Predatory payday loan lending ending in Alberta

The new law also allows people to pay back their loans in installments instead of a lump sum.
The new law also allows people to pay back their loans in installments instead of a lump sum. (Photo: REUTERS/Suzanne Plunkett)

There have long been demands to end predatory lending in Canada and it seems that the Alberta government has been listening.

New legislation has taken effect this month that saw Alberta go from a province with one of the highest payday loan interest rates to the lowest in Canada. Payday loans are very high interest short-term loans that often have to be paid back in a lump sum.

The new legislation mandates that payday loan lenders charge no more than $15 per $100 loaned instead of the $23 per $100 they charged in the past.

Currently, Prince Edward Island has the highest payday lending rate at $25 per $100 loaned, followed by $23 in British Columbia and Saskatchewan, $21 in Ontario and $17 in Manitoba.

The new law also allows people to pay back their loans in installments instead of a lump sum and it gives people 42 days before they have to start making the first payment.

When introducing the proposed bill in May of this year, Service Alberta Minister Stephanie McLean explained "Interest rates that are 600 per cent or more are predatory,” adding, "Loans that require you to take out loans to pay back loans are predatory."

The new legislation would take on payday loans only, as those have been exempted from the Criminal Code prohibitions on criminal interest rates.

Under the code, any interest rate that surpasses 60 per cent is considered criminal. However, the law exempts loans of $1,500 or less when they’re short-term loans, which have left the door wide open for lending companies to charge rates that can rise to hundreds of per cent in interest.

No more in Alberta. Under the new regulations, payday loan interest rates should be around 88 per cent to 130 percent, which is sharply down from the rates people have been paying.

However, interest rates of between 88 to 130 per cent still seem predatory when compared with the Criminal Code prohibitions of interest rates being forbidden to go beyond 60 per cent. After all, the people who take out payday loans are often the working poor.

Still, there is one group that isn’t thrilled with the new legislation: the payday lenders themselves. One lender said that this new law will not only reduce the availability of short-term credit but that his company may even have to close some of their Alberta offices.

Regardless of whether these interest rates are still too high, it is hoped more provinces will follow Alberta’s example and lower the excessive interest rates on payday loans.

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