Canadian Payday Loans: Illegal Interest Rates?
By J.J. CameronPayday Loan Writer
According to The Chronice Herald, it doesn't matter who does the math: The Cash Store and many other payday lending companies are charging interest rates that violate the Criminal Code of Canada.
Based on its own calculations, The Cash Store is not charging an annual interest rate of over 300 percent, as alleged by the Nova Scotia government, Andrew Fraser, the lawyer representing The Cash Store, told the Nova Scotia Supreme Court on Monday.
However, Mr. Fraser conceded that the payday loan company is charging an annual interest rate that exceeds the 60 percent limit allowed under the Criminal Code of Canada.
To date, Manitoba is the only province where criminal charges have been laid against a payday lender for charging excessive interest rates. That case against Paymax Canada Inc. is still before the courts.
Asked Monday why Nova Scotia hasn’t moved ahead with criminal charges against providers of quick cash loans, provincial Justice Department lawyer Agnes MacNeil said it is up to police.
"Generally, police would lay the charges and the police have been informed, I believe, of the criminal rate of interest being charged. And it would be their decision and that of prosecutors whether or not criminal proceedings would be pursued," she told reporters following court Monday.
Many provinces - and the Canadian Payday Loan Association, which represents most payday lenders in Canada - argue that in order to better protect consumers the federal government should amend the Criminal Code and give the provinces the authority to regulate the growing cash advance payday loan industry, setting interest rates.
The federal government recently said it will move ahead with amendments to the Criminal Code this fall and give the provinces the authority to regulate the industry. But not all critics agree that this is the best move to protect the rights of consumers.
"The best way to regulate payday loans is minor amendments to the Criminal Code that allow short-term, unsecured small loans to (be have) higher interest rates and to fix those rates for the whole country. Much simpler than 13 jurisdictions," said Chris Robinson, a York University business professor who has written several reports on the payday loan industry.
Manitoba has already drafted legislation and says it will set interest rates through the same board that sets utility rates. Exact charges of borrowing would have to be posted and allowing back-to-back loans would be banned.
In July, Service Nova Scotia Minister Jamie Muir indicated that Nova Scotia is also drafting legislation similar to Manitoba’s. While the issue of regulation is being sorted out, several class action lawsuits have arisen in Canada against payday cash loan lenders.
A class action lawsuit against The Cash Store was certified in Ontario in April and automatically includes any person in Canada, outside Alberta, who received a payday loan from the company. It alleges the loans are illegal under the Criminal Code and the cost of borrowing is excessive.
The Cash Store is now seeking permission to appeal that certification.
In January, Instaloans paid out over $1 million in settling a class action lawsuit.
In a civil action heard in August against A OK Payday Loans Inc., a British Columbia Supreme Court judge ruled that the fees that the company charged consumers were in fact interest and ordered the company to pay back anything that it charged over the 60 percent annual allowable interest rate on payday or personal loans.
