Paying the price of payday loans
By Blake Eligh • Bankrate.com
The new regulations vary from province to province, but the main points include capping exorbitant lending fees,
prohibiting rollover loans, eliminating unreasonable collection charges and requiring lenders to obtain an operating licence.
Current lending fees range from $17 to more than $49 per $100 loan, and critics say those rates are out of control.
A Manitoba study found that a customer who borrowed $250 for 100 days (or took out 10 10-day loans) would pay $440 to $1,090 in
service charges and interest. By comparison, a secured line of credit for a 100-day loan of $250 would result in a charge of about $7.
Under new laws, fees would be capped at a provincially mandated amount. The CPLA supports recommendations for fees
ranging from $20 and $23 per $100, with an additional dollar to cover regulatory expenses. Those fees would decrease borrowing costs
by 20 to 50 percent. Under that rate structure, Keyes says payday lenders could still afford to operate and compete.
Cooling-off periods are also written into legislation, along with requirements for fair disclosure of fees and other
charges and maximum charges for defaulted loans.
One contested component of Manitoba's legislation deals with a proposal to cap all loans at a maximum of 30 percent
of the borrower's take-home pay. "If a consumer wants $500, they're going to borrow $300 plus costs from one entity, then go to another
payday loan entity and get another loan and incur more costs," says Hannah. "The legislation won't stop a consumer from going to
different payday loan establishments. You can't protect consumers from themselves."
Keyes says that much of the proposed legislation is based on his organization's voluntary code of ethics. "Our association
represents the best players in the industry who are asking for legislation, not fighting it," Keyes says. "We want consumer protection
and a viable industry."
The CPLA represents 20 payday lenders, or a third of the country's loan stores. Rollover loans, for instance, though
common industry-wide, are prohibited under the CPLA code of ethics and can result in a $30,000 fine or expulsion from the group. "And
as part of our code, we offer assistance to the borrower: if they default twice within a year, we advise them of credit counselling
services and offer them incentives by offering to forgo the accrual of interest if the customer gets credit counselling," notes Keyes.
Planning for payback
Hannah says that the provincial legislation is so new that it's too early to see how it will affect payday lenders and consumers. "We'll
need to see it in action for a year or two. We'll know if the law has achieved its objectives if we see fewer people coming to our
organization in financial difficulty as a result of using payday loans."
Hannah says people who rely on payday loans need to think
"Payday loans are relatively easy to get, but paying back and saving takes time, effort and discipline." Hannah says.
"Before you sign on the line and take out the money, you should have a plan in mind for how you're going to pay it back. You can't spend
what you don't have, and everyone has a responsibility to handle their affairs carefully and live within their means. You can't get ahead
if you're in debt."
Blake Eligh is a freelance writer and editor in
Etobicoke, Ont.
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