Two payday loan companies that operated in Manitoba are facing a potential class-action lawsuit that claims customers were overcharged even after the provincial government introduced tough rules in 2010.
A statement of claim filed with the Manitoba Court of Queen's Bench this month alleges that The Cash Store and sister company Instaloans found ways to charge customers beyond the maximum interest rate set by the province.
Class-action lawyer Paul Bennett of the Vancouver firm Hordo Bennett Mounteer, which is involved in the lawsuit, says payday lenders in Manitoba are allowed to charge a maximum of 17 per cent in interest and fees.
The lawsuit alleges that the two companies found a way around that rule, by charging fees related to cash debit cards, which customers must use to access their loans.
The lawsuit claims that in one Winnipeg woman's case, the debit card fees meant a $170 loan cost her $84, when the province only allows for a $36 fee.
"For the most part, it's people who are struggling to make ends meet from paycheque to paycheque, and often some sort of circumstance arises where they need a little bit more than they have," Bennett told CBC News.
"Once you're into these loans, it's very difficult to get out of them. They become pretty much an endless cycle of borrowing and re-borrowing."
Officials with parent company Cash Store Financial did not return calls from CBC News seeking comment on Wednesday.
As of Oct. 1, all of The Cash Store's Manitoba locations stopped offering payday loans.
Officials with Manitoba's Consumer Protection Office say they cannot comment on a case that is before the courts.
But Beatrice Dyce, the office's acting director, says a debit card would not change the province's payday loan rules, which took effect in October 2010.
The province imposed a cap on the fees that can be charged, meaning the maximum rate that can be charged for a payday loan is $17 per $100.
"If they have no choice in the purchase of that card, then … whatever fees go along with the payday loan at that time, they would have to roll all those fees in the 17 per cent," Dyce said.
Bennett said if the lawsuit is classified as a class action and if the court rules in their favour, all borrowers would get back the money they paid in fees on their loans.