Canadian government introduces legislation on payday loans

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Federal government to introduce legislation on hot payday loan issue

Mon Jun 12, 05:25 PM EST

By Jennifer Ditchburn

OTTAWA (CP) - The Conservative government is preparing to introduce legislation that would finally rein in Canada's mushrooming payday loan industry, delegating power to the provinces to regulate the business and protect consumers.

Senior sources say Justice Minister Vic Toews and Industry Minister Maxime Bernier are working on introducing amendments to the Criminal Code by the fall.

The bill would address concerns that payday lenders are charging consumers exorbitant rates of interest on small loans - sometimes in the tens of thousands of per cent interest.

The payday loan industry itself has been lobbying to be regulated in order to eliminate bad apples while allowing reasonable short-term rates.

Right now, the Criminal Code sets a 60 per cent annual interest rate limit on the financial sector, a bar that didn't take into account short-term lending. To date, only one lender has been charged with violating that limit.

Rather than tinker with the interest rate in the Criminal Code, the government will make an exemption from the law for provinces that come up with their own consumer protection legislation and interest rates.

Manitoba has already drafted such legislation, and has been pushing hard for the federal government to step out of the way. It will set its interest rates through the same panel that sets utility rates. Practices such as rolling in fees and interest into unpaid loans would be banned, and precise explanations of charges would have to be clearly posted.

Other provinces have also said they support drafting their own rules, including British Columbia, Nova Scotia and New Brunswick.

Last week, the Alberta government added it's voice to the chorus.

"I am becoming increasingly concerned about the lack of regulation of payday loans and the spectacle of payday lending companies charging their clients effective annual rates far in excess of what... the Criminal Code allows," Government Services Minister Guy VanderBurg wrote to Toews and Finance Minister Jim Flaherty.

But what happens if a province doesn't feel like regulating lenders?

Then the existing 60 per cent interest rate will apply, and Ottawa will require provinces to prosecute violators.

The Canadian Payday Loan Association, which represents firms such as Money Mart and Cash Money, says it's had its own code of practice in place for its members, but regulation is needed for the "bad apples" in the system.

"We think the playing field needs to be balanced," said association president Michael Thompson. "We think consumer protection is a good thing, and we're doing everything we can to protect consumers, but at least a third of the industry doesn't have the protection we do."

Thompson also pointed out that the 60 per cent annual interest rate limit set out in the Criminal Code is untenable for his industry. For example, charging just one dollar on a five-day, $100 loan represents an annual rate of 107 per cent.

"We think this is very good news. We think it's good news for the two million Canadians that use payday loans," said Thompson.

There are about 1,350 payday loan outlets across Canada.

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