PROVINCES TO REGULATE PAYDAY FIRMS

Ottawa plans to give authority next month

OTTAWA • The federal government intends to table legislation as early as next month that would grant the provinces the authority to regulate the burgeoning but controversial paydaysector.

The decision comes after months of lobbying by major payday lenders, which seek government regulation as a way to legitimize their business and rid the sector of shady players. Also, the Finance Department, which had been reluctant to proceed with regulation, agreed to a proposal jointly developed by the Department of Justice and Industry Canada.

But the proposed legislation, Ottawa sources say, will not include a cap on interest rates charged by lenders or credit cards, which some left-leaning politicians and consumer advocates have called for.

Irwin Cotler, the Justice Minister, has said the government is working on a new initiative to protect consumers from payday lenders. These short-term, small loans tend to carry interest in three-digit territory when myriad services fees are part of the calculation.

A spokeswoman for Mr. Cotler said the Minister intends to bring a bill to the Cabinet table this fall.

The legislation Mr. Cotler and Industry Minister David Emerson contemplate would amend a section of the Criminal Code that deals with usury, or loan sharking, Ottawa sources say. Currently, interest greater than 60% is illegal.

Under the proposal, the Code would not apply to the payday sector in provinces where industry regulation exists. This, according to sources familiar with the proposed changes, gives the provinces freedom to regulate the sector as they wish.

Once regulation is brought in, it is expected payday lenders would charge an interest rate that complies with the Code, but have their service fees capped by the provinces. The service fees are where payday lenders earn their highest margins.

Sue Lott, a lawyer with Public Interest Advocacy Centre and a payday watchdog, said she was encouraged Ottawa has decided to act to ensure there are rules governing the sector.

But she said she is concerned not all provinces will pursue payday regulation with the same vigour. Also, she would like to see a consumer code accompany the bill.

The proposed legislation still has to go before the full Cabinet for approval, and the next meeting is not until the week beginning Sept. 26, when the House of Commons reconvenes for the fall.

Industry Canada has been consulting with provincial consumer affairs ministers for the better part of five years on what to do with the payday sector, but little has been accomplished. The Industry, Finance and Justice departments have been reluctant to take the lead for fear of being labelled as permitting 100%-plus loans.

Payday lending in Canada has exploded over the past decade, with outlets growing from a few hundred to more than 1,000, with annual revenue estimated at $190-million. They serve a market largely abandoned by the chartered banks, which are keen to pursue higher-margin lending business.

In response to growing criticism about the cost of their loans, the major payday association adopted a self-regulating code of conduct that, among other things, prohibits: rollover loans ( when a borrower takes out a second loan to pay off the first); granting loans to welfare recipients; and garnishing customer’s wages.

The government decision to act comes as the Senate recently passed a bill urging changes to loan-sharking rules that would limit interest rates at 35%. Moreover, the NDP recently used payday regulation as one of many conditions required to get its approval for bank mergers.