Payday Loans

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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