Alberta Delays Payday Advance Legislation
Alberta will not be joining four other provinces which have introduced new legislation or regulations governing instant payday loan companies until at least next year.
Provinces have had the authority to regulate payday loan companies since last October when Parliament introduced legislation giving them that power.
Earlier this month, the Manitoba government unveiled rules, which will take effect next winter, that will force instant cash stores to post signs saying that Payday Loans are High Cost Loans, and detailing the cost of a two-week loan.
Nova Scotia, British Columbia and Saskatchewan all have similar legislation.
The industry of faxless payday loans has been under fire for its charges, which amount to high annual interest rates. For instance, according to the loan calculator on Money Mart’s website, a $300 loan for two weeks costs $57.90, an effective annual rate of over 500%.
Cam Traynor, spokesman for Service Alberta which deals with consumer issues, said the government will start consulting with consumer groups and the loan industry this fall.
“It takes time to get it right,” Mr. Traynor said. “It’s not regulated provincially and we’re starting from scratch.”
Traynor said it is too early to say whether it would require legislation or just regulations, which would be a less onerous process. He also couldn’t say whether there would be limits on the interest rate that cash advance payday loan stores should be able to charge.
About 40% of the cash stores are represented by the Canadian Payday Loan Association, which is headed by former federal Liberal cabinet minister Stan Keyes. He said last week that the industry is looking for respectability, and it welcomes regulations to weed out the bad players.
“It’s been mired in a bad reputation because of hundreds of companies that have bad business practices,” Keyes said.
He added that there has to be a balance between consumer protection from gouging and giving the no fax payday advance stores a reasonable income.
His association has a voluntary code that includes a 31-day, $1,500 limit on loans and no “rollovers,” or compounding the interest after the term of the loan expires. He couldn’t say what a reasonable rate of interest is, but because they are short-term and high-risk with no credit check and a 20% default rate, it would have to be higher than banks offer.
Two-million Canadians use fast payday loans every year. Mr. Keyes said it is a necessary service in a society where so many people live from paycheck to paycheck.