British Columbia Judge Rules Payday Loans Rates are “Criminal”
By J.J. CameronPayday Loan Writer
Just as payday loans seemed to gaining traction in Canada as a respected fiscal solution, a Supreme Court judge has ruled that companies specializing in cash advances are charging "criminal" rates."
In the first class-action civil ruling of its kind in Canada, the multimillion-dollar decision should create a ripple effect for no fax payday loan companies across the country. Justice Brenda Brown has ruled the processing fees and late fees charged by the A OK Payday Loans Inc. were, in fact, interest.
The court heard during the trial in April that A OK charges a 21 percent interest rate and a processing fee of $9.50 for every $50 borrowed. There is also a $75 fee if a check is returned and if the borrower wants put off a cash advance loan payment, A OK charges $25 for every $100 deferred.
"I accept the plaintiff's submission that if processing fees and late fees are interest, and their payment results in payments at a criminal rate, then A OK has necessarily received interest at a criminal rate," Brown said in a written ruling released Monday.
An expert testified that with fees added in, the interest rate was well above the 60 percent annual rate allowed under the Criminal Code. Paul Bennett, the lawyer for the representative plaintiff Doris Kilroy, said they're very pleased with the ruling.
"This is the first decision in Canada that has been rendered in a class proceeding with respect to the fees charged to payday loan companies," he said.
Bennett said the decision warns other online payday loan companies that the fees they're charging are likely contrary to the Criminal Code.
"The judgment makes it quite clear that fees, however expressed, are to be included in the calculation of interest for the purposes of the Criminal Code," he said.
No one representing A OK was immediately available to comment on the decision. A OK denied the fees were a form of interest and argued the Criminal Code section that was being applied was not aimed at businesses like theirs, but for the loan-sharking industry.
Brown is ordering A OK to pay back anything it charged above 60 per cent, which Bennett said could exceed several million dollars. Needless the say, the payday loan company isn't overly pleased with such a decision.
With this in the proverbial bag, Bennett said there are several pending class-action lawsuit against other Canadian payday loan companies, and if other court rulings follow this one, the financial payout to borrowers could be in the tens of millions of dollars.
"When you translate the charges that are paid by these borrowers every two weeks into an annual charge, the rates of interest become quite astronomical," Bennett said.
The judge called the fees on small, short-term loans "unconscionable" and "inequitable." She wants to see lawyers on both sides again to settle other financial issues and decide if damages should be awarded to more users of these unfair no faxing payday loans.
