Payday lenders' interest rates and fees will be capped in B.C. to protect people who require short-term financial supports, the provincial government announced Monday.
The cost of these short-term loans can be extremely high and borrowers can have trouble paying the loans off by the due date, Solicitor General John van Dongen said.
"We're regulating the industry to ensure that these loans are being administered fairly and appropriately," he said.
Beginning Nov. 1, the maximum charges for short-term, payday loans will be capped at 23 per cent of the principal, including interest and other fees.
Some B.C. payday lenders have been charging interest rates as high as 30 per cent for the average two-week loans, which can accumulate to 782 per cent a year, van Dongen said.
All payday loan companies in B.C. — estimated at 250 to 300 by the government — will also need to be licensed by the Business Practices and Consumer Protection Authority.
Under the regulatory changes, payday lenders will not be able to issue more than one loan to a borrower at a time, while the loan amount cannot be more than 50 per cent of the borrower's next paycheque.
Understanding the costs
"These measures will help consumers clearly understand the costs associated with payday loans and assist those who find themselves in over their head financially as a result of repeatedly using payday loans," said Scott Hannah of the Credit Counselling Society.
The regulations also force payday loan companies to display posters showing their interest rates, stop them collecting money directly from the borrower's employer and prevent them from gaining unrestricted access to a borrower's bank account.
The B.C. government passed payday loan legislation in 2007. The regulatory changes announced Monday follow amendments the federal government made to the Criminal Code in 2007, allowing provinces to set their own rates for payday lenders.
Some lenders have been the targets of class-action lawsuits in several provinces over the fees and interest rates they charge.
Alberta's Cash Store settled out of court, giving customers $1.5 million in cash and $1.5 million in credit vouchers after a class-action case was launched in that province.
Last month, a B.C. Supreme Court judge certified class-action lawsuits against three payday lenders alleging that fees they charge amount to illegal interest.
Canadians borrow an estimated $2 billion a year through payday loans.