Payday-loan rules enrich web lenders, PUB hears

Hey there, time traveller!
This article was published 04/07/2013 (4446 days ago), so information in it may no longer be current.

MANITOBA’S crackdown on payday-loan companies three years ago has unfairly hurt the industry and instead sent many of its customers to get quick money from unregulated, high-cost Internet lenders, a Public Utilities Board panel heard Wednesday.

That’s the unintended consequence of the Selinger government’s capping of the maximum interest rate on payday loans at 17 per cent — the lowest rate in the country — and creating an eight-day cooling-off period before a customer can take out another loan. The most that can be charged on a payday loan in Manitoba is $17 per $100 and the most that can be loaned by such lenders is 30 per cent of a person’s next net pay.

Stan Keyes, president of the Canadian Payday Loan Association, told the panel the NDP’s measures, considered the strongest in Canada, have created a regulatory void in which offshore Internet loan companies are seeing increased traffic by Manitobans who because of bad credit history, can’t borrow money from banks or credit unions.

“We’ve certainly seen what we call a contraction of the industry,” Keyes said, adding the number of regulated payday-loan stores in the city has dropped to 43 from 77 over the past three years.

He said in their place, a number of unlicensed outlets have sprung up in the city that offer easy credit at high fees, but operate outside of provincial rules as they are not strictly payday-loan companies.

“What we see here is a famine of enforcement,” he said. “It’s the unlicensed, online, offshore Internet lenders, it’s the providers of payday loan-like products that are doing business in the province of Manitoba unrestricted and laughing at the province and their regulations. They’re laughing all the way to the bank.

“I’m saying that the licensed, legitimate payday lenders in this province are tired of being the whipping boy in this process.”

Keyes asked the three-member PUB panel to level the playing field by loosening restrictions on legitimate companies so they can compete and stay in business. That includes raising the 17 per cent cap so it’s more in line with the national average of 22 per cent.

Keyes was the first speaker of a two-day hearing being held by the PUB to review the impact of the provincial regulations. The PUB will send its recommendations to the province at a later date.

Others say the PUB should be focused more on protecting consumers than protecting lenders.

John Silver of Community Financial Counselling Services said there needs to be wider education of personal saving and spending.

“There’s a huge potential for harm for people to get into a downward spiral of debt with payday loans,” he said. “While they are regulated, there is no regulation in terms of how many payday loans you can take out. We’ve seen people with five or six outstanding loans.”

Silver and Gloria Desorcy, of the Manitoba Branch of the Consumers Association, said the province’s rules for payday-loan companies have to be broadened to take in the easy-credit outlets.

Desorcy also said the flat borrowing rate should be lowered to 15 per cent from 17 per cent.

She said that would further protect consumers and allow lenders to still make a profit.

“Let’s keep it in perspective. It is expensive credit.”

bruce.owen@freepress.mb.ca