Liberals to clamp down on payday loan interest rates

The Liberal government is setting tough limits on how much payday loan operations can charge customers.

An Act Respecting Payday Loans introduced Wednesday gives the Energy and Utilities Board the authority to set a maximum interest rate that can be charged.

Justice Minister T.J. Burke said the legislation will protect the people who take out short-term loans.

"We have seen an historical trend throughout Canada, and in particular in New Brunswick, where interest rates have been so exorbitant that it exceeds the Criminal Codes in terms of criminal interest rates," he said.

Under the Criminal Code the maximum interest rate is 60 per cent.

In some provinces with payday loan legislature the maximum interest rate is set by cabinet. But Burke said that requires a certain level of expertise in loans.

The Energy and Utilities Board will also set how much payday loan companies can charge for cashing a cheque, said Burke.

In one case in New Brunswick, a young man who was injured in a motor-vehicle accident received an insurance settlement of $240,000, he said.

When he cashed his cheque at a payday loan office, he was charged 10 per cent or $24,000, said the justice minister.

Burke said the new legislation will require that a person who takes out a short-term loan provides proof of employment and the amount that can be borrowed will be based on a percentage of their income.

The legislation also sets the maximum amount that can be borrowed at $1,500 and the term may be no more than 62 days.

The new bill bans rollovers -- the practice of taking out a loan to pay off a loan.

"We know that this may be somewhat controversial for the payday loans industry," said Burke. "But in New Brunswick our government is committed to protecting the most vulnerable."

He said the goal of the legislation isn't to attack the payday loan industry.

Burke said there are legitimate cases where someone who makes just enough money to get by needs a short-term loan to pay for something such as a car repair.

"We have consulted with industry," said Burke. "We have taken their recommendations and we have worked with these recommendations."

The Canadian Payday Loan Association applauded the new legislation.

"The government of New Brunswick has shown great leadership in wanting to protect consumers and allow for a viable payday loan industry," said association president Stan Keyes. "This is wonderful news.

"The Canadian Payday Loan Association will participate actively in all consultations on regulations and rate setting on behalf of our members."

Keyes said the association has been working with the government for three years to draw up rules for the industry in New Brunswick.

The Canadian Payday Loan Association represents 20 payday loan companies, which follow an 18-point code of best business practices.

"The industry has been mired in a bad reputation because there is a large number of companies out there who take advantage of customers, who charge excessive fees," said Keyes.

He said the New Brunswick legislation is in line with similar legislation in British Columbia, Saskatchewan, Manitoba and Nova Scotia.

Keyes said about two million Canadians have used payday loans for short-term emergencies.

The maximum loan the association allows is $1,500 and the average loan is $300, he said.

© 2007 The Daily Gleaner (Fredericton)

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