The British Columbia Payday Loan Association (BCPLA) called on the provincial government to hear witnesses on Bill 27, the Business Practices and Consumer Protection (Payday Loans) Amendment Act.

BCPLA spokesperson, Kevin Isfeld, criticized government officials for introducing cash advance payday loan legislation without first conducting direct consultations with the industry. The BCPLA represents 24 member companies that comprise 65 percent of operators in the province.

“This legislation contains many elements that are bad for consumers and industry operators, including provisions to regulate third-party service providers and the retroactive application of fines that could put many legitimate operators out of business,” said Mr. Isfeld.

“This government has conducted no direct consultations with BC operators. Our members are angry and concerned,” he added.

The BCPLA is a supporter of consumer protection measures. Its members are committed to legislation that will strike a proper balance between consumer protection and a competitive no fax payday advance lending environment. Bill 27, as written, fails to achieve this balance.

“The BCPLA believes that the government of British Columbia can redress shortfalls in the legislation by conducting committee hearings at which all stakeholders can make their views known. The government can then amend the Act to achieve the required balance,” Mr. Isfeld said.

The BCPLA demands an opportunity to appear as a witness before the legislature.

Federal legislation giving provinces the power to regulate the sometimes faxless payday loan industry has cleared its final hurdle.

The Senate has approved a bill, in the works since 2005, aimed at ending legal uncertainty over the high-interest, short-term loans provided by payday loan operations. The Conservative government has said the bill is also designed to protect consumers from questionable business practices.

It is currently illegal under federal law to charge annual interest of more than 60 percent. Bad credit cash loan outlets usually lend money for only a matter of days but, if calculated on an annual basis, they are effectively charging up to 1,000 per cent interest.

Payday loan companies have complained that imposing the 60 percent limit on short-term loans is unfair and would make it impossible for them to even cover their basic administration costs.

The legislation allows provinces to permit interest charges above 60 percent, provided that they institute legal protections for faxless payday advance customers.

In anticipation of the federal law being approved, Manitoba and Nova Scotia have already passed the required consumer protection legislation. Similar legislation is in the works in British Columbia and Saskatchewan, and other provinces are expected to follow suit.

The Canadian Payday Loan Association, which represents 500 of the 1,350 outlets operating in Canada, congratulated the government and Liberal-dominated Senate for finally passing a law that “balances consumer protection with a viable industry.”

“For the first time, provinces will be given real authority to regulate the best players in the industry while putting the worst players out of business,” said association president Stan Keyes.
The association estimates that more than 2 million Canadians use payday loans every year to make ends meet between paycheques.

Supposedly cheap payday loans are attractive for their convenience, but lenders have been prone to some dodgy dealings, according to statistics Canada study released Friday.

In 2005, three percent of Canadian families took out so-called payday cash loans or short term loans, of up to $1000.

The convenience is great for families looking to bridge financial gaps between paychecks for unexpected expenses, but it is a slippery slope for families close to the edge of a credit abyss.

High borrowing costs, insufficient disclosure of contract terms and unfair collection practices were all cited as questionable by the researchers involved in the no fax needed payday loan study.

Potential borrowers were four times more likely to be behind in bills or loan payments in the study published in the April Perspectives on Labour and Income. They were also more likely to have very little savings and no credit cards or been refused by the big banks for credit.

Nearly half of fast payday advance users in the study said they don’t have anyone to turn to if they needed help with finances, which is significantly higher than non-users.

Families with little savings or no credit cards and are struggling to pay their bills are significantly more likely to have used instant payday loans than those with more financial options, according to Statistics Canada.

The agency said in a study released Friday that families with $500 or less in the bank were 2.6 times more likely to have used payday loans than those with between $2,000 and $8,000.

The short-term loans require no credit check and typically dole out amounts of about $100 to $1,500. They’ve been criticized for being the most expensive legal way to borrow money.

Charges keep adding up: They come with a range of fees and added charges for clients who keep rolling over loans from week to week and month to month if they’re unable to pay back the original loan.

Published in the April issue of Perspectives on Labour and Income, the study examines the characteristics and behaviours of payday loans borrowers, using first-ever data on these fast cash loans from the 2005 Survey of Financial Security.

Payday loans were dubbed as such for the method of paying them back. When you sign the loan agreement, you leave a cheque, dated for your next payday, which covers the amount of the loan and the fees and service charges.

Families behind in bill or loan payments were more than four times as likely to have used payday cash advances than those who were able to keep up, the study found.

“Concerns have been raised about questionable practices within the payday loan industry, including high borrowing costs, insufficient disclosure of contract terms, unfair collection practices, and spiralling debt loads resulting from loans being rolled over,” Statistics Canada said.

Despite a rise in the number of payday transactions, relatively few Canadians use this kind of service. Less than three percent of families had taken such a bad credit payday loan in the three years ending in 2005, Statistics Canada said.

Almost half of those families had spending that outstripped their incomes.

Families who had been refused a credit card were more than three times as likely to have had a payday loan than those who had been granted a card, the report said.

The British Columbia Payday Loan Association (BCPLA) today applauded the provincial government for consumer protection legislation introduced yesterday that will clamp down on unethical business practices by some quick payday loan lenders.

Once passed, the government intends to introduce regulations to limit fees and interest rates that lenders can charge their customers.

However, BCPLA spokesman Kevin Isfeld cautioned the government against introducing rate caps that will restrict choices for consumers and he called for an independent study on fast payday advance rates.

“The payday loan industry in British Columbia is highly competitive and there is a high demand for short term loans. There are multiple providers who service a wide range of clientele. Rate caps that are too restrictive will damage competition and restrict choice for consumers,” said Mr. Isfeld.

“There can be no question that if the government sets rates that are too low, most operators will be forced out of business. A lot of people who have need for the service won’t be able to get a payday loan,” he added.

The BCPLA is a strong supporter of consumer protection and accepts that the government will be implementing faxless cash advance caps.

To do so in a manner that balances consumer protection with a competitive lending environment, the BCPLA urges the government to undertake a comprehensive study of the industry that reviews the business practices, operational costs, expenses, and risk profiles of all industry participants in the province. This study must also include a review of the overall economic circumstances that have precipitated the rapid growth of the industry of bad credit payday loans.

“This study will provide regulators with a clear picture of what operators are currently charging and thus an accurate, timely and market-specific benchmark for rate-setting,” said Mr. Isfeld. “The BCPLA would be more than happy to fund this study and have it conducted by an independent body.”

Two of Canada’s big banks are supporting predatory lending by owning shares in online payday loan and subprime operations, says a grassroots advocacy group.

But both TD Canada Trust and the Royal Bank of Canada yesterday questioned the accuracy of a report, entitled A Conflict of Interest: How Canada’s Largest Banks Support Predatory Lending, to be released today by the Association of Community Organizations for Reform Now (ACORN).

“Banks have created an economic apartheid and we demand that banks divest their stocks from all institutions that are part of the predatory economy, such as subprime mortgage and payday lenders,” said Mohanie Ramanha, the group’s leader.

DATA ACCURACY AN ISSUE

In its report, ACORN lists a number of payday advance lenders and subprime mortgage firms in Canada and the U.S. that it says TD and RBC have invested in.

It stated TD has the biggest holding, including shares in Money Mart, the largest payday lender and cheque casher in Canada.

“The accuracy of the data is an issue,” said Simon Townsen, a TD Bank spokesman, who added the bank makes investments based on sound business decisions that are compliant with regulations.

Beja Rodeck, spokesman for RBC Financial Group, denied the company holds the cash advance loan investments listed in the report.

“If we do hold any positions, they are incredibly small. We feel it would be a stretch to assume we are supporting predatory lending,” said Rodeck.

But Ramanha said ACORN stands behind the research, and is demanding Canada’s big banks stop practices that force high-risk borrowers into the mouths of these faxless cash advance lenders with their usury rates of interest.

For example, the report states some bank customers are forced to take out a payday loan to avoid paying the $37.50 per cheque NSF fee charged by TD.

In the report, ACORN states these payday lenders, which offer short-term loans, charge between 380% to 900%, with a customer paying up to $90 in fees just to borrow $300 for two weeks.

Canada’s Criminal Code mandates annual effective rates of interest not exceed 60%.

This report comes as Canadian banks are already on the hot seat for high service fees, while in the U.S., regulators are clamping down on subprime lenders.

Meanwhile, Saskatchewan yesterday joined Manitoba and Nova Scotia, with new laws to set maximum limits on no faxing payday loan costs, and to clamp down on unfair collection methods.

Another province has announced plans to regulate the pay day loan industry.

Saskatchewan’s NDP government says it plans legislation that will set maximum limits on the costs of instant payday loans, while addressing consumer concerns that companies are using unfair collection methods.

The province says the legislation will harmonize Saskatchewan’s laws with ones that have recently been passed in Manitoba and Nova Scotia.

“Payday loans are a very expensive way for consumers to meet their temporary credit needs,” Saskatchewan Justice Minister Frank Quennell said in a release on Monday.

“However, there is a demand for these short-term [fast cash loans] as seen by the tremendous growth in the industry. It is important that we protect consumers who access these loans by putting appropriate regulations in place.”

Payday loans are small, cash advances that are repaid to the lender at the time of the borrower’s next payday. The businesses have become common sights in Canadian cities, and their numbers are growing.

The federal government has already proposed a law that would allow provinces to regulate the industry if they introduce specific consumer protection legislation, and set caps on fees and charges attached to cash advance loans.

In addition to setting repayment limits, the Saskatchewan Payday Loans Act would require payday lenders to be licensed, would prohibit lenders from taking security on the loan, and would make it illegal for lenders to have than one payday loan with the same borrower.

It would also prohibit payday lenders from requiring a borrower to sign over future wages.
In January, an Ontario judge certified a class-action lawsuit against payday loan company Money Mart and its parent, Dollar Financial Group, that claims the rates it charges are excessive.

Currently, the Criminal Code makes it an offence to charge more than 60 percent interest a year.

Started by Margaret Smith of Windsor, Ont., on Dec. 23, 2003, the plaintiffs in the lawsuit argue that short-term payday loans end up costing borrowers interest rates that are in fact criminally high.

Local MP Colin Carrie is working with his government to push provincial regulation of the no fax payday loans industry.

Dr. Carrie, MP for Oshawa and parliamentary secretary to the minister of industry, appeared at the Senate Committee on Banking, Trade and Commerce this week to explain bill C-26, which received third reading earlier this month.

The bill amends the Criminal Code to exempt payday cash loans from criminal sanctions, allowing for provincial regulation of the industry.

“As more Canadians make use of payday lending, Canada’s new government is taking steps to ensure that the industry be properly regulated,” Dr. Carrie said. “We are getting things done for families and taxpayers by giving provinces and territories the tools they need to protect consumers and deal with questionable business practices.”

A cash advance payday loan is a short-term loan for a relatively small sum of money. Loans are often provided in cash, although a number of lenders provide money on a debit card. In order to qualify for a payday loan, the borrower must have a steady source of income, usually from employment but also from pensions or other sources and a bank account.

Payday lending is a rapidly growing industry in Canada. While it was non-existent before 1994, the industry has grown to more than 1,350 outlets nationwide, accounting for an estimated $1.7 billion in lending each year.

Currently, there are no federal or provincial regulations to set limits on interest rates charged by these no fax payday advance lenders, prompting concern from consumer advocacy groups and politicians.

The Canadian Payday Loan Association is calling on provincial governments to set the maximum allowable charges and fees for regular and online payday loans at $20 per $100, or an equivalent maximum.

The association says the move is expected to divide and more clearly differentiate the 23 association members from the 60 perecent of payday advance lenders who refuse to abide by a strict code of best-business practices.

The federal government has proposed a new law that would allow provinces to regulate the industry if they introduce specific consumer protection legislation and set caps on fees and charges attached to payday loans.

Association president Stan Keyes says the move should serve as a wake up call for supposedly low cost payday loan lenders that are not serious about providing services at reasonable prices and “only care about lining their pockets by gouging consumers.”

Keyes says any payday lender claiming they cannot operate with a $20-per-$100 cap in place is not serious about protecting consumers and should be shut down.

He added that most providers of payday advances have quit or not joined the industry group because they are not prepared to abide by its strict code of conduct.

An Ontario judge has certified a class-action lawsuit against payday loan companies that claims their rates are excessive.

The suit seeks $515 million from Money Mart and its parent, Dollar Financial Group.

The plaintiffs argue that short-term payday loans end up costing borrowers interest rates that are criminally high.

The action alleges that Dollar Financial and Money Mart “conspired, among other things, to unlawfully cause the plaintiffs to pay interest at a criminal rate.” None of the claims have been proven in court.

The plaintiffs’ lawyer, Harvey Strosberg, says he’s “delighted” the suit can proceed and says he hopes to get it to trial as quickly as possible in order to prove how unlawful cash loans can be in the country.

The class action was started by Margaret Smith of Windsor, Ont., on Dec. 23, 2003. The lawsuit is going ahead in the absence of legislation to make payday loans legal.

A bill is going through the parliamentary system right now for just such a purpose , but no payday cash advance law exists yet.

A spokesman for the Canadian Payday Loan Association said from Ottawa that the umbrella group representing the industry will not comment on the lawsuit.