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Province to regulate payday loan business |
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Written by Dave Mabell Lethbridge Herald
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Wednesday, June 03 2009, 10:02 PM |
New rules will govern payday loan outlets across Alberta.
Announced Wednesday in Edmonton, the laws will ban “rollover” loans and they’re expected to cap the short-term charges at $23 per $100.
They’ll also provide a two-day “cooling-off” period, and they’ll require all lenders to be licensed by the Alberta government.
Heather Klimchuk, the minister responsible, says the province completed “extensive consultation with Albertans and the industry” before writing the rules. But in Ontario, a national payday loan spokesperson said this province’s rules are similar to those already in place in other jurisdictions.
But rules are needed, a Lethbridge finance executive points out, because too many borrowers are sinking in a spiral of debt. They start with a quick loan, but soon their whole cheque is on the line.
That’s the danger Klimchuk cited as she outlined the new law, taking effect Sept. 1.
“Many Albertans use payday lenders for short-term small-cash loans,” she said. “But some get caught up in a vicious cycle of debt at high borrowing costs.”
Alberta’s rules, she said, should “protect consumers, and ensure people know what they will be paying for when they borrow from a payday lender.”
That’s important, said Brian Kinahan, because many customers get caught up in the companies’ “rollover” deals.
“I can understand people getting into a crisis situation,” said Kinahan, a vice-president at locally owned 1st Choice Savings and Credit Union. But then they take a second loan to pay off the first.
“We’re seeing too many cases where people just can’t get out of that cycle.”
Properly regulated, he suggested, the loan companies may provide a timely financial bailout.
“A lot of it is convenience,” Kinahan says. Banks and credit unions can’t process a loan as quickly as the payday loan operators, he said, and they consider the applicant’s credit history before deciding to proceed.
“The payday loan companies take a higher risk” and so do the consumer loan outlets.
That risk leads to costs and fees far higher than what conventional lenders charge, Kinahan warned. While secured loans are close to an all-time low — and bank cards may be charging 20 per cent interest per year — he notes the Alberta government will allow a $23 fee on every $100, even if the loan runs just a few weeks.
“That’s not 23 per cent” per annum, but many times higher.
That would violate Canada’s banking laws, so Klimchuk says Alberta must ask for an exemption.
That $23 is ahead of the $20 maximum set in Manitoba -- but less draconian than the $31 allowed in Nova Scotia.
“It looks like the (Alberta) minister has taken a balanced approach,” said Stan Keyes, speaking for the Canadian Payday Loan Association.
“We want to see rates that protect consumers,” he said. “But those rates also have to protect the industry.”
Klimchuk said about 85 per cent of Albertans — those who’ve gone to a payday loan company, and those who haven’t — agreed regulations are required. Those rules, most Albertans said, must cover “rollovers,” discounting practices and the total cost of the loan.
Companies should also make agreements easier to understand, they said, and should post a performance bond.
All payday lenders will be covered by the new law, although Keyes pointed out not all are members of the national organization.
“There are some companies out there who want to gouge the consumers with high rates.”
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