Payday Loan Debate, Fervor Gains Momentum in Canada
By J.J. CameronPayday Loan Writer
The Times has already reported on the topic of payday loans in Canada. As controversy has swirled over the use of such cash advances, other publications have weighed in on the topic. The latest is The Ottawa Citizen.
According to the paper, a Senate committee has called for more investigation into the payday loan industry, suggesting more regulation is needed.
"We believe that action is needed to ensure that consumers are not abused by (alternative financial services providers) or the fees that they charge," said the report of the Senate standing committee on banking, trade and commerce, which tabled its findings yesterday.
The report said the committee members view the growth of alternative financial services providers as "somewhat alarming, since we do not believe they are adequately regulated." Testimony was then heard from many sources on what the report referred to as "payday lending organizations," companies that make short-term payday loans that often appear to entail usurious interest rates.
In December, a Citizen reporter obtained payday loans at rates actuaries said appear to violate the Criminal Code. Two $300 cash loans were taken, one from a Money Mart store on Elgin Street and the other from a CashMoney outlet on Bank Street. Three days later, Money Mart required $339.41 repayment, which worked out to an annual interest rate of more than 300,000 per cent. CashMoney required $375, which equated to a 61-trillion-per-cent rate.
The shortness of the quick payday loan period and compounding interest account for most of these apparently exorbitant rates. The Criminal Code, however, allows only 60-per-cent annual interest.
Industry Canada said it did not understand why certain people use such expensive payday loan lending services. After all, banks and other traditional institutions "are infinitely cheaper. Even getting a cash advance on a credit card is cheaper. It is difficult at this stage of the game to know what drives people to do things that on first blush seem to be irrational."
The Department of Finance, meanwhile, proposed education regarding no fax payday loans.
"The more that people are aware that they have a right to a bank account and that bank accounts are available to them at a reasonable cost, the more one can hope that they would not be persuaded to use financial service providers that charge much higher fees."
The Credit Union Central of Canada, while acknowledging poor education was a factor, noted some consumers might appreciate that check cashing through payday advance companies is less traceable than through banks or other traditional institutions. The Public Interest Advocacy Centre, though, suggested other factors.
Those who use payday loan companies are sometimes "credit challenged. They have difficulty getting credit cards or being able to make payments on credit cards. Some use these financial services because it meets their day-to-day needs."
The Canadian Payday Loan Association reported that 72 percent of customers believed fees were reasonable, considering that paydy loans were offered without credit checks or collateral. The Financial Consumer Agency of Canada, in its surveys, found that people use payday loan services for their faster service and more convenient hours. However, the agency also found that 37 percent of respondents underestimated the cost of supposedly cheap payday loans.
The Senate committee recommended further study, with an immediate investigation into the industry's growth, fees and regulations. It should finish no later than June 30 of next year.
