Section: Comment
- Source: Times Colonist
British Columbia shouldn't be waiting for the federal government before passing legislation to regulate the payday lending industry.
Solicitor General John Les acknowledges action is needed now to protect consumers, who can face annual borrowing costs of more than 1,000 per cent. A small loan, marketed as a convenient way to get by until pay day, can turn into a perpetual trap.
But B.C. isn't prepared to introduce its own legislation until the federal government amends the Criminal Code to let provinces limit interest rates and fees set by the industry, Les says.
It's an inadequate response, one that looks like an excuse for inaction. B.C. -- along with other provinces -- has been pressing the federal government to make those changes for five years without success. It's time for the province to do what it can on its own.
The Manitoba government believes so. It introduced legislation this spring to regulate the industry and protect consumers.
The legislation includes provisions capping interest rates, which won't go into effect until Ottawa changes the Criminal Code.
But the law also includes measures the province can enforce. Pay-day loan companies will be required to warn customers in clear language about the high cost of loans and allow them 48 hours to change their minds. Fees will be regulated by the provincial Public Utilities Board. (Six other provinces already have some form of licensing.)
The pay-day loan business has exploded in the last decade, with some 1,350 offices across Canada. The companies offer a useful service, providing small short-term loans to people with jobs, but usually without access to any other form of credit.
The interest rates -- especially once various fees are included -- are many times higher than bank loans or credit card advances. But for a parent who needs $40 for a child's medicine and can't wait until the next pay day, the storefront lenders provide a valuable service.
The companies note rightly that the risk of unpaid loans is high and the amounts borrowed so small that their businesses couldn't survive on normal interest rates.
But the industry has grown into a major financial force, lending some $1 billion a year to two million Canadians, while remaining almost entirely unregulated.
Governments have not put in place the same controls and consumer protection that cover the rest of the financial services industry. The only remedy for abuse has been class-action lawsuits, a slow and inefficient solution.
As a result, some people are victimized.
Extraordinary interest rates penalize the unwary. Repaying one loan leaves them unable to make it through the next pay period, so they are charged more fees to renew the loan and sink deeper in debt. An Ottawa court heard last year about a person who borrowed $280 and owed $551 within a month, as renewal fees and interest mounted.
The industry's mainstream companies recognize the need for regulation.
The Canadian Pay-Day Loan Association, which represents operators of about 800 of the 1,350 outlets, supports government action.
Victoria-Hillside New Democrat MLA Rob Fleming introduced a bill this month that would follow the Manitoba lead in improving consumer protection.
Some measures, including a cap on interest rates, would have to wait on federal government action, but others could be implemented immediately. Les said he agreed with the bill's approach.
It's time for action. The government should quit waiting on Ottawa and introduce legislation to protect British Columbians when the legislature returns this fall.