June 05, 2009
Under new regulations unveiled by Alberta yesterday the lending rate payday loan companies charge will be capped at $23 per every $100 borrowed.
That figure will be the total cost and includes interest charges and other fees.
“It’s a great day for consumers,” Service Alberta Minister Heather Klimchuk said at a press conference in Edmonton.
The government also banned rollover loans, in which lenders give consumers loans at an additional cost in order to pay previous loans. Hidden fees will be outlawed, and lenders will be required to fully disclose their costs by displaying them in their stores on their website.
In addition, consumers will have a “cooling off” period where they will be able to cancel the loan within two days and return the money without incurring any costs.
There are currently 19 payday loan companies operating 232 locations province-wide. They will now be required to be licensed by the provincial government.
“This regulation with all of its measures put in place is a solid framework for our province. It balances a need for strong consumer protection while ensuring that industry can operate,” Klimchuk said.
Alberta now becomes the fifth province to regulate the payday loan industry. Nova Scotia set the lending rate at $31 per every $100; British Columbia $23; Ontario $21; and Manitoba $17.
Most of the regulations will come into effect on Sept. 1. The federal government must approve the maximum cost of borrowing, and Klimchuk said she is hopeful to have that in place by Jan. 1.
Payday lenders will have to follow the new rules or “face consequences,” Klimchuk said. She said there would be penalties for lenders who violate these rules, including a maximum fine of $100,000 and/or up to two years in jail.
“The measures we’ve announced are strong, effective, and enforceable,” she said. “Service Alberta will conduct random audits of payday lenders and investigate any complaints.”
Stan Keyes, president of the Canadian Payday Loan Association, said the rules were long overdue and will ensure “that consumers are protected from a minority of those companies who have bad business practices, who charge exorbitant rates.”
Many of the elements of Alberta’s new regulations are already a part of the CPLA code of best business practices, Keyes said from his Hamilton, Ont., office. “They’re adhered to by our CPLA members and our CPLA members have been asking for strong consumer protection legislation in all the provinces, in balance with a viable industry, a competitive industry, and Alberta announced just that today.”
But James Doherty, Alberta regional manager for Cash Central Financial, which has a location in Grande Prairie, said while most of the new rules are welcomed, he is in disagreement with the rollover ban.
“You can’t cut out the rollover system, not only for the company but for the client themselves,” Doherty said from Sherwood Park. “If you cut them out you’re forcing the individual to pay out the loan in full, which is not necessarily a bad thing, but things happen – your car could break down – and people can’t afford to pay back the loan, then they go in default. So now you’re going to see an increase of huge amounts of defaults across Alberta.”
However, he said that “it’s about time that we see some of these changes, it needed to be done” and it will force companies to “start treating the customers with the respect that they deserve.”
More than two million Canadians have used the short-term loans, which are capped by the federal government at $1,500. The CPLA says the average loan is $280 for 10 days.
Source: Dailyheraldtribune.com
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