Alberta payday loan regulations has lenders starting to feel pinch
'Without profit we can't risk losses, so we have to deny those with riskier credit scores'
The garish yellow storefronts promising quick and easy cash are starting to dwindle in Alberta as the payday loan industry says provincial regulations put in place last year have made its signature product unsustainable.
The number of payday stores has dropped to about 195 from some 220 this time last year, according to Service Alberta.
Cash Money says it's reduced the number of loans it issues from around 30,000 a month a year ago to a range of 1,500 to 1,800 as it denies all but the least risky borrowers.
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"The situation in Alberta is unfortunate," said Cash Money spokesperson Melissa Soper. "Without profit we can't risk losses, so we have to deny those with riskier credit scores."
Alberta's regulations require a payday loan cost no more than $15 per $100 borrowed and have a term of at least 42 days. They are part of a wider crackdown on an industry that gave nearly 4.5 million short-term, high-interest loans totalling $2.2 billion across Canada in 2014.
Other provinces implement regulations
At the start of this year, British Columbia and Ontario both implemented lower borrowing costs and are exploring alternative lending options. Newfoundland and Labrador has committed to having its first regulations on the industry by the end of the year.
But it's Alberta that has seen the most dramatic change recently, with the combined effect of the lower cost and longer borrowing time dropping the annual percentage rate from 600 per cent to 202 per cent for weekly payments over the 42-day period.
"Alberta is the most extreme," said Tony Irwin, president of the Canadian Consumer Finance Association, which represents the payday loan industry.
"The six-week term has fundamentally changed the product."
'A fair marketplace for Albertans'
Alberta's Act to End Predatory Lending, passed last year, is designed to prevent vulnerable borrowers from getting trapped in cycles of debt, said Stephanie McLean, minister of Service Alberta.
"My perspective has always been that we will put regulations into place that make a fair marketplace for Albertans," said McLean.
She said she is encouraged by a partnership between ATB Financial and Cashco Financial to get people bank accounts, as well as the payday lending alternatives that credit unions in the province started last year, even though total loans issued from the three credit unions offering them so far only total in the hundreds.
The transition will take time as people learn about the new offerings, McLean said, adding that the policies weren't expected to revolutionize the lending market overnight.
"Instead of popping a balloon, we're slowly letting the air out of it."
People don't want help, just money
Similar efforts are underway in other provinces with varying results.
In Ontario, the Windsor Family Credit Union launched its own payday loan product last August, with president Eddie Francis saying more than a thousand loans at 37 per cent interest have been handed out under the program.
"The uptake was quick, it was immediate, which means it is doing its job," Francis said. "People are able to come to us for quick and easy, hassle-free loans, at a much reduced interest rate."
He said the program's average loan is about $300 over a two-week pay cycle, compared with about $1,600 at Servus Credit Union, one of the Alberta institutions.
"We did not come in here trying to create a product that would force a change in behaviour," said Francis. "They don't want a two-month loan. They want a two-week loan."
Shelley Vandenberg, president of First Calgary Financial, said the credit union offers a low-cost payday loan and budgeting advice to make sure a loan doesn't worsen the situation, but some people aren't interested in that.
"Sometimes people just don't want help, they just want money," said Vandenberg.
Industry looking at alternatives
Irwin at the Canadian Consumer Finance Association said that with limited lending options, some borrowers are resorting to online lenders that may not face the same restrictions as the payday loan industry.
He said the industry is also looking at alternatives like instalment loans and other products to stay afloat.
In Quebec, where a long-standing 35 per cent annual interest rate limit prevented the payday loan industry from taking off in the province, Money Mart offers cheque cashing, gold buying, and money transfers, but not loans.
Irwin said the payday loan industry also provides brochures on financial advice and has partnered with some credit counsellors, but ultimately people have to decide what's right for them.
"You can provide the information, but of course after that, people do have to make their own choices."
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