Tories plan to regulate payday loans

As part of its investigation, the Star took out loans from 12 lenders in Toronto and found the fees and interest charged on a two-week loan — when combined and calculated as an annual percentage rate — ranged from 390 to 891 per cent.

The Toronto Star
June 13, 2006

Tories plan to regulate payday loans
Bill would delegate power to provinces. Each will devise own consumer protection.
Jennifer Ditchburn

OTTAWA—The Conservative government is preparing to introduce legislation that will rein in Canada's mushrooming payday loan industry, delegating power to the provinces to regulate the business and protect consumers.

Senior sources say Justice Minister Vic Toews and Industry Minister Maxime Bernier are working on introducing amendments to the Criminal Code by the fall.

The bill would address concerns that payday lenders are charging consumers exorbitant rates of interest on small loans.

The payday loan industry itself has been lobbying to be regulated in order to eliminate bad apples while allowing reasonable short-term rates.

Right now, the Criminal Code sets a 60 per cent annual interest rate limit on the financial sector, a bar that didn't take into account short-term lending. To date, only one lender has been charged with violating that limit.

Rather than tinker with the interest rate in the Criminal Code, the government will make an exemption from the law for provinces that come up with their own consumer protection legislation and interest rates.

Manitoba has already drafted such legislation, and has been pushing hard for the federal government to step out of the way. It will set its interest rates through the same panel that sets utility rates.

Practices such as rolling in fees and interest into unpaid loans would be banned, and precise explanations of charges would have to be posted.

Other provinces have also said they support drafting their own rules.

If a province doesn't want to regulate lenders, the existing 60 per cent interest rate will apply, and Ottawa will make provinces prosecute violators.

The Canadian Payday Loan Association, which represents firms such as Money Mart and Cash Money, says it's had its own code of practice in place for its members, but regulation is needed for the "bad apples" in the system.

In "Matter of Interest," a 2004 Toronto Star investigative series examining the unregulated payday loan industry, the paper found lenders target poorer areas, charge a confusing hodgepodge of interest and fees, and allow back-to-back loans, which in short order can balloon into huge costs and leave the principal untouched.

As part of its investigation, the Star took out loans from 12 lenders in Toronto and found the fees and interest charged on a two-week loan — when combined and calculated as an annual percentage rate — ranged from 390 to 891 per cent. One couple interviewed for the series estimated several thousand dollars worth of payday loans cost them $20,000 in interest and fees over three years.

There are about 1,350 payday loan outlets across Canada.

With files from Jim Rankin


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