Province to cap payday loan interest rates

Fri 21 Nov 08

Alberta’s provincial politicians took the first step toward capping interest rates on payday loans after motion 511 was passed with full support of all members present in the Legislature early last week.

Liberal MLA Laurie Blakeman introduced the motion that would cap interest rates currently set by the payday loans industry itself.

“The issue’s time has come,” she said.

Blakeman said the interest rate caps have not yet been determined.

In February, Manitoba’s Public Utilities Board announced that that province’s payday lenders couldn’t charge customers more than 17 per cent for the first $500, 15 per cent on the next $500 and six per cent on loans over $1,000, including all fees and charges.

Blakeman said the rates set in Manitoba may not be appropriate for Alberta.

“We have a different economy.”

Blakeman said she hopes to have rates set and in place within 18 months.

It’s an optimistic goal, she said, but having the support of the Conservative government is a positive, she added.

“It’s a good sign when you’ve got both the opposition and the government working in the same direction on an issue,” Blakeman said.

The Canadian Payday Loans Association (CPLA) supports the move to cap interest rates as well, said its president.

“The CPLA and its members has always supported a regulated industry,” Stan Keyes said during a phone interview from Hamilton. “Provincial governments must pass legislation which provide the rules to protect consumers.”

Without provincial legislation, payday loans would fall under the rules of the Criminal Code that caps annual interest rates at 60 per cent.

Provinces that introduce consumer protection legislation and that cap the total allowable fees and charges on payday loans don’t have to adhere to the 60 per cent cap set by the Criminal Code.

Seventeen per cent interest on a $100 month-long loan translates into a 204 per cent interest rate when annualized.

But payday loans wouldn’t be offered if annual interest rates were capped at the 60 per cent rate set by the Criminal Code, Keyes said.

“You can’t borrow the money for a year,” he said. “You can only borrow it until your next payday, so how can you put an annualized percentage rate against a product you can borrow for only two weeks.”

Keyes said the rates sets by the Criminal Code are meant for large financial institutions lending large amounts of money over long periods of time, but there is a demand for small-sum, short-term loans that needs to be met.

Protecting the consumer is a job for the government, he said.

Source:http://www.fortsaskatchewanrecord.com/ArticleDisplay.asp