A Winnipeg woman has initiated a class-action suit against the payday loan industry, alleging two local operators are charging more than the law allows.
The woman named The Cash Store and Instaloans in a suit recently filed at Court of Queen's Bench, alleging they are charging more in interest than the province permits under new rules introduced in 2010.
The suit alleges the firms are violating the Manitoba Consumer Protection Act and PayDay Loans Act and regulations, inflating the cost of borrowing by forcing customers to buy cash or debit cards to access their loans through an ATM operator.
The allegations have not been proven in court and the court action has not been accepted yet as a class-action lawsuit. Statements of defence have not been filed.
Manitoba brought in regulations in October 2010 that limit the cost of credit for payday loans to 17 per cent of the principal advanced. The suit alleges the payday firms changed their practices to evade the regulations so they could charge customers higher fees.
"The Cash Store has been using these cash card fees to evade (provincial) regulations which limit them to 17 per cent," Vancouver lawyer Paul Bennett said.
The suit alleges Cash Store and Instaloans, with the addition of extra fees, is imposing loan costs of 23 per cent, in violation of Manitoba law.
Bennett said when the extra fees are added in, the cost of the loan is the equivalent of 50 per cent of the principal.
Other firms named in the suit are: Loansalberta Inc., Assistive Financial Corp., and DirectCash Payments Inc.
The class action is asking the courts to order the firms to repay the Winnipeg woman and others in the suit for the borrowing costs they incurred in taking out the payday loans and for the court to award unspecified damages for the firms participating in a conspiracy to overcharge its customers.
If the court approves the class action, anyone in Manitoba who borrowed money from the payday firms will automatically be included in the suit and entitled to a portion of a settlement.
"They don't have to do anything to join," Bennett said. "That will be clear from the (payday firms') records."
The Cash Store and Instaloans are both owned by an Edmonton firm, Cash Store Financial Services Inc., which also operates an Internet-based payday loan firm, Loansalberta Inc.
The suit also alleges Cash Store and Instaloan used the Internet payday firm, Loansalberta, which is not registered in Manitoba and was set up after October 2010, to evade provincial regulations that prohibit the firms from lending money until an active loan is repaid, and making a subsequent loan within five days of a previous loan being paid off.
Bennett said his firm has initiated similar class-action suits against Cash Store and Instaloans, requiring customers to buy cash or debit cards, in B.C., Alberta and Saskatchewan.
Laws affecting payday loans
Criminal Code of Canada:
IT is illegal to charge an interest rate in excess of 60 per cent.
Consumer Protection Act of Manitoba
Venders are prohibited from:
-- Advancing a loan to a borrower who hasn't paid off a previous payday loan
-- Withholding from the loan any cost of credit
-- Making the loan contingent on the borrower purchasing another product or service
Payday Loans Act of Manitoba
The cost of credit for a payday loan is restricted to 17 per cent of the value of the principal advanced.
Subsequent loans made within seven days after the borrower has repaid the first loan, are restricted to five per cent interest.
How payday loan firms are getting around the 17 per cent maximum interest on loans
$160 -- Amount borrower needs
$217.53 -- Amount payday lender requires to be borrowed
$254.16 -- Total cost, if repaid within 160 days
Borrowing costs include:
$48 -- cash/debit card fee
$9.23 -- loan insurance
$36.93 -- loan fee (interest amount)