Sask. ponders legislation to curb payday loan industry
REGINA — Anti-poverty groups say they would welcome federal legislative changes that protect consumers and rein in ballooning interest rates charged by Canada’s payday loan industry.
“I have no problem supporting the introduction of legislation that would prevent the payday loan industry from gouging consumers. My main concern is the enforcement of those regulations,” said Bonnie Morton, of Regina’s AntiPoverty Ministry.
The federal government introduced Criminal Code changes Friday that would give provinces the authority to regulate payday loans, which typically involve lending a few hundred dollars to get borrowers through to their next payday.
Justice Minister Vic Toews said Friday the proposed legislation gives provinces the tools they need to protect consumers from what he called “questionable business practices.”
It is illegal under federal law to charge annual interest of more than 60 per cent.
Yet the effective rates charged by payday loan outlets on short-term borrowings can amount to 1,000 per cent on an annualized basis once service charges are included. There also are fears that borrowers can be trapped in a cycle of revolving debts.
“The short-term loan programs are taking advantage of people who are already disadvantaged,” said Morris Eagles, director of Regina’s Welfare Rights Centre.
Borrowing money between paycheques becomes a perpetual problem and because of high interest rates these people dig themselves deeper and deeper into debt, he said.
Meanwhile, the industry has grown into a business estimated to lend $2 billion a year to two million Canadian clients.
The Conservative government’s proposed legislation would allow provinces that have legal protections for payday loan customers to permit interest charges above the Criminal Code’s 60 per cent threshold. The exemption will allow provinces to set their own caps on interest rates, as well as other fees, and will also allow provincial officials to enforce the rules.
Payday loan companies have complained that limiting small short-term loans to 60 per cent interest would not enable them to cover even basic administration costs.
Eagles said he wouldn’t support the removal of the existing cap on interest rates from the Criminal Code.
The proposed legislation appears likely to get all-party consent and rapid passage through the Commons.
Saskatchewan Justice Minister Frank Quennell said there is some need to have workable regulations in the industry.
“The Criminal Code has just been too clumsy an instrument for regulating the industry,” Quennell said.
He added the province will be working with the industry and consumers to develop appropriate legislation and to set outrules regulating the maximum that can be charged in terms of interest or fees, payment and lending terms.
The Canadian Payday Loan Association, an industry group representing 850 of the 1,350 outlets offering these shortterm loans, welcomed the bill, saying it “will ensure consumer protection and the ongoing viability of this important industry.”
Association president Michael Thompson said the group, which has been calling for government regulation, will work with the provinces as they prepare their rules.
The biggest operator in the business, National Money Mart Co., also welcomed the government’s action.
Money Mart, a subsidiary of U.S.based Dollar Financial Corp., added that the provincial regulations will have to “balance consumer protection with the continued importance and viability of this industry.”