CHEQUING IN ON BILL 15
With northern Alberta focused last week on battling the wildfire around Fort McMurray and caring for tens of thousands of evacuees, it was easy to miss meaningful new measures introduced in the legislature that, if passed, will put a host of new rules and restrictions on high-cost payday loans.
The NDP government had promised such legislation in its March speech from the throne. Service Alberta Minister Stephanie McLean filled in the details last Thursday when she introduced Bill 15, “An Act to End Predatory Lending.”
The companies behind payday loans were quick to quibble with the bill’s title and its judgmental language around their industry’s business practices. But no matter what adjectives are used to describe these high-interest loans, the measures in Bill 15 are beyond welcome; they are long overdue.
Until now, rules around payday loans in Alberta allowed for the second-highest interest rates in Canada, with lenders being allowed to charge up to $23 for every $100 borrowed, up to a maximum of $1,500. The short-term nature of the loans meant the interest could pile up quickly.
The new rates proposed by the NDP will limit interest rates to $15 per every $100 in the loan — the lowest in the country — and allow borrowers to repay the loans in instalments over two months. Lenders will not be allowed to directly solicit customers and they won’t be allowed to charge extra fees for cashing a cheque tied to a loan.
These limits are a very good step and Alberta might want to go even further with those restrictions in the future.
But it does not change the underlying fact that many people turn to high interest payday lenders because they can’t get small, short-term loans from other financial institutions. There clearly has been a market for payday loans.
There are about 30 different companies in the game in Alberta and government officials estimate, according to one Postmedia report, that about 240,000 payday loan users borrow about $500 million per year. Big banks haven’t exactly been devoted to keeping the doors open in less affluent neighbourhoods around Alberta, leaving this gap in service.
That’s why another item on the government’s to-do list could prove just as important in the long term for struggling Albertans: a plan to work with organizations such as credit unions and community groups to create alternatives to payday loans. Servus Credit Union president and CEO Garth Warner said last week that his company hopes to develop a “socially responsible loan product that will provide Albertans a fast, fair and smart alternative to payday loans” by the end of 2016.
Unexpected things happen in people’s lives that can disrupt carefully planned household budgets. Big banks aren’t always sympathetic, or flexible enough, to help bridge those gaps. But payday loans, at previously allowable terms and interest rates, can exacerbate a spiral into poverty. That’s not something we should condone in Alberta.