Payday loans regulated on P.E.I., 6 years later
Rules strike a good balance, says payday loans industry
Six years after a law to regulate the payday loan industry was passed in the P.E.I. legislature, the law will come into effect next week.
It is a high-cost loan because it is expensive for the companies to provide the product.- Stan Keyes , Canadian Payday Loan Association
Starting Tuesday, the new act will set a limit on borrowing charges from payday loan companies of $25 per $100 of loan. It provides a cooling off period of two days, during which a borrower can opt out of a loan without penalty.
"It's just a way to safeguard vulnerable Islanders to ensure that the playing field is level and that every consumer is getting fair access to a loan that they may require," said Adam Peters of P.E.I.'s consumer services division in the Justice Department.
Also under the new law, a borrower can't take out a new loan with the same company until all previous loans have been paid off.
Government said that's to prevent companies rolling loans over into new ones, increasing debt charges for Island consumers.
Regulations strike a good balance, says industry
The $25 fee works out to an annual interest rate of 650 per cent.
But Stan Keyes of the Canadian Payday Loan Association told CBC News Friday that calculation, commonly used by critics of the industry, is not a fair way to scrutinize payday loans. Keyes said they come with higher costs for lenders and more defaults because there's no credit check required.
"These are two- and four-week loans, so the payday loan cannot by law be borrowed for a year. So you can see the distortion when someone says, 'Oh, it's a 650 per cent loan.'" He said.
"Isn't it better that the customer, the borrower, sees a sign on the wall and it says if you want to borrow $100 it will cost you $25. It is a high-cost loan because it is expensive for the companies to provide the product."
Keyes said payday loan clients often turn to the industry to avoid having to pay even larger fees through having their utilities disconnected or bouncing a cheque.
P.E.I.'s law strikes a good balance, said Keyes, between providing consumer protection and allowing for a viable industry to provide short-term loans.
When asked why it's taken six years to bring the law into effect, government officials said they spent that time consulting with the industry and stakeholders and waiting for the federal government to give P.E.I. jurisdiction over interest rates.