Payday Loans

Competition keeps payday loan rates down

Competition keeps payday loan rates down

Companies charging less than N.S. maximum, association president says

* BYLINE: Clare Mellor, Staff Reporter
* DATE: March 20, 2010

It appears that payday loan outlets in Nova Scotia aren’t charging customers anything close to the maximum borrowing rate set in 2008 by the Utility and Review Board.

“What is occurring in Nova Scotia is a competitive atmosphere that, of course, keeps the price down for a payday loan for a consumer,” Stan Keyes, president of the Canadian Payday Loan Association, said Friday.

A telephone survey of several major payday lenders in the Halifax area Friday shows costs of borrowing $100 ranges from $17.99 to $25.

Following public hearings in July 2008, the Nova Scotia regulatory board set the maximum cost of borrowing at $31 per $100 including all non-optional fees tied to the loan. It also ruled that default fees on the loans cannot exceed $40 per loan and interest rates on loans in default cannot exceed 60 per cent annually.

Other provinces that are regulating payday loans have taken a very different approach and have set much lower caps on the maximum amount that can be charged for borrowing. Rates were set at $21 per $100 borrowed in Ontario, and $23 per $100 borrowed in Saskatchewan, Alberta and British Columbia.

Nova Scotia’s regulator will review the rate this year, and has set Nov. 1 as a tentative date for public hearings on the issue.

When it last set the rate, the board said it decided to let competition in the marketplace keep payday loan prices in check.

“I think that it is working fine,” Keyes said.

The Hamilton-based association represents about 40 per cent of the payday loan industry in Canada, said Keyes. In Nova Scotia, it represents Money Mart, which has eight stores in the province.

“The companies providing (payday loans) that are in demand in Nova Scotia are providing the product at a reasonable rate, nowhere near the $31 that was declared as maximum,” he said.

Nova Scotia was one of the first provinces to place a cap on the cost of payday loans.

“There were no benchmarks at the time. Here we are now in a regulatory review in November. Now it will be the decision of the (review board) to continue the business model approach or do a study through a recognized accounting firm to learn just what it cost these companies to provide their product,” Keyes said.

Earlier this week, the board issued a request for proposals for a lawyer to represent consumers at the hearing later this year.

“As there are currently no groups or organizations formed to represent the interests of the consumer at the hearing, the board has determined that is appropriate to engage legal counsel as a consumer advocate to represent borrowers generally,” the tender says.

Nova Scotia began enforcing new regulations around payday loans in August 2009

A spokeswoman for Service Nova Scotia said Friday there have been no consumer complaints about the industry since regulations came into effect.

In 2007, federal legislation was enacted allowing the payday loan industry in Canada an exemption from a Criminal Code provision that makes it illegal to charge more that 60 per cent annual interest. However, that exemption only applies in provinces that choose to regulate the industry.

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Ontario Protects Payday Loan Consumers

June 30, 2009 1:00 PM – Users of payday loans in Ontario can look forward to new consumer protections starting next month.

The Payday Loans Act, 2008, provides for strong consumer protections, prohibits certain practices and provides for enforcement and prosecution of violations. Starting on July 1, 2009, the following consumer protection provisions will be in effect:

* Concurrent and “rollover loans” are prohibited.
* Discounting the loan principal is prohibited – for example, if the loan is for an amount of $300, the borrower is entitled to receive $300.
* Payday loan borrowers have a two-day “cooling off” period in which they may cancel a payday loan agreement with no reason and without incurring a penalty.
* Payday loan borrowers must receive a written copy of their payday loan agreement which must contain mandatory text about cancellation rights and certain refund rights. The agreement must also set out the amount of the loan, when the loan is due and the total cost of borrowing.
* Payday lenders and loan brokers must post a certificate of licence visible to persons immediately upon entering their offices.

On April 1, 2009, the government imposed licensing requirements on payday lenders and loan brokers. It also created administrative monetary penalties to deal quickly and effectively with many infractions under the Act.

Ontario has set a total cost of borrowing cap for payday loan agreements of $21 per $100 borrowed, as recommended by Ontario’s Maximum Total Cost of Borrowing Advisory Board. It is anticipated that this cap will come into force later this year.

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Payday Loans facing new bill proposed in Manitoba

April 8, 2009

A bill which proposes amending the Consumer Protection Act to revise the role of the Public Utilities Board in establishing the maximum cost of credit for payday loans was introduced today by Finance Minister Greg Selinger.

“The changes to the act will help protect consumers from exorbitant rates and questionable business practices,” said Selinger. “The amendments will ensure the full regulation of the payday loan industry proceeds in a timely manner.”

The minister noted Manitoba’s Court of Appeal recently granted a lender leave to appeal the Public Utilities Board order setting maximum loan rates.

The bill would:
· Rescind the Public Utilities Board order that set maximum rates on payday loans.
· Allow maximum loan rates to be set out in a regulation.
· Change the role of the Public Utilities Board from its current mandate as a rate-setting body to one of an advisory body in relation to payday loans. In the future, the board would continue to conduct public consultations and would make recommendations to government respecting the maximum rates that could be charged for payday loans.
· Allow the board to make recommendations on other matters respecting the regulation of the payday loan industry such as provisions relating to business practices and enforcement.
· Create a financial literacy fund to help ensure that borrowers have information to help them make sound financial decisions.
· Allow for the licensing and regulation of Internet payday lenders.

Additional measures related to business practices and enforcement respecting payday loans are also proposed by the bill.

Information on the payday loan legislation is available from the Manitoba Consumers’ Bureau. The bureau can be reached at or by calling 945-4062 in
Winnipeg or 1-800-782-0067 (toll-free) from elsewhere in Manitoba.

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Yes, it’s a good time for Money Mart

* BYLINE: Colin Campbell
* DATE: Wednesday, February 11, 2009

As the banks clamp down, the payday lenders are filling the void

The past year was one that most companies would probably like to forget. But one industry has been doing just fine, and believe it or not, it’s in the finance sector: the payday loan business.

These so-called lenders of last resort, such as Money Mart, specialize in small, short-term loans at high-interest rates. They’ve been realizing big gains in these tough economic times, winning customers who need emergency loans, as well as those frustrated by tightening credit at the big banks.

Last week, Edmonton-based the Cash Store Financial Services Inc., which has 415 stores across Canada, announced it had a “stellar” quarter, with branch revenues up 11 per cent compared to the same period last year. “We haven’t seen anything really negatively impact our business,” says CEO Gordon Reykdal, adding that the company plans to open 70 new stores this year. Dollar Financial Corp., the U.S. company that owns Money Mart, has been on a roll too. It recently reported that its total revenue was up 17 per cent last quarter—a company record.

Still, Stan Keyes, president of the Canadian Payday Loan Association, which represents 20 payday loan companies, is cautious about the coming year. He says the industry has “levelled off,” in part because of job losses. But faced with the choice of defaulting on a small bank loan or going to a payday lender, he says people still tend to choose the latter.

Not everyone is happy with the sector’s success. Consumer advocates say payday lenders prey on those who can least afford their high-interest rates and fees. Several provinces are now clamping down on the worst lending practices—a move supported by the CPLA, which is eager to clean up the industry’s image. Good thing, because like them or not, it looks like payday lenders are here to stay.

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Control payday loans, panel says

* PUBLICATION: Toronto Sun
* BYLINE: Jonathan Jenkins
* DATE: Saturday, February 7, 2009

An independent provincial panel recommended yesterday Ontario limit interest payments and fees charged by payday loan companies to $21 for every $100 borrowed, winning support both in the industry and from anti-poverty activists.

“This is a really great day for us because we’ve been fighting against the high payday lending rates for a long time. This finally gives us the regulation in Ontario that we need,” said Elise Aymer, a member of the Association of Community Organizations for Reform Now (ACORN).

The panel recommended the $21 cap yesterday, saying it was a balanced approach that would ensure the industry could continue while still providing protection to consumers — typically low-income people who have exhausted traditional and cheaper lending alternatives.

The panel was appointed by the government last summer after it passed the Payday Loans Act, the first attempt to regulate the industry.

ACORN would prefer payday loans be banned but Aymer said the cap is a good first step. She said she hopes the cap could even be lowered in the future. The panel also recommended a review in two years.

Stan Keyes, president of the industry group the Canadian Payday Loan Association, said the panel’s recommendations were balanced and he expects the government to accept them. “Kudos to them. They stuck to the mandate, .” Keyes said of the panel.

Some unscrupulous lenders who charge very high rates and fees may go out of business and others may feel pain, but Keyes said the industry recognizes the need for consumer protection.

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Ont. payday loan costs should be capped at $21 per $100 borrowed: board

* PUBLICATION: The Canadian Press
* BYLINE: Maria Babbage
* DATE: Friday, February 6, 2009

TORONTO – Ontario should cap the cost of payday loans at $21 for every $100 borrowed and review that limit in two years, an independent advisory board has concluded.

But the short-term loans – which critics say rip off consumers with sky-high interest rates – should not be available to everyone, the group said Friday in a report to the Liberal government.

Payday loans should only be granted to consumers who can “realistically” be expected to pay them back on time, it said.

Loans shouldn’t be advanced to welfare recipients, for example, because they are too risky to both the borrower and the lender, it added.

Anti-poverty groups and the NDP have long complained that payday lenders prey on the poor and gouge consumers by charging annual interest rates of up to 800 per cent.

However, the board concluded that payday loans are expensive because they’re designed as small, short-term loans – not because the industry is earning huge profits.

Even the best payday lenders are making “unspectacular returns,” with the average profit margin on a loan hovering around 6.9 per cent, below the 2007 national average of 8.8 per cent for all industries, it said.

And research didn’t bear out the claim that payday lenders are taking advantage of low-income families, the board said.

Most borrowers are in “financial distress” but loans are generally advanced to those who have jobs, it noted.

Many welfare recipients can’t get payday loans because most lenders require employment as a condition of granting a loan, it said.

“We met only one lender who lends to people on welfare, and then only on a highly selective basis,” the report said.

It is illegal in Canada to charge more than 60 per cent interest per year, and studies have found that many payday lending companies are charging just under that amount.

Canadians borrow an estimated $2 billion a year through payday loans, with Ontario home to more than half of the 1,350 such businesses operating across the country.

Of the 750 payday loan stores in Ontario, almost half are already lending near or below the maximum amount recommended by the board, according to the Ontario government.

But it may be weeks before the government announces whether it will follow the board’s advice, said Sarbjit Kaur, a spokeswoman for Small Business and Consumer Services Minister Harinder Takhar.

If it does, many payday lenders will have to “significantly tighten their belts,” especially in smaller towns across Ontario, said Stan Keyes, president of the Canadian Payday Loan Association.

Despite the global economic downturn, demand for payday loans has been stable over the past few months, he said.

“Many people have lost their jobs, therefore don’t have a paycheque, and if you don’t have a paycheque, you don’t qualify for a payday loan,” Keyes said.

“Those who do have paycheques are making their paycheques stretch. They’re being more cautious with spending.”

Other provinces have already set limits on what payday lenders can charge their customers.

Nova Scotia companies can charge no more than $31 on $100 of borrowing, fees and interest included, while Manitoba caps the cost at $17 on $100 of borrowing for loans up to $500.

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island have all taken steps to regulate the industry after the federal government shifted the responsibility to them in 2007.

Quebec has effectively banned payday loan outlets by limiting the annual interest rate they can charge to 35 per cent.

The Maximum Total Cost of Borrowing Advisory Board for the Ontario Payday Lending Industry was created by the province to recommend an upper limit that would be fair to consumers while preserving a competitive payday loan industry.

Its 25-page report drew its findings from a number of sources, including consultations with key stakeholders and a study by consulting firm Ernst & Young.

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Temporary interest cap set for Manitoba Payday Loan industry

* PUBLICATION: The University of Winnipeg Student Weekly
* BYLINE: Sandy Klowak
* DATE: Thursday, January 22, 2009

The provincial government maneuvered its way out of a legal tug-of-war with payday money lenders recently by giving itself the official authority on capping loan interest rates.

The payday loan industry offers small, short-term cash advances with high interest rates. They can be a dangerous debt trap for some, said John Silver, executive director of Community Financial Counselling Services, a not-for-profit agency which offers debt management aid.

“The worst problem we see is people digging themselves into significant holes.”

Most payday loan companies enforce interest rates well over 60 per cent, legally defined as criminal, yet they are normally not prosecuted.

The Government of Manitoba introduced legislation in 2006 that would regulate the payday loan industry and set a maximum interest rate.

The provincial Public Utilities Board (PUB) was charged with determining a fair rate cap and in April 2008, they announced a rate that, while still over the criminal limit, would arguably allow most lenders to continue operating.

However, popular lender Cash Store Financial Services claimed this decision would put many lenders out of business. In early January the firm was granted permission to argue its case to the Manitoba Court of Appeal. It was also granted a stay of the PUB decision until a court ruling.

But on Jan. 7, the provincial government committed to designating itself as the official source on capping interest rates for payday lenders, effectively overruling the legal process.

“The purpose of the legislation is to protect consumers from exorbitant rates as well as to protect them from questionable business practices,” said Nancy Anderson, director of the Manitoba Consumers’ Bureau.

The province is also implementing further regulations which will come into effect after March 9.

Cash Store Financial Services declined to comment due to their involvement in the ongoing legal proceedings.

Not all community organizations are happy with the government involvement. Kimberly Weihs, executive director of the Manitoba Society of Seniors, is disappointed the government undermined PUB’s decision, in which they were involved.

“We want to make sure that… everyone has a say in how rates are decided,” she said.

While the PUB has a well-respected transparent decision-making process, Weihs fears the government’s process may not be as accessible.

She worries this shift will set a precedent for undercutting further PUB decisions.

Stan Keyes, president of the Canadian Payday Loan Association, representing 20 lenders including Money Mart, is glad the government is stepping in.

“We have been asking for strong consumer protection in balance with a strong competitive industry,” he said.

“When it comes to the rates, the PUB got it wrong.”

Keyes is concerned that the PUB’s low rate cap will drive small lenders out of business and create a monopoly, which is detrimental to consumers.

He is confident the government will take this into account when setting rates.

For Silver, all of these negotiations avoid the heart of the problem.

“There’s a potential to prey on people who can least afford to go into further debt,” he said.

For these people, “payday loans are the only place to turn because the current financial system doesn’t serve people who need payday loans,” Silver said. “There needs to be an alternative for people that can’t get credit.”

But Money Mart customer Dudley (last name withheld) doesn’t have a problem with loan rates as they are.

“If you need the loan then you need it,” he said.

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Manitoba legal ruling gives payday loan industry temporary interest cap victory

* PUBLICATION: The Canadian Press
* SECTION: National General News
* DATE: Tuesday, January 6, 2009

WINNIPEG – A Manitoba legal ruling has given the payday loan industry at least a temporary victory against attempts by the province to cap the rates they charge.

In a decision released Tuesday, the Court of Appeal says that payday lenders were unfairly treated by the Public Utilities Board when it announced the cap last spring.

“It is my view that there is an arguable case that merits the attention of the court as to whether the PUB has exceeded its jurisdiction and thereby erred in law,” said Justice Alan MacInnes in a 36-page written decision.

MacInnes’ ruling also puts the board’s order on the new rates on hold until the case is fully argued in court.

That means it’s business as usual for payday lenders despite the province’s plans to cap what the companies charge customers to borrow money.

“Clearly, this decision by the courts frustrates me as minister,” said Finance Minister Greg Selinger, the government’s point man on regulating payday lenders.

Selinger said the province still wants to push ahead with non-rate-related measures to protect consumers until the case is decided by the Court of Appeal. That includes a “cooling-off” period, when a loan is made so a customer can repay the money without paying a high fee, and total, upfront disclosure by quick loan companies of all fees.

Board spokesman Gerry Gaudreau said the public regulator is also studying the decision.

MacInnes’ decision only gives permission for The Cash Store Financial Services to fully argue at a later court date that the board acted beyond its scope in setting the new rates.

Cash Store spokesman Michael Thompson said the court’s decision is good news for consumers.

“There’s a high demand for our product, not only in Manitoba but right across Canada. People use it for a variety of reasons …groceries are high up on the list.”

Thompson said the Cash Store charges 20 per cent on a 10-day loan, or $80 to borrow $400.

The case goes back to last April when the board, after more than 20 days of hearings from all sides, capped the maximum cost of credit at 17 per cent for loans up to $500; 15 per cent for $501 to $1,000; and six per cent for loans between $1,000 and $1,500.

The board was acting on a move by the province to regulate the industry, which has been tarnished by high lending rates and was even the target of a 2004 city police investigation.

The Cash Store took the board to court and argued that the capped rates would drive many in the quick-loan industry out of business.

MacInnes agreed, saying the government’s need to protect consumers has to be balanced with protecting the industry.

MacInnes said there’s clear evidence many people use payday lenders at the unregulated rates. By bringing in fixed rates as outlined by the board, it could put the industry at risk as companies couldn’t earn enough profit to stay open. That, in turn, could create a situation where hard-pressed customers have to turn to less desirable sources to borrow money.

“In my view, this underscores the necessity for striking a balance between protection of the consumer and the existence of a regulated yet viable industry for use by the consumer,” MacInnes said.

Stan Keyes of the Canadian Payday Loan Association said it’s that balance the industry is striving, for not only in Manitoba but across the country.

“We want to see rates that protect consumers,” he said. “But those rates also have to protect the industry.”

Manitoba was the first province to tackle regulating payday lenders. Last August, Nova Scotia set the maximum cost of borrowing at $31 per $100 borrowed in an attempt to allow the marketplace to function properly while preventing lenders from charging excessive fees and charges.

Winnipeg payday loan customer John Clauss, 29, said he appreciates the service. “It’s just faster. It’s just you don’t have to deal with the banks and the lineups.”

(Winnipeg Free Press)

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Payday Loans

There are times when we cannot just wait for payday to come to fulfill certain financial obligations, especially emergency-related expenditures. With no option to wait for cash for several days more or too embarrassed to borrow money from family or friends, employed Canadians have payday loans to turn to.

Payday loans are short-term loans with small values intended to cover a borrower’s immediate or pressing expenses until the next payday. It is also referred to as a salary cash advance (to differentiate from a credit card cash advance). The loan is guaranteed against the security of the next payday’s salary. Payday loans can be granted from $100 up to a thousand Canadian dollars.

Borrowers can avail of payday loans in payday loan stores or private lending offices. Basic requirements include identification, proof of employment and required salary bracket (payslip or payment stubs), a bank account, and recent bank statements. The borrower writes out a check equivalent to the amount of the loan plus interest as guarantee. On the date of maturity, the borrower is expected to return to the lending facility to pay the loan. If not, the lender can withdraw the check guarantee against the borrower’s account.

Payday loans are quick to be granted but they often incur huge interest rates when compared against a longer-term loan. This is due to the short payment turnaround (two weeks) and the compounding interest computation, where interests accumulated daily become part of the principal, further increasing the interest rate.

But taking into account that payday loans are smaller in value and quickly processed, the interest rate is often ignored just so quick cash can be had. This is okay as long as the borrower pays the loan the next payday or as scheduled, otherwise, the quick cash would balloon into a huge financial obligation.

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