EDMONTON – Another part of the Alberta government’s new payday loan law has come into effect.
Lenders now are required to provide all loans with payback instalment plans that span at least three pay periods.
Borrowers can repay a loan any time between 42 and 62 days, and there is no penalty for early payback.
The number of pre-authorized withdrawals lenders can make from a borrower’s account are also restricted to avoid extra fees.
It’s part of legislation passed last spring to protect borrowers by enforcing lower interest costs and broadening repayment rules.
Payday lenders provide up to $1,500 in cash to people to tide them over from paycheque to paycheque.
The president of the Canadian Payday Loan Association has said that lending companies won’t be able to absorb the changes. Tony Irwin said the law will lead to a significant contraction of the industry in Alberta.
Service Alberta Minister Stephanie McLean says it’s important that the government support families by improving consumer protections.
The province says Alberta now has the lowest interest rate for payday loans in Canada. In August, the rate was reduced to $15 per every $100 borrowed from $23 for every $100.
McLean said short-term loans are sometimes necessary for people trying to make ends meet.
“As families across the province prepare for a busy holiday season, many are shopping for Christmas presents, and are looking forward to spending time together,” McLean said Wednesday. “But some are struggling between paycheques this season and many need a short-term loan to bridge that gap.”
The United Way’s Joanne Currie said measures to control payday lending help prevent people from falling into a cycle of debt.
“We know that financial literacy and access to affordable financial products are absolutely key to helping people who are finding it hard to make ends meet,” she said.
Lenders have long been criticized for charging fees that, if annualized, amount to more than 600 per cent interest. That can force borrowers — often lower-income earners — into a continuous cycle of financial catchup.
With files from 630 CHED