Devised Project to Offer Alternatives to Payday Loans, Cash Advances
By J.J. CameronPayday Loan Writer
The provincial government is investing in a project to assist low-income people in managing their money in an attempt to tackle the problem of payday lending companies that provide short-term cash advances at high interest rates.
The Community Financial Service Centre, an initiative by the North End Community Renewal Corporation, will provide money-management training as well as small, low-interest, short-term loans to help its clients improve their bad credit history.
“It’ll give people alternatives,” said Manitoba Finance Minister Greg Selinger. “Instead of going to payday lenders, they will get ID, they will get access to mainstream institutions, they will get support on how to do better financial planning. All of those things will reduce their dependence on payday lenders.”
Michael Thompson, vice-president of the Canadian Payday Loan Association, doubts the program will deter the people who use payday loan companies. He says the program appears to target another segment of the population.
“Payday loan customers, as a matter of course, have to have a bank account already, so although the government may wish to counter payday lenders with the lending institution, it’s not going to have any impact on our business at all because it’s targeted at a consumer segment that doesn’t use our product,” he said.
However, Selinger says studies have suggested payday loan companies take advantage of people who are not able to obtain short-term loans at “mainstream” banks.
Selinger also plans to introduce legislation this spring to regulate the payday lending industry. In the past, he has said such legislation would outlaw the practice of customers giving payday loan providers the right to seize part of their paychecks, while banning rollover loans that see customers take out a second loan to pay off the first, at compound interest.
The federal government, which governs interest rates, made it a criminal offence to charge an annual rate of more than 60 per cent. Consumer advocacy groups have complained, however, that when one tallies in service fees and loan extensions, the interest rate can top 1,000 per cent.
The Community Financial Service Centre, which is also receiving support from the federal and municipal governments, is expected to open in the North End by September. Participants will be referred to the program by other community organizations.
