Saturday, December 30, 2006

And you thought your credit card interest was high.

A Calgary pawn shop operator has been convicted of criminal usury for charging “unconscionable” personal loan rates, including one case where a man was charged 207,981 percent interest. Aly Saad Marsy, 58, is to be sentenced Feb. 1 in Calgary provincial court.

“Through his manipulation of pawn contracts with unsophisticated and vulnerable customers, Mr. Marsy has been able to inflate his already remarkable interest rates into unfathomable rates of return,” Judge G.S. Dunnigan said in a 12-page written decision.

Although many pawn shops charge 30 percent for a one-month instant payday loan, deals and extensions which provide the lender with more than 60 percent interest are illegal.

The judge noted that Marsy preyed upon financially vulnerable customers who “perhaps unwisely, continued with these usurious arrangements out of desperation.”

Criminal usury is a little-used section of the Criminal Code more often applied to loan sharks. Marsy faces a potential fine of up to $25,000 and up to six months in jail.

In one case, a couple living on a disability pension pawned a collection of jewelry to make ends meet while the husband underwent cancer treatments.

In another, a man put his car up for collateral to obtain a $450 loan to retain a lawyer in a custody battle over his preschool daughter. In both instances, regular payments were made but the original payday cash loans were not cleared.

The balance continued to escalate as the loans were rewritten and interest was charged on interest.

The court eventually calculated the effective rate of annual interest charged to the couple at 1,281 percent, while the father’s loan was a staggering 207,981 percent; not exactly a low cost payday loan.
Eventually, the victims complained to the Calgary police, the Better Business Bureau and the consumer services branch of Alberta Government Services.

In 2002, about 1.4 million Canadians used some form of alternative credit service, often turning to last-resort payday advance lenders when they had no other options.

That may be anything from cashing a check after hours to taking on a short-term bridge loan that regular banks refuse to extend, viewing the situation as a bad risk.

“Most people accessing these forms of credit are in need of money and are willing to pay,” said Alberta government spokesman Eoin Kenny.

The federal government is in the midst of amending the Criminal Code to allow provinces to regulate the interest charges associated with the quick payday loan industry.

“They’re in desperate circumstances, they want the money and they don’t care what they have to pay,” said Kenny. “They’re trying to solve an immediate problem and they get caught up in these revolving doors of credit notes being rewritten and rewritten to the point where I’m not sure they even realize they’re being taken advantage of.”

Last month, Manitoba became the first province to pass amendments requiring payday loan companies to operate within a comprehensive regulatory framework.

The maximum cost of lending will be set by a Public Utilities Board, which will also oversee any additional fees for extending or renewing payday advances.

Alberta is looking at similar changes, Kenny said.

This entry was posted on Saturday, December 30th, 2006 at 10:25 am and is filed under Canada.