As U.S. moves to regulate payday loan industry, why not Canada?
America is moving to crack down on usurious payday loans. We should be too, Amanda Lang says
Tonight's first order of business: short term loans are under scrutiny in America. A post-crisis agency designed to protect consumers will attempt to do what Canada has failed to do — create a national law governing the practices of payday lenders, those that prey on the most vulnerable with short term loans carrying interest rates that can be crippling.
Here in Canada provinces regulate the industry and so far, little effort has been made to shield users from the worst kind of abuse. Maybe the U.S. example will spur Canadian governments to action.
— Amanda Lang
A move by U.S. regulators to tighten the rules for payday lenders is the first of its kind made and aims to shield country's most economically vulnerable.
The Consumer Financial Protection Bureau is working on a first draft of the regulations. It wants to put limits on the loan terms drawn up at places like Cash Store and CashMoney. While such services promise "fast cash" and "no credit checks," those short-term loans can come with interest rates that top 500 per cent. An analysis of 15 million loans said the median annual income of those borrowers was about $22,000 US.
Within a year, the median number of loans they accessed was 10. And while the midpoint of loan sizes was $350, median fees were $458. And 80 per cent of those loans were renewed within two weeks, signalling many Americans are falling victim to a vicious cycle.
Now, the bureau wants to cap the size and duration of loans, depending on the borrower, as well as how many times a loan can be rolled over.
Those services are under plenty of scrutiny in Canada, too. In 2007, provinces were given more power to regulate the $2-billion industry. Many of them put caps on fees charged. Still, critics say those limits aren't strict enough.
According to the Canadian Payday Loan Association, more than 760 quick-cash operators loan to about two million people each year. The average loan is $280 for a period of ten days, and most of those borrowers are in Ontario, where payday lenders can charge a maximum of $21 for a 2-week loan of $100
That works out to an annual interest rate of more than 500 per cent.