Michael Thompson is president of the Canadian Payday Loan Association. He recently wrote an article for The Hamilton Spectator expressing his view on his country's responses to these resources. Let's take a look at what he has to say …

Canada is one of the few countries in the world that doesn't regulate payday loans. As a result, the industry operates in a legal vacuum - and consumers are unprotected from its bad apples.

The Canadian Payday Loan Association has worked with federal and provincial governments to implement regulations for all payday advance lenders. We now see signs that governments are moving in the right direction. Federal Minister of Justice Vic Toews said last month that he would "seriously consider" a proposal by the government of Manitoba to quickly regulate the growing payday loan industry.

Manitoba has figured out faster than other governments that faxless payday loans are moving into the financial services mainstream. About two million Canadians now use a cash loan every year and more than 80%, according to a poll by Environics Research, are satisfied with the service. More Canadians have access to payday loans than ever before.

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After watching payday loan outlets proliferate rapidly across Canada with little or no regulation, the federal government appears poised to hand over control of the controversial short-term lending industry to the provinces.

Banks, insurance companies, utilities, credit unions are all bound by an article in the Criminal Code that prevents them from charging APRs of more than 60 percent. The payday loan industry, on the other hand, has floated under the radar for years at times charging rates that hover in the triple digits when various fees and charges are factored in.

Before the country's most recent election was called, Canadian government officials were about to introduce legislation that would allow companies offering payday advances to skirt the 60 percent limit as long as provinces came up with their own regulations. Justice Minister Vic Toews now says he's also favorable to the plan.

"That is a mechanism that I think has some merit and I will very seriously consider that," Toews said.

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During their lunch hour Friday, nore than a dozen people gathered at a Scarborough Money Mart store to protest high interest rates.
The demonstration at 2377 Eglinton Ave. E. near Kennedy Road was one of more than 30 across North America organized by the Association of Community Organizations for Reform Now (ACORN). The demonstration gradually moved inside, where one protester presented a clerk with a letter, signed by an ACORN member, to the president of the National Money Mart Company.

“We call on you to abandon the [payday loan] lending practices that harm thousands of low-income people who make regular use of your company’s products,” the letter said. “ACORN has been leading the way in Canada in calling for very specific reforms of the payday lending industry as it is now conducted …” (more…)

NDP MP Pat Martin (Winnipeg Centre) isn’t a huge fan of the payday advance industry. Of lenders that provide these loans, he said:

“These people should be dragged into the street and shot.”

This sounds a bit extreme. Fortunately, Finance Minister Greg Selinger’s proposed legislation strikes a balance to ensure payday loan companies aren’t run out of business, while protecting the consumer from being gouged from excessive interest.

Here’s what the bill proposes: The typically exorbitant fees charged by payday loan companies will be capped and extra charges for renewing a loan will be prohibited under new legislation introduced by the province yesterday to control this industry.

Once the province’s bill is passed into law, the Public Utilities Board (PUB) will have the authority to set the maximum cost of credit that lenders can charge for payday loans, said Selinger.

“We’ve decided to do it through an arm’s-length body, to de-politicize it,” said Selinger, noting the fees will be set after the public and interested parties have had a chance to speak at a public forum.

The payday loan companies will also have to be licensed and bonded and borrowers will have to receive a documented warning about the high cost of the loan - a move aimed to edcuate Canadians that seem to be unaware of the costs of payday loans.

Borrowers will also not be able to borrow money on wages they haven’t earned yet and will have a 48-hour cooling off period to cancel the contract without penalty.

“We do not see this as putting the mainstream payday lender out of business,” said Selinger, noting there is a need for the service in many communities.

Under the legislation, the Manitoba Consumers’ Bureau will have the right to inspect records and suspend an operator’s licence if they aren’t following the regulations. Plus, if there is evidence that payday loans are offered through an unlicensed agency, the bureau can shut it down.

The Dollar Financial Group has acquired 11 payday loan stores in western Canada and will soon complete deals for two more in the region, the Philadelphia Business Journal said Monday.

National Money Mart (Dollar’s Canadian subsidiary), which had minority ownership in seven stores.

The acquisition is valued at an estimated $16.8 million in addition to a portion of the loan portfolio, liquid assets, and other items.

Dollar Financial, headquartered in Berwyn, Pa., now operates 1,340 stores in 36 states, the District of Columbia, Canada and the United Kingdom. The locations offer check-cashing, short-term payday loans, money orders and other services.

The Federal Deposit Insurance Corp. (FDIC) expressed concern last month over Dollar’s “CustomCash” payday loans and installment loans. The FDIC has been subjecting lenders and partnering banks to closer scrutiny recently, with some companies in some states (such as North Carolina) deciding to stop making payday loans.

If the FDIC takes action that will decrease the company’s CustomCash revenue, Dollar has said it will pursue alternatives to mitigate the potential future loss of revenue. This may include company-funded payday loans that are regulated under prevailing state laws and can be just as easily distributed to the prospective customers.

The Pennsylvania payday loan giant does not appear to be deterred by the recent backlash against its Canadian subsidiary and other industry operations. It will be interesting to see if this acquisition helps boost the revenue of an already thriving enterprise.

The provincial government is investing in a project to assist low-income people in managing their money in an attempt to tackle the problem of payday lending companies that provide short-term cash advances at high interest rates.

The Community Financial Service Centre, an initiative by the North End Community Renewal Corporation, will provide money-management training as well as small, low-interest, short-term loans to help its clients improve their bad credit history.

“It’ll give people alternatives,” said Manitoba Finance Minister Greg Selinger. “Instead of going to payday lenders, they will get ID, they will get access to mainstream institutions, they will get support on how to do better financial planning. All of those things will reduce their dependence on payday lenders.”

Michael Thompson, vice-president of the Canadian Payday Loan Association, doubts the program will deter the people who use payday loan companies. He says the program appears to target another segment of the population.

“Payday loan customers, as a matter of course, have to have a bank account already, so although the government may wish to counter payday lenders with the lending institution, it’s not going to have any impact on our business at all because it’s targeted at a consumer segment that doesn’t use our product,” he said.

However, Selinger says studies have suggested payday loan companies take advantage of people who are not able to obtain short-term loans at “mainstream” banks.

Selinger also plans to introduce legislation this spring to regulate the payday lending industry. In the past, he has said such legislation would outlaw the practice of customers giving payday loan providers the right to seize part of their paychecks, while banning rollover loans that see customers take out a second loan to pay off the first, at compound interest.

The federal government, which governs interest rates, made it a criminal offence to charge an annual rate of more than 60 per cent. Consumer advocacy groups have complained, however, that when one tallies in service fees and loan extensions, the interest rate can top 1,000 per cent.

The Community Financial Service Centre, which is also receiving support from the federal and municipal governments, is expected to open in the North End by September. Participants will be referred to the program by other community organizations.

The Toronto Star reports that this week was not a good one for National Money Mart, a Canadian company that sells itself as a convenient means for real people to get fast cash.

First, the chain of 350 payday loan outlets was criticized by a grassroots organization known for its campaigns against predatory lending here and south of the border. Then, the Supreme Court of Canada dismissed a bid by the company, owned by U.S. parent company Dollar Financial Corp., to derail a class-action suit launched by Windsor, Ont., pensioner Margaret Smith, who alleges the fees and interest violate Canadian law.

"It puts a little bit of heat on Money Mart," said lawyer Jasminka Kalajdzic, of Sutts & Strosberg, the Windsor law firm representing Smith. "It's a major event in that, had they won, that effectively would have been the end of class-action litigation against Money Mart."

The Supreme Court of Canada dismissed Money Mart's bid to throw out lower court decisions that found waivers the company had customers sign did not preclude them from suing the company.

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Thunder Bay, Ontario — There's been a class action lawsuit against the parent company of the two former Instaloans in Thunder Bay.

Customers in Ontario, Manitoba and Saskatchewan, who took out payday loans between Jan. 1, 1998 and April 21, 2005, have until 4:30 p.m. on Jan. 31, 2006 to register.

Calgary lawyer Bill McNally, who is representing the customers, said people making a claim can call toll-free 1-866-662-3452 or go his website. You will need to and provide your name, mailing address, social insurance number, and location of the outlet where the loan was obtained.

McNally feels between 10 to 20% of the 75,000 effected customers will join in the law suit.

Although the legal limit for payday loans is 60% in Ontario, the lawsuit claims Instaloans was charging as much as 650% interest on instant payday loans.

Winnipeg, Canada — After months of lobbying, the Canadian federal government has agreed to give the provinces the power to crackdown on the payday loan industry.

Amendments will be made to the criminal code this fall that gives provinces the right to enforce maximum interest raes and fees.

The Criminal Code currently limits interest rates to a maximum of 60 per cent per year. But Greg Selinger, Manitoba Finance Minister, and other provincial ministers have complained that the law is rarely enforced. Thus, the no faxing payday loan agencies are becoming more and more popular in the province.
Mr. Selinger is also planning new provincial legislation this fall that will forbid loan companies from offering so-called "rollover" loans, where a customer takes out a second loan to pay off the first and the interest is compounded.

Ottawa, Canada — According to a recent poll, Canadians don't know the true cost of using payday loan companies.

About 60% figured the rate was at or somewhat above credit-card interest charges, which generally range from 15-25% a year. Another 25% of respondents guessed it was less than credit-card rates.

So almost 85% of people thought interest rates were 25% or less. Of course when a $300 loan over two weeks costs $50 in fees you'd never guess the interest rate was higher. In fact, you'd probably guess the interest rate was around 20%. However, remember you have a couple weeks to pay it back, not the entire year. If you figure out the interest over the year (which is how APR is computed), that's actually 435% APR. That makes cash loans pretty darn expensive.
Looks like the Canucks are a little low on this one.