The B.C. government is cracking down on “predatory” practices by payday loans operations in the province.
Solicitor General Mike Farnworth introduced legislation on Tuesday that strengthens consumer protections and introduces tougher rules on payday loans and cheque-cashing fees.
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“There will be a better understanding of the terms and conditions that you are going to be going in to,” Farnworth said. “Right now payday loans are regulated and what we are finding is the companies are very good at evolving to products that fall outside existing legislation.”
It is unclear how many British Columbians rely on payday loans but the government is concerned it’s a large and growing issue. Often borrowers will take out loans that they struggle to pay back and leave them in a financially vulnerable position.
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The new proposed amendments to the Business Practices and Consumer Protection Act create borrowers’ rights and remedies, set limits on the total cost of borrowing and prohibit certain fees and charges. The province is also restricting payday loan companies from issuing a loan to someone if there is already a loan outstanding.
One of the major concerns with payday loans is that borrowers are often faced with terms and conditions that may be more than they can afford.
“What we are seeing is that payday loan companies are developing new and different products that fall outside the regulatory framework. We are looking at high-value loans that are being paid over longer instalments,” Farnworth said.
“These are the kinds of things that are causing us concern as a government in terms of a lack of regulation and people falling into that debt trap.”
Last year the province introduced rules that extended the payday-loan agreement cancellation period so a borrower now has a full two days to cancel. The government also lowered the maximum fee from $17 to $15 on every $100 borrowed.
Concerns have been raised that payday loan companies are “predatory” and do not properly explain the fees borrowers will pay. A new consumer financial education fund will be established to improve consumer financial education throughout the province.
“Regrettably many people in our province do not understand the true implications of taking out a high-cost loan only to find out later how hard and how long it takes to repay,” CEO of Credit Counselling Society of B.C. Scott Hannah said.
Consumer Protection BC regulates the existing payday loan industry. According to the organization, British Columbians borrow more than $400 million a year from these services.
Year over year borrowing is up in the province but the government is cautious about having too many restrictions because it could open up a black market driven by loan sharks.
“We support efforts of the province that are designed to protect volatile consumers who use the services at a high cost to them,” executive vice-president of Consumer Protection BC Tayt Winnitoy said. “Educating consumers about their rights and responsibilities when it comes to important financial decisions is a critical part of the overall consumer protection process.”