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Payday lender battles fee limit in court

Cash Store opposes cap of $17 for every $100 loaned

By: Mary Agnes Welch

Posted: 07/28/2010 1:00 AM | Comments: 0 (including replies)

‘The effect will be a continued exploitation of a lot of people who, unfortunately, have few options’ -- Wayne Helgason (MIKE DEAL / WINNIPEG FREE PRESS)

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(MARK REIMER/WINNIPEG FREE PRESS)

Cash Store chronology

2006 -- A police investigation uncovers one payday lender charging its customers effective annual interest rates as high as 20,000 per cent on small, short-term loans. The legal rate is 60 per cent interest under the Criminal Code. That, and the proliferation of payday loan shops in the inner city, prompts the Manitoba government crackdown on the complex mess of fines, fees, interest and surcharges many lenders levy.

April 2008 -- Manitoba's Public Utilities Board, after weeks of hearings and a 326-page decision, caps the cost of credit at 17 per cent for loans up to $500, 15 per cent for $501 to $1,000 and six per cent for loans between $1,000 and $1,500.

May 2008 -- The Cash Store asks Manitoba's Court of Appeal to quash the PUB's ruling.

January 2009 -- A Court of Appeal judge agrees to hear the case, noting the new caps would likely put many payday loan shops out of business. Before the case can proceed, the province changes tack and tries to regulate payday lenders directly.

April 2010 -- The Manitoba government proposes new legislation allowing it to cap loan fees and rates at $17 per $100, as long as the federal government allows it.

July 7 -- Ottawa passes a cabinet order allowing Manitoba to regulate criminal interest rates, normally a federal job.

July 20 -- Manitoba proclaims the legislation, slated to take effect in mid-October.

Manitoba's crackdown on payday loan shops has hit another snag: A quick-cash company has asked a federal judge to quash new provincial caps on fees and interest rates.

The Edmonton-based Cash Store argues Manitoba's fee cap is "unreasonably low," well below what other provinces allow and so low it will cause irreparable harm to payday lenders.

The Cash Store also argues the federal government didn't consult with lenders, ignored key pieces of information and failed to follow its own procedures when it passed a cabinet order allowing Manitoba to regulate payday loan charges.

The Cash Store is asking the Federal Court for a judicial review of the matter, a move that could again delay new rules meant to protect poor people from predatory loans.

"Our intent is to bring in the legislation on the date we intended," government spokeswoman Rachel Morgan said. "If there's any change as a result of this case, we'll deal with it when it comes."

Until now, new payday loan rules appeared to be chugging along, finally, after a four-year battle. Earlier this month, the federal government approved Manitoba regulating payday loan rates and the province announced the new cap would kick in Oct. 18.

Manitoba's new rules cap interest and fees at $17 for every $100 loaned -- the lowest fees in the country. To protect people from a spiralling cycle of debt, a loan can only be made for 30 per cent of a person's next paycheque. A host of other regulations protect the poor by ensuring all fees are explained in plain English and lenders can't use rewards or incentives to woo borrowers.

The quick-loan industry balked at the new rules, saying they would put many stores out of business and harm customers who have no other access to emergency credit, except to pawn their goods.

As big banks close their doors in the inner city, payday loan stores have mushroomed. There are at least 33 stores in Winnipeg, plus many more online, that advance a few hundred dollars to customers with poor credit until their next paycheque or welfare cheque.

Wayne Helgason, executive director of the Social Planning Council of Winnipeg and one of the poverty activists who have long called for a quick-loan crackdown, said any delay will harm low-income Manitobans. "The effect will be a continued exploitation of a lot of people who, unfortunately, have few options," Helgason said. "It's obviously a lucrative business that takes money directly away from those who most need to keep it."

maryagnes.welch@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 28, 2010 A5

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