The provincial government is looking to toughen rules against payday lenders.
The NDP government unveiled plans in its throne speech earlier this month to unveil legislation against what it called predatory lending. The act will strengthen consumer protection to ensure people taking short-term loans aren’t stuck in a debt spiral.
Premier Rachel Notley said the changes are necessary to ensure people aren’t exploited.
“There’s no question that there are more people who are vulnerable to them now with the slowdown in the economy that we’re experiencing. So, we believe it’s really important to step in as quickly as we can to try and limit the damage that can occur in these situations,” she said.
Unlike traditional banks with charge annualized interest rates, payday loan companies operate under a fee for service model. In Alberta, fees are capped at a maximum of $23 for every hundred dollars borrowed for terms sometimes as short as 10 days.
Notley said the province will work with service providers to identify better products to help families struggling with financial difficulties.
Local payday loan businesses referred interview requests to their corporate headquarters, which then referred the requests to the Canadian Payday Loan Association.
Tony Irwin, association chairman, said the provincial government’s announcement came as a surprise.
“Our view as an industry always is that, as respect to our industry, whatever legislation or regulation it passes that consumers be protected… but it be done in a way that allows the industry to remain viable,” he said.
Irwin said there are some people who, for whatever reason, are not able to obtain loans from banks or other lenders.
“People who come to a payday loan store to apply for a loan, they’ve gone elsewhere,” he said. “They’ve tried to obtain credit elsewhere prior to and have been unsuccessful in doing that, so they come to us and we’re there to, in many cases, help those people out when others for whatever reason have not done so.”
While the provincial government’s throne speech stated lenders charging as much as 600 per cent a year, he said this is not an accurate representation of how the industry works because payday loans charge a fee for service, not annual interest.
He said payday loans are, on average, $400 with the average term of 10 days, or one pay period.
Irwin said the industry would accept a voluntary extended pay plan to allow people to repay loans over longer terms of three pay periods. He said it should be mandatory for lenders to offer and voluntary for people to accept.
Highwood MLA Wayne Anderson said it’s tragic that people need to use payday loans, but the real solution is to support the economy and create more jobs.
“It’s unfortunate that they’re there and, you know, it’s an unnecessary evil perhaps,” he said.
Anderson said the government needs to provide specific details of its plan.
He said payday loans are not illegal and he ultimately fears the government will be too heavy-handed making it more difficult for the businesses to operate, or worse, driving it underground.
Alberta Liberal leader David Swann said it’s clear there is a need for the types of short-term financial help payday loan companies provide, but measures should be in place so people aren’t stuck in a cycle of debt.
“That’s been part of the problem,” he said. “Many people with serious problems in their lives are trying to buy their way out of it with monthly or weekly short-term loans.”
Swann said there should be stronger controls and monitoring of payday loans to ensure people aren’t falling into an unmanageable cycle and the government should limit interest rates charged and extend payment periods.
He said the Alberta Treasury Branch could expand its services to provide an alterative to payday loans.
“There’s no reason why they can’t expand their services to people who have less credit ratings and need crisis funding for short-term and have reasonable interest rates,” said Swann. “I would certainly hope we’ll see a stronger role for ATB.”
