New legislation targets payday loan industry

The bill comes after years of demands from opposition parties and even from the industry itself. They say the absence of guidelines has allowed unscrupulous lenders to charge sky-high rates, leaving the entire industry sullied by comparisons to loansharking.

The Toronto Star
October 4, 2006

New legislation targets payday loan industry
Conservatives want to regulate interest fees. Provinces might get to set short-term rates.
Alexander Panetta

The days of storefront money lenders being allowed to charge interest rates of 1,000 per cent for an advance on your next paycheque may soon be over.

The Conservative government will introduce long-awaited legislation today intended to regulate the payday loan industry.

Government and industry sources say the bill will create a special Criminal Code exemption that lets provinces set short-term interest rates.

"Stay tuned," Justice Minister Toews said yesterday after a payday bill was announced on the Commons order paper. "We're working very hard on that particular issue."

The bill comes after years of demands from opposition parties and even from the industry itself. They say the absence of guidelines has allowed unscrupulous lenders to charge sky-high rates, leaving the entire industry sullied by comparisons to loansharking.

"We don't always have a lot of good things to say about the Conservatives, but thank goodness for this one," said NDP MP Judy Wasylycia-Leis, who has been pushing for changes for years.

One Tory official says the bill was simply a recognition that some outlets "are charging pretty horrendous fees."

The government will modify Section 347 of the Criminal Code.

The law currently defines a criminal interest rate at 60 per cent annually, and sets out five-year maximum prison terms for lending beyond that level.

But that bill was written well before the current payday loan phenomenon, in which people can get a quick cash advance before their next paycheque.

Payday loan operators say they simply couldn't remain in business by charging rates similar to a credit card.

They argue that a one-week loan for $1,000 at those rates would generate only a few dollars - which is less than the cost of processing the loan, and would leave them well in the hole if they tried to cash a bounced cheque from a customer.

With their legal status still in limbo, some payday operators have levied fees and loan-extensions that pushed interest rates well beyond 1,000 per cent.

Under the proposed changes to Section 347, control for regulating short-term loans would be transferred to provinces.

Manitoba already has draft legislation ready to go. British Columbia, Alberta, Nova Scotia and New Brunswick have also indicated they will follow suit.

Credit: CANADIAN PRESS


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