Canadian officials are going after the payday loan industry, and the industry is now fighting back.
Last week, Thunder Bay City Councillor Shelby Ch’ng confirmed that she intends to introduce legislation that would require payday loan businesses to post signs about its interest rates and where the stores can be established. This, she says, would protect the vulnerable and increase financial literacy.
The Thunder Bay official present a resolution on October 31 and request a report from city administration. She conceded that this is the responsibility of senior governments, but noted that municipalities across the Great White North can do their part as well to defend consumers.
One industry representative says that companies that offer bad credit loans already offer their customers financial education pertaining to the cost of borrowing short-term, high-interest funds.
Tony Irwin, president of the Canadian Payday Loan Association (CPLA), referred to recent Ontario government legislation that mandate member agencies to pay an annual licensing fee. The same regulations make payday loan stores post signs that highlight the cost of such loans.
In other words, Irwin says the industry follows a “robust” set of regulations.
“Our members are required to post signs that show the cost of the loan, equated both in terms of cost per $100, as well as show a comparison of the cost of the payday loan versus the cost of a credit card,” he said. “The province requires our members pay a $990 annual licensing fee per location, and the province has inspectors who come out to our member locations and make sure they’re compliant with the regulations.”
Irwin noted that payday loan businesses work closely with the Ministry of Government and Consumer Services.
He further stated that payday loans are expensive products to offer to consumers, but averred that they are “very much in need.” The reason why is because these stores allow money to be available to consumers who have very few other borrowing options since they lack access to traditional forms of credit and banking options.
“In terms of the cost to run the stores, certainly the cost of capital is higher than it would be for other industries. The nature of the loans themselves end up being perhaps higher risk than some others and there are some loans that go into default. All those costs go into what’s required to provide this product,” he said.
In Ontario, payday loan businesses charge $18 per $100. This is one of the lowest in the entire country. British Columbia, Manitoba and Alberta currently maintain the lowest charges for payday loan products.
According to Statistics Canada, the payday loan industry is a $2 billion industry. On average, Canadian consumers borrow roughly $300 until their next payday. The number of Canadians taking out a payday loan surged from just under two percent in 2009 to nearly five percent last year.
As the cost of living goes up, the economy stagnates, paychecks shrink and debt levels rise, a growing number of Canadian households are taking out payday loans just to keep their heads above water.