The fees in Alberta for payday loans will be the lowest in Canada if MLAs pass proposed legislation introduced in the legislature Thursday.
Bill 15, An Act to End Predatory Lending, will bring the amounts paid on these types of loans from $23 per $100 borrowed down to $15 per $100.
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Other measures in the bill aim to keep people from being trapped in a cycle where they have to take out another loan just to pay back an earlier payday loan.
"Let me be clear," Service Alberta Minister Stephanie McLean said. "Interest rates that are 600 per cent or more are predatory.
"Loans that require you to take out loans to pay back loans are predatory."
Under the bill, people will be allowed to pay back loans in installments, instead of having to make a full payment at the end of a pay period. The minimum wait time for that first payment will be set at 42 days.
Extra fees for credit insurance and debit cards will no longer be added on top of borrowing costs.
Many people who use payday loans are often the working poor. The annual percentage rate [APR] of these loans often works out to 600 per cent. Officials say measures in the bill should bring the APR in the range of 88 per cent to 130 per cent.
There are 35 payday loan companies operating in Alberta through storefronts and websites. The government estimates there are 240 outlets in the province.
Oddly, the government has little information on the people who take out payday loans. Best estimates put the number at 240,000. Officials say the average borrower takes out five to six payday loans a year.
Another provision in the bill will end that information gap. If passed, Bill 15 will compel companies to share data about their customers' annual income and how many loans they have.
The Criminal Code sets the maximum rate for loans at 60 per cent. But there is an exemption for short-term loans of $1,500 or less.
McLean said the rate wasn't set lower in her bill because she wants to ensure there are enough lower-interest alternatives available before taking more action.
$2,500 in interest on $600 loan
Courtney Hare, a public policy manager with Calgary anti-poverty organization Momentum, said payday loans have hurt clients.
Hare gave an example of a man who took out a $600 loan to pay off his mother's medical expenses. Since he cleared $900 a paycheque, he had to get another loan just to pay off the first loan.
"Ten months later, he had paid $2,500 on a $600 loan," she said.
Another client, a single mother with four children, has paid $4,000 in interest since getting a loan last year.
Momentum worked with First Calgary Financial on a pilot project offering short-term loans with a 12 per cent interest rate.
The credit union plans to start offering so-called Cash Crunch loans this August with a low interest rate that is still to be determined.
An unnamed philanthropist helped back the pilot project. First Calgary Financial president Shelley Vandenberg says that won't be needed for the Cash Crunch loans.
"We're putting skin in the game," she said. "We believe in this social issue. We believe we can make a positive impact and help people get out of debt."
Servus Credit Union plans to have a similar short-term loan available by the end of the year.