Tuesday, April 25, 2006

After watching payday loan outlets proliferate rapidly across Canada with little or no regulation, the federal government appears poised to hand over control of the controversial short-term lending industry to the provinces.

Banks, insurance companies, utilities, credit unions are all bound by an article in the Criminal Code that prevents them from charging APRs of more than 60 percent. The payday loan industry, on the other hand, has floated under the radar for years at times charging rates that hover in the triple digits when various fees and charges are factored in.

Before the country's most recent election was called, Canadian government officials were about to introduce legislation that would allow companies offering payday advances to skirt the 60 percent limit as long as provinces came up with their own regulations. Justice Minister Vic Toews now says he's also favorable to the plan.

"That is a mechanism that I think has some merit and I will very seriously consider that," Toews said.

The Province of Manitoba has been a pioneer on the issue, beginning last January when it took Paymax, a payday advance provider, to court. Manitoba alleged that the company levied a criminal level of interest charges, the first such action brought forth in Canada. A handful of class-action suits are also making their way through the courts.

Manitoba Finance Minister Greg Selinger is trying to push the envelope by bringing forward consumer protection measures to regulate the industry, such as making it a requirement for a firm to disclose all fees that the consumer must pay when taking out payday advances. Manitoba just needs the federal government to do its part and let the province license payday lending with its own interest rates.

"What I'm trying to do is set up a regime that, in effect, legalizes this activity under proper controls and protections for the consumer, and drives the worst practitioners of payday loans out of business," Selinger said.

• Ontario, meanwhile, has been pushing in the opposite direction, lobbying the federal government to rework the Criminal Code so that the industry is specifically addressed, rather than delve into the issue itself.
• Quebec has taken another route: banning no fax payday loan practices outright.

There are about 1,350 payday loan outlets across Canada, 850 of which are members of the Canadian Payday Loan Association, which wants regulation.

The association has its own code of conduct, and has banned such practices as loan "rollovers," where fees and interest are rolled into unpaid loans, expanding the debt exponentially. The association says it cannot, however, control companies that aren't members.

"Those 550 non-member stores still use unfair collection practices, and those stories, and the customer dissatisfaction, relates to the industry as a whole," said Bob Whitelaw, president of the Payday Loan Association.

Whitelaw also said that a 60 percent rate cap is unreasonable for an industry that offers short-term loans. For example, 60 percent interest rates on $100 instant payday loans would only give the company about 90 cents a week.

This entry was posted on Tuesday, April 25th, 2006 at 10:00 am and is filed under Canada.