The wheels of government do not always grind slowly. In fact, Ottawa has introduced, passed and proclaimed legislation — in seemingly record-breaking time — that gives provinces the right to regulate the payday-lending industry.
Some provincial governments didn’t even wait for the new federal act to receive royal assent before introducing their own legislation.
Both levels of government say their speedy response reflects the need to protect consumers across Canada while fostering growth of a burgeoning segment of the financial services industry. Some established payday lenders even welcome the changes.
“I’m encouraged by what’s happened in the past six months,” says Stan Keyes, president of the Canadian Payday Loan Association, which represents about one-third of the 1,350 payday lenders operating in Canada.
“I cautiously ‘guesstimate’ that provinces will have legislation and regulations in 18 months,” he adds. “They want their consumers protected. At the same time, they understand how business works.”
Manitoba and Nova Scotia have passed legislation to regulate the industry, and British Columbia and Saskatchewan have draft legislation in place. Alberta and New Brunswick are expected to move on the issue this fall. Prince Edward Island and Newfoundland and Labrador will probably bring in legislation late this year or early next year. Ontario has enacted some changes in what is believed to be the first step to regulating the industry more fully. And Quebec has never allowed payday lending.
The race to legislate began when Ottawa introduced Bill C-26, which allows provinces to enact consumer protection legislation and set a maximum borrowing rate. Provinces that choose not to do this fall under federal law.
Under that law (Section 347 of the Criminal Code of Canada), no lender can charge an interest rate exceeding 60% a year. The law, however, was introduced in 1980 — at least 14 years before payday lending made its appearance in Canada.
The 60% solution works for banks, which lend larger amounts of money for longer periods of time, but it does not make sense for payday lenders, says Keyes. “The average payday loan in Canada is $280 for 10 days. That’s what a payday loan is supposed to be.”
Expressing interest rates as an annual percentage rate, as required by federal law, means most payday lenders exceed the 60% limit with almost every loan. For example, if a customer borrows $100 for one week and is charged $1 interest, that seven-day rate works out to an APR of 107%, says Keyes: “That sounds outrageous. That is outrageous — if I lent it to you for a year.”
Long terms are not the intent of CPLA members, he adds. The CPLA’s code of ethics says the most a client can borrow is $1,000 for 31 days.
Most provincial legislative measures now on the books or in the works are relatively consistent. Front-runners Manitoba and Nova Scotia require all payday lenders to be licensed and bonded, and all borrowers must be informed about the costs of their loan. A maximum cost of credit that lenders can charge is also coming; it will be set by the Public Utilities Board.
CONSUMER PROTECTION
Ontario has not gone as far. Amendments to its Consumer Protection Act will oblige payday lenders to display a poster stating what it costs to get a $100 loan, use a standard contract and ensure funds are provided as soon as an agreement is signed.
“The thrust is, absolutely, consumer protection,” says Mike Pat-ton, senior corporate issues management analyst at the Ontario Ministry of Government Services.
The CPLA would like the Ontario government to go further.
“Consumers won’t be fully protected until Ontario introduces regulation that protects consumers and allows for a viable industry while putting the worst players out of business,” says Keyes.
Such measures are coming, says Patton.
Meanwhile, things are heating up in B.C., the only province that has seen any controversy.
The B.C. Business Practices and Consumer Protection (Payday Loans) Amendment Act will restrict lenders from practices that increase borrowers’ debt loads. Such practices include: rollovers that require borrowers to pay extra fees to extend the time to repay a loan; requesting an assignment of wages and requiring the borrower to sign documents transferring ownership of property to the lender; charging more than the regulated fee for cashing government cheques; and lending more than a regulated percentage of a borrower’s take-home pay.
@page_break@Although National Money Mart Co. , Canada’s front-runner in the payday lending industry and a founding CPLA member, has given the B.C. government a pat on the back, the B.C. Payday Loan As-sociation isn’t as keen on the proposed law.
“This legislation contains elements that are bad for consumers and industry operators, including provisions to regulate third-party service providers and the retroactive application of fines that could put legitimate operators out of business,” BCPLA spokesman Kevin Isfeld says. “The government has held no consultations with B.C. operators.” IE
Provinces move on payday lending
Ottawa has given the provinces the right to regulate the payday loan industry
- By: donalee Moulton
- July 31, 2007 July 31, 2007
- 09:39