World News >> Finance >> Business >> B.C. moves to regulate payday loan companies to better protect consumers
B.C. moves to regulate payday loan companies to better protect consumers
Dirk Meissner, THE CANADIAN PRESS 2009-03-02 20:29:00 
VICTORIA, B.C. - He wears a big white blanket with the name Jesus sewn in large red block letters, but says that's not his real name.
He wouldn't provide his real name as he leaves a crowded Victoria payday loan location Monday with what's left of his $800 monthly disability cheque - the money he needs to live on for the next month.
"I think they take about $20 for every hundred," he said. "I'm here every month with my disability income."
And he is not alone. The payday loan store was bustling Monday in these hard economic times.
The B.C. government introduced regulations Monday to protect financially vulnerable people like this man from massive interest and fee charges from short-term payday lenders, joining most other provinces who have regulated or are in the process of regulating payday lenders.
Such lenders have been the targets of class-action lawsuits in several provinces over the high fees and interest rates they charge.
Alberta's Cash Store settled out of court, giving customers $1.5 million in cash and $1.5 million in credit vouchers after a class action case was launched in that province.
Last month, a B.C. Supreme Court judge certified class-action lawsuits against three payday lenders alleging that fees they charge amount to illegal interest.
B.C. Solicitor General John van Dongen said the provincial government will cap interest rates and fees from payday lenders at 23 per cent of the principle borrowed. Some B.C. payday lenders are charging interest rates as high as 30 per cent for the average two-week loans - which can accumulate to 782 per cent a year, he said.
The Victoria man in the white Jesus blanket said he approved of the caps.
"That's great, thanks for the message," he said.
The new regulations take effect Nov. 1, when B.C. payday loan companies must be licensed by the Business Practices and Consumer Protection Authority. It's not soon enough for some.
Another man leaving the payday loan location said he borrowed $750, but must repay $1,000 in two weeks. He said he wanted the fees and rates reduced to about 17 per cent, similar to what credit card companies charge.
Fines of up to $50,000 and prison sentences of up to one year are also part of the new regulations.
Van Dongen said the regulations attempt to strike a balance between consumer need for short-term payday loans and protection from exorbitant interest and fee costs for borrowers.
He said the 23-per cent cap still results in an accumulated annual interest rate of 600 per cent, which he said remains high.
"It's certainly not a form of credit that we would encourage consumers to use."
The regulations, including the cap on interest rates and fees, also force payday loan companies to display posters showing their interest rates.
"Very often the real cost was masked by the fact that there was a lot of additional charges," van Dongen said.
The regulations stop the loan companies from collecting money directly from the borrower's employer and prevent them from gaining unrestricted access to a borrower's bank account.
The Credit Counselling Society of B.C. said the new regulations are an important first step in protecting people battling mounting debt loads.
"Go to a bank first, or a credit union," said Skip Triplett, vice-chairman of the Credit Counselling Society of B.C. "I think a lot of people would find that they are eligible for a loan from those at much more reasonable rates."
Triplett said his organization helped 15,000 people with credit problems last year, an increase of 40 per cent.
But Opposition New Democrat Rob Fleming, who has advocated for stiffer regulations for payday loan companies, said the changes don't go far enough.
He noted that Manitoba has capped payday loan interest charges and fees at 17 per cent.
"This ensures that high-interest, consumer-gouging payday lenders are going to continue to make huge profits at the expense of ordinary British Columbians," he said.
The B.C. government passed payday loan legislation in 2007 but the regulatory changes follow amendments the federal government made to the Criminal Code in 2007, allowing provinces to set their own rates for payday lenders.
Canadians borrow an estimated $2 billion a year through payday loans.
In Ontario, the Liberal government is examining capping rates and fees at 21 per cent and Nova Scotia companies can charge no more than 31 per cent, fees and interest included.
Manitoba caps the cost at 17 per cent of borrowing for loans up to $500.
Quebec has effectively banned payday loan outlets by limiting the annual interest rate they can charge to 35 per cent.
He wouldn't provide his real name as he leaves a crowded Victoria payday loan location Monday with what's left of his $800 monthly disability cheque - the money he needs to live on for the next month.
"I think they take about $20 for every hundred," he said. "I'm here every month with my disability income."
And he is not alone. The payday loan store was bustling Monday in these hard economic times.
The B.C. government introduced regulations Monday to protect financially vulnerable people like this man from massive interest and fee charges from short-term payday lenders, joining most other provinces who have regulated or are in the process of regulating payday lenders.
Such lenders have been the targets of class-action lawsuits in several provinces over the high fees and interest rates they charge.
Alberta's Cash Store settled out of court, giving customers $1.5 million in cash and $1.5 million in credit vouchers after a class action case was launched in that province.
Last month, a B.C. Supreme Court judge certified class-action lawsuits against three payday lenders alleging that fees they charge amount to illegal interest.
B.C. Solicitor General John van Dongen said the provincial government will cap interest rates and fees from payday lenders at 23 per cent of the principle borrowed. Some B.C. payday lenders are charging interest rates as high as 30 per cent for the average two-week loans - which can accumulate to 782 per cent a year, he said.
The Victoria man in the white Jesus blanket said he approved of the caps.
"That's great, thanks for the message," he said.
The new regulations take effect Nov. 1, when B.C. payday loan companies must be licensed by the Business Practices and Consumer Protection Authority. It's not soon enough for some.
Another man leaving the payday loan location said he borrowed $750, but must repay $1,000 in two weeks. He said he wanted the fees and rates reduced to about 17 per cent, similar to what credit card companies charge.
Fines of up to $50,000 and prison sentences of up to one year are also part of the new regulations.
Van Dongen said the regulations attempt to strike a balance between consumer need for short-term payday loans and protection from exorbitant interest and fee costs for borrowers.
He said the 23-per cent cap still results in an accumulated annual interest rate of 600 per cent, which he said remains high.
"It's certainly not a form of credit that we would encourage consumers to use."
The regulations, including the cap on interest rates and fees, also force payday loan companies to display posters showing their interest rates.
"Very often the real cost was masked by the fact that there was a lot of additional charges," van Dongen said.
The regulations stop the loan companies from collecting money directly from the borrower's employer and prevent them from gaining unrestricted access to a borrower's bank account.
The Credit Counselling Society of B.C. said the new regulations are an important first step in protecting people battling mounting debt loads.
"Go to a bank first, or a credit union," said Skip Triplett, vice-chairman of the Credit Counselling Society of B.C. "I think a lot of people would find that they are eligible for a loan from those at much more reasonable rates."
Triplett said his organization helped 15,000 people with credit problems last year, an increase of 40 per cent.
But Opposition New Democrat Rob Fleming, who has advocated for stiffer regulations for payday loan companies, said the changes don't go far enough.
He noted that Manitoba has capped payday loan interest charges and fees at 17 per cent.
"This ensures that high-interest, consumer-gouging payday lenders are going to continue to make huge profits at the expense of ordinary British Columbians," he said.
The B.C. government passed payday loan legislation in 2007 but the regulatory changes follow amendments the federal government made to the Criminal Code in 2007, allowing provinces to set their own rates for payday lenders.
Canadians borrow an estimated $2 billion a year through payday loans.
In Ontario, the Liberal government is examining capping rates and fees at 21 per cent and Nova Scotia companies can charge no more than 31 per cent, fees and interest included.
Manitoba caps the cost at 17 per cent of borrowing for loans up to $500.
Quebec has effectively banned payday loan outlets by limiting the annual interest rate they can charge to 35 per cent.
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