Manitoba has be-come the first province to cap payday loans. While the multi-level rate, which begins at 17% for the first $500 loaned, is good news for borrowers, it means reduced profits for lenders — and could sound the death knell for smaller loan providers in the province. That may be a harbinger of what lies ahead for payday lenders across Canada.

“Manitoba’s rate should concern every small-business person in this country,” says Kevin Isfeld, president of the British Columbia Payday Loan Association in Kamloops, B.C. “If the government disagrees with the price you’ve set, they’ll set a price for you. The Wal-Marts of the world can meet the government’s price; not all small businesses can.”

Indeed, only one payday lender will be able to survive on the rate set by Manitoba’s Public Utilities Board, Isfeld says: National Money Mart Co. , which is owned by Dollar Financial Corp. of Berwyn, Pa.

“Money Mart is not even a Canadian firm,” Isfeld says. “How dare the government.”

According to the Canadian Pay-day Loan Association, the Man-itoba PUB ruling actually contradicts what Manitoba promised payday lenders. The CPLA points to statements made by provincial Finance Minister Greg Selinger stressing that the legislation and accompanying regulations should “not drive companies out of business”; that “people are showing an interest in having this service”; and that the service should be offered in a way that is “just and reasonable.”

“The PUB got it wrong,” says Stan Keyes, president of the Hamilton, Ont.-based CPLA, which recommended a fee cap of 20%-23%. “It ignored independent evidence and has done nothing but ultimately put small and medium-sized, responsible businesses out of business and hurt consumers by limiting their access to credit.”

DO WITHOUT

Surprisingly, the PUB agrees. In its 326-page order setting the maximum payday loan rate, the PUB acknowledges that there is a “significant population in need of short-term small loans”; that its ruling will result in some payday lenders “exiting the province”; and that it will also cause some consumers to have to “do without.”

However, the PUB also calls payday lenders “loan sharks.” The PUB report asks: “How else would one describe lenders charging rates representative of 100 times [average annual percentage rates] and more than that of banks and credit unions to borrowers reportedly unable to obtain credit elsewhere?

“Prospective payday borrowers should realize that payday loans are so expensive that they should be avoided,” the PUB report continues, “to be considered only in the absence of access to credit from mainstream lenders, family or doing without.”

The PUB has decided to cap the maximum fee for loans up to $500 at 17%, which is significantly lower than the maximum 60% fee that some firms are currently charging. The maximum rate then dips to 15% until the $1,000 amount is reached, then drops to 6% for loans up to $1,500, the largest loan allowed. There are two notable exceptions: for payday loans to persons on employment insurance or social assistance, or for loans of more than 30% of the borrower’s expected next pay (minus deductions). The maximum cost of credit in these two situations is 6%.

Although Manitoba is leading the country in terms of having set a maximum rate for payday loans, several other provinces aren’t far behind and are keeping a close eye on what is happening.

“We will look at what Manitoba is doing,” says Anne Preyde, manager of legislation with the Ministry of Public Safety and the Solicitor General in Victoria.

B.C. has passed legislation for payday loans and is expected to have draft regulations — including a fee cap — ready by the end of the summer.

The provinces and territories, in concert with the federal government, have been taking a national approach to payday loans. “There have been joint efforts,” Preyde says. “We are trying to be in sync.”

There is widespread agreement as to what underlies payday loan legislation and its accompanying regulations. “We cannot construct this just so that companies can survive,” Preyde says. “This is mostly about consumer protection.”

WRITTEN STATEMENT

That’s certainly what is driving new legislation in Newfoundland and Labrador. That provincial government has just passed Bill 48, the Cost of Credit Disclosure Act, which will provide consumers with a standardized disclosure of the cost of borrowing, whether the borrowing is for a mortgage, loan, credit card or any other type of credit.

@page_break@The new legislation requires lenders to provide a clear written statement to the borrower of the cost of credit, including, where applicable, the cost of the processing fee for the loan and/or credit. The act was developed by the province’s consumer measures committee.

Under the new legislation, “payday lenders will have to disclose cost of borrowing, just as other lenders,” says Vanessa Colman-Sadd, director of communications with the Department of Government Services in St. John’s.

“We have no specific plans right now to implement payday loan regulations,” she adds. “We know other provinces are looking into it and are interested in the outcomes.”

Many provinces are now looking to Ontario for the next chapter. Its new Payday Loans Act will license all payday lending industry operators and ban controversial lending practices, much as Manitoba’s legislation has done.

However, unlike Manitoba, Ontario’s attitude toward payday loans is significantly different, according to public statements: “Ontario’s approach to payday lending is balanced, taking into consideration the needs of borrowers and of the industry.”

And, unlike Manitoba, Ontario’s legislation has received the CPLA’s stamp of approval.

Ontario intends to establish an advisory board to recommend a limit to the total cost of borrowing for payday loans, says Erin Drushel, corporate issues management analyst with the Ministry of Government and Consumer Services in Toronto.

Like Ontario, the provinces of B.C., Saskatchewan and Nova Scotia, have all passed pertinent legislation and are in the process of setting a cap on fees. IE