PEI

Group calls on P.E.I. to reduce highest allowable payday loan rates in country

Charges for payday loans allowed in P.E.I. are the highest in the country, according to the Canadian Centre for Policy Alternatives — something the group wants the province to address before the economic crisis forces more Islanders into debt.

In midst of economic crisis, worries high cost of borrowing could further sink households into debt

Ricardo Tranjan, an economist with the Canadian Centre for Policy Alternatives, says P.E.I. was one of the last provinces to bring in legislation to regulate the payday loan industry when the province's Payday Loans Act came into effect in 2015. (CBC)

P.E.I. has the highest allowable charges in the country for payday loan companies, something a national policy research group is asking the provincial government to change over concern that vulnerable Islanders could go further into debt during the pandemic.

P.E.I. allows payday lenders to charge a maximum flat fee of $25 on $100 of borrowing, over any term under two months. For a typical loan extended over a two-week pay period, that works out to 1.79 per cent interest per day. Over 365 days, that equates to an annual interest rate of 652 per cent.

Ricardo Tranjan, an economist with the Canadian Centre for Policy Alternatives (CCPA), calls that maximum fee "exorbitantly high," something that could push households already on the brink into a "more vulnerable situation financially."

                                                                                                                                                                                                                           
Cost of payday borrowing across Canada
 Maximum charge per $100 borrowedAnnual interest rate
(based on two-week loan)
P.E.I.$25652%
Newfoundland & Labrador$21548%
Nova Scotia$19495%
Manitoba$17443%
Saskatchewan$17443%
Alberta$15391%
B.C.$15391%
New Brunswick$15391%
Ontario$15391%
Quebecn/a35%

Source: Canadian Centre for Policy Alternatives / Financial Consumer Agency of Canada

By comparison, Tranjan said a typical cash advance on a credit card — often considered a high-cost borrowing option — charges 23 per cent annual interest.

"So 23 per cent to 652 per cent. It's too much."

P.E.I. missed 'second wave' of loan regulation

Tranjan said P.E.I. was one of the last provinces to bring in legislation to regulate the payday loan industry when the province's Payday Loans Act came into effect in 2015 (six years after the legislation originally passed in the legislature).

At the time, the fees allowed on P.E.I. were on par with a number of other provinces. 

But since then, Tranjan said there's been a "second wave" of regulatory changes, which has thus far missed the Island.

Ricardo Tranjan, an economist with the Canadian Centre for Policy Alternatives, says the more economically vulnerable a family is, the more likely they are to access high-cost payday loans, according to data collected by Statistics Canada. (CBC)

Ontario, Alberta, B.C. and New Brunswick have since lowered their allowable fees from $25 per $100 borrowed to $15.

Tranjan said there have also been changes in other provinces to add more transparency to payday loan transactions — in some cases requiring lenders to show borrowers what the annual rate of interest on their loan would be.

Those measures allow borrowers "to make a more informed decision," said Tranjan, and understand the high cost of borrowing compared with other possible options, if they exist.

Cost of loans a 'major issue,' says Opposition

But P.E.I.'s Opposition finance critic Michele Beaton said in many cases Islanders taking out a payday loan "have already been declined for other debt financing options that come with a significantly lower borrowing cost."

Beaton said the high cost of borrowing through payday loans was already a "major issue" before the pandemic struck.

"As the economic impacts of COVID-19 are setting in, people are desperate and have bills coming in with very limited resources to pay them," Beaton said.

Opposition finance critic Michele Beaton says the high cost of payday loans in P.E.I. was already a 'major issue' before the COVID-19 economic crisis raised the possibility Island households would be looking to increase their borrowing. (Ken Linton/CBC)

Both Tranjan and Statistics Canada have concluded some households — like single parents versus dual-parent households, and those who rent instead of own their homes — are more likely to access payday loans.

"The more economically vulnerable a family, the more likely it is to resort to payday loans," according to CCPA's latest report.

Quebecers doing 'just fine' without payday loans

Tranjan pointed to the opportunity for P.E.I. not just to catch up with other provinces, but to play "leapfrog and just go towards a much more robust set of restrictions of payday loans."

Both Tranjan and Beaton point to Quebec, which limits interest charges to 35 per cent on an annual basis, a restriction which Tranjan said basically regulated the industry out of operation in that province.

"Quebecers do just fine" without payday loans, he said.

"It is important to understand that payday loans, they don't solve people's problems, right? In many cases you could just make those problems worse."

CBC tried to contact several companies that offer payday loans in the province, along with the Canadian Consumer Finance Association, which represents the payday loan industry, but was unable to secure an interview.

In 2015 a spokesperson for the industry told CBC it's misleading to calculate interest costs for payday loans on an annual basis, because the loans are only offered for periods of two or four weeks. In P.E.I. the maximum term is 61 days.

They said the loans cost more because it costs the companies more to offer them.

Avoid 'high-cost' borrowing, says province

The payday loan industry is regulated on P.E.I. through the provincial Department of Justice and Public Safety. 

A spokesperson for the department told CBC via email "that during these stressful times with much uncertainty, Islanders may be seeking financial assistance from various sources."

A number of financial supports have been announced in the last few weeks, details of which can be found on government's website, the email explained.

"Wherever possible, it is encouraged to not seek high-cost borrowing sources such as payday loans, recognizing of course that everyone's situation is unique to their circumstances," the email said.

The email explained that when P.E.I.'s legislation came into effect, the province's rate cap for payday loans "was in line with a range of different rate caps set by other jurisdictions at that time. Many other jurisdictions have since moved to reduce the amounts that payday lenders can charge."

The province said it's monitoring "developments in other jurisdictions for potential legislative changes here."

The province also said it usually gets one to two complaints a year about payday loans, usually related to collection practices and delinquent accounts, and has not received any complaints in the last six months.

COVID-19: What you need to know

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More detailed information on the outbreak is available on the federal government's website.

More COVID-19 stories from CBC P.E.I.

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