Rollover loans outlawed by payday lenders' group

The association — which doesn't include Internet loan providers, pawnbrokers or title loan providers — said it is developing penalties for companies that violate its code, including fines, expulsion from the association and publication of revoked membership.

Canadian Press
November 30, 2004

Rollover loans outlawed by payday lenders' group
Gary Norris

A new association representing most of the "payday loan" outlets in Canada has framed a code of practice aimed at forestalling complaints about exploitation of vulnerable borrowers.

The new rules — "designed to protect payday loan customers and unify industry business practices" — cover 90 companies operating about 900 of the roughly 1,200 payday loan outlets across Canada, providing unsecured short-term cash advances, typically of a few hundred dollars for less than two weeks.

The Canadian Association of Community Financial Service Providers said today that its code "establishes standards in the areas of disclosure of information, business practices and consumer education."

It also prohibits rollover loans — extending loans that customers are unable to repay on time, for an additional fee.

This requirement that debts be cleared before additional credit is granted will begin Jan. 1, while the other aspects of the code are effective immediately.

The code requires member companies to provide clear and full disclosure of all terms of a payday loan, including fees and penalties triggered by default.

"Members will collect past-due accounts in a professional, fair and lawful manner," the code adds.

Payday loan providers must also inform clients about the appropriate use of short-term credit and about the availability of debt counselling services.

The association — which doesn't include Internet loan providers, pawnbrokers or title loan providers — said it is developing penalties for companies that violate its code, including fines, expulsion from the association and publication of revoked membership.

The new standards "deliver greater transparency and promote a better understanding among consumers of the cost of borrowing," stated Bob Whitelaw, president of the association.

The release of the code of practice came two weeks after an organization representing low-income communities demanded immediate government action to rein in the payday loan industry.

The Association of Community Organizations for Reform Now, a U.S. group expanding into Canada, estimated that loans to Canadians who need a few hundred dollars to get them to their next payday generate more than $1 billion a year in revenue.

ACORN noted that while the Criminal Code limits loan interest to 60 per cent annually, the short-term fees of payday lenders, if extended for a full year, would amount to 300 to 900 per cent or more.


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