Payday loan users welcome lower rates promised in throne speech

Some Albertans who've been caught up in the cycle of payday loans say there's no better time for the province to cap interest rates, which are as high as 600 per cent currently.

Industry says tougher regulations may force lenders out of business

William Brady hopes lower rates will help Albertans avoid getting caught up in the cycle of payday loans. (Colleen Underwood/CBC)

Some Albertans who've been caught up in the cycle of payday loans say there's no better time for the province to cap interest rates, which are currently as high as 600 per cent when calculated annually.

"I felt the sting of that and it's a hard hole to get out of once you are there," said William Brady. 

"In this economic climate it would be nice to see [rates] lower because you know they're definitely making a lot of money off of it."

The NDP government announced in Tuesday's throne speech it would be introducing an act to end predatory lending.

The proposed legislation follows a review of existing regulations and consultations with Albertans.  

Currently, payday lenders in Alberta can charge $23 per $100 borrowed, which the province says is the second highest rate in the county.

Currently there are more than 30 payday loan companies operating in Alberta with more than 220 outlets. (Colleen Underwood/CBC)

"Our government will protect vulnerable Albertans from paying exploitative interest rates on payday loans and spiraling into poverty. This is especially important now, when families are managing their household budgets more carefully than ever," said Stephanie McLean, the minister of Service Alberta, in a statement.

Calgary Mayor Naheed Nenshi says he looks forward to seeing the new regulations. He says city council does what it can to regulate the location of the businesses. And he says financial institutions need to offer flexible credit products for people who may not qualify for more traditional credit.

"But really, what the issue here is, when the lending becomes predatory. When those revolving loans become extraordinarily expensive for people who are quite desperate to be able to pay [them] off," said Nenshi.

Rate reflects cost of business

The head of the Canadian Payday Loan Association, Tony Irwin, says the rates on borrowing range across the country, from as low as $17 per $100 in Manitoba to $25 in Prince Edward Island with most provinces being somewhere in the middle.

Tony Irwin, head of the Canadian Payday Loan Association, says if the legislation is too extreme, it could force lenders out of business. (LinkedIn)

"I think we'd all like to pay less for everything that we purchase, but there are costs involved in the buying of goods and services, and so that certainly needs to be taken into account for any rate that might be set or might be adjusted," said Irwin.

He said the Ontario government hired an accounting firm to investigate the costs of running a payday loan business before setting it's rate at $21 and he urges the Alberta government to do the same analysis.

"The biggest concern that we have  as an industry, and we convey this to government, is not wanting whatever changes are made to go too far. To go to a place where it does mean that some operators have to close," Irwin said. 

May encourage unscrupulous lenders

Irwin says the reality is that people will still need credit and if the regulated lenders are not there to provide it, people will find it elsewhere.

"And we are seeing, I can't quantify it, but certainly we are seeing a growth in the illegal online lenders."

Irwin says he's heard of situations where online lenders, often based offshore, will request PIN numbers and passwords, taking more money than they should and charging rates much higher than what is permitted.

"You don't want to be driving people to sort of underground. That's certainly where some people would go."

A Service Alberta spokesperson says the plan is to act quickly and bring something forward in coming months.


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