Province puts a lid on payday loans
TheStar.com – Ontario – Province puts a lid on payday loans: Officials say interest cap will prevent lenders from preying on poor
Published On Tue Dec 15 2009. Robert Benzie Queen’s Park Bureau Chief
Consumer-protection rules capping the interest that can be charged on payday loans have now taken effect.
The Ontario government has moved forward with sweeping changes sparked in part by a 2004 Star probe on how low-income earners get gouged when they borrow money for short periods of time.
As of Tuesday, the cap on the interest charged is $21 for each $100 borrowed – the second-lowest rate in Canada after Manitoba, which has a $17 maximum.
“Capping payday loan rates is another step we’re taking to protect consumers,” a government official said Monday, noting it’s the latest in a series of measures gradually implemented this year to regulate an industry that has been criticized for preying on the poor.
“It’s building on our efforts to protect consumers who need to use these types of loans, including requiring lenders and loan brokers to be licensed and transparent on their lending practices,” the insider said.
The province has also outlawed “rollover” loans to stop people from borrowing more money from a payday lender before they have paid off an earlier debt.
As well, there’s a two-day “cooling-off period” for borrowers to cancel their agreement without a penalty and Queen’s Park can revoke the licences of dodgy payday lenders and loan brokers.
Stan Keyes, president of the Canadian Payday Loan Association, noted that the phased-in changes have already had a positive effect on the industry, with 29 smaller lenders closing their doors.
“It just demonstrates that there are companies out there who had unscrupulous business practices, who took advantage of the consumer, who charged very high rates for the loan,” said Keyes, noting some firms were demanding $50 in interest on $100 loans.
Keyes pointed out that the average payday loan is $280 over 10 days, so it’s misleading to calculate the interest charged as an annualized percentage rate.
But critics have noted that even the capped rate of $21 per $100 for two weeks is equal to 520 per cent interest over a year.
New Democratic Party MPP Cheri DiNovo (Parkdale-High Park) has argued that the annualized rate should be capped at 35 per cent, which would work out to about $1.41 per $100 borrowed for a fortnight.
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