Province of Alberta to crack down on payday lending

Click to play video 'Alberta cracks down on payday loan rules' Alberta cracks down on payday loan rules
WATCH ABOVE: The province is introducing legislation it says will better protect those who rely on payday loans. Julia Wong explains – Mar 9, 2016

The Alberta government will soon bring forward legislation it says will protect payday loan consumers.

After consulting with residents from October to December 2015, the province said it found the vast majority feel allowable borrowing costs are too high.

Currently, payday lenders in Alberta can charge $23 per $100 borrowed. Annually, lenders can charge 600 per cent interest.

The province says its proposed legislation, An Act to End Predatory Lending, will strengthen protection so a short-term loan does not lead to a cycle of debt.

READ MORE: Chequed out – inside the payday loan cycle 

Lisa Holmes, the president of the Alberta Urban Municipalities Association (AUMA), said she is pleased to see the province is moving quickly on legislation. AUMA has been calling for tighter regulation on the industry, saying it is an issue that affects municipalities.

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“What we’re seeing now is all issues are local. We deal with these people that are living in our community every single day. We deal with business owners and friends and neighbours, so we are the government closest to the people. We are trying to more of a voice for them,” Holmes said.

Tara Veer, the mayor of Red Deer, has also been an advocate for stricter regulations in the industry.

“Lending was recognized as one component of entrenching individuals in the cycle of poverty. Obviously there are those individuals where payday lending serves its purpose but there are many individuals that they become entrenched in the cycle of poverty,” she said.

Roxanne Bablitz turned to a payday loan to help her through tough economic times.

“It’s difficult to pay bills and stuff,” she said.

Bablitz said the process of getting a loan was easy – she provided a bank statement and went through paperwork to ensure she was qualified to receive a loan.

She said the lending company went through the various interest rates with her, but she said she was not aware of the maximum limits until Global News informed her of them.

Bablitz said she hopes she doesn’t default on her loan and that she is somewhat concerned about the interest rates.

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Ian Wallace, a credit counsellor with Credit Counselling Society, said he often sees clients who hold between five and seven payday loans.

He said while payday loans and the risks involved with them are voluntary, introducing legislation is important to protect the vulnerable.

According to Wallace, the people who often use payday loans either don’t have credit cards, have already maxed out their credit card limit or are low-income.

“Even though it’s voluntary, there is a segment of our population that don’t have the same options, that don’t have the same choices and maybe it stops being voluntary. Potentially [payday loans] are the lender of last resort,” he said.

Wallace said those vulnerable customers are often then taken advantage of.

“When the person either contacts the payday lenders saying we can’t afford to pay, the payday lenders will offer to extend the loan with a new set of fees and more accumulated interest. The second problem might be that a person will have to take out a second payday loan, perhaps with a different lender. It creates a never-ending cycle of always being short,” he said.

Wallace said the rates involved with payday loans are often the reason people find themselves in more trouble than when they first got their loan.

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“Everyone complains about credit card rates. But credit card rates pale in comparison to what the payday lenders are charging or are allowed to charge. Hence the need for perhaps some limits,” he said.

Tony Irwin, the chairman of the Canadian Payday Loans Association, said his organization has been working with the province on the proposed legislation.

“Our hope in this entire process is whatever happens, whatever changes are made, that yes, consumers need to be protected. But at the same time, the industry continues to be viable to those who need it,” he said.

Irwin defended the nice rates payday lenders can place on clients.

“We’d all like to pay less for everything but there’s a cost to provide any product. Companies in the business of doing that not only need to meet those costs but also make a profit,” he said.

“The simple reality is there are a number of factors that go into what any product costs and certainly we have a number of costs that go into what it costs lenders to provide a payday loan.”

No date has been announced for when the legislation will be introduced but a spokesperson for the premier’s office said it will be introduced this spring.