By Tonia Kelly
The federal government has introduced a bill targeting payday loan companies that charge high interest for short-term loans, but a spokesman for the industry says his association won’t defend those companies who do not follow the association’s code of ethics.
Earlier this month, the federal government introduced a bill to amend section 347 of the Criminal Code. This section, which targets loan sharking and its links to organized crime, makes it illegal to charge interest at a criminal rate (defined as exceeding 60 per cent per annum,) but does not now provide consumer protection.
Payday loan companies have been accused of charging high interest rates and setting up in low- income neighbourhoods.
The proposed amendment aims at providing protection by giving the provinces and territories the power to regulate the fast-growing but unregulated payday loan industry.
Consumer protection from unscrupulous payday loan companies is also coming from the industry itself.
Stan Keyes, a former federal cabinet minister and the new president of the Canadian Payday Loan Association, a group of some 850 stores out of the 1,350 operating in Canada, says that CPLA members adhere to a Code of Best Business Practices.
Keyes says he intends to represent the best companies in the industry who are serious about playing by the rules. And, he says, he has a message for the rogue companies who give the industry its bad reputation.
“I will not defend those companies who want to hurt consumers or line their pockets with outrageous fees,” he says. “These companies will soon be out of business. The bad apples will be swallowed up.”
In the past 10 years the industry has grown to about 1,350 outlets in Canada and lends approximately $2 billion annually to some two million Canadians.
For Norah Foster, credit counselor for the not-for-profit Credit Counselling Service of Eastern Ontario, one particular aspect of some payday loan companies troubles her. In a traditional financial institution, the borrowers are always asked what other debt load they have.
“With a payday loan company, that procedure is not in place,” she explains. “I’ve seen as many as five payday loans. That person probably shouldn’t have had one payday loan, let alone five.”
Foster’s organization provides counselling to clients who are coping only with payday loans, rather than payday loans in addition to a larger debt.
The counselling sessions are free, but if someone wants to be involved in the complete program they would have to pay off payday loans.
“We charge 10 per cent of the payment amount,” she says. “If the client is coping with three payday loans, they make one payment, of say $100, to our organization. We would pay $90 to the creditors, and withhold $10 for administration. There is a one-time set up fee of $25.
Michael Thompson, the outgoing president of the CPLA, rejects the contention that payday loan companies operate only in poor neighbourhoods, taking advantage of society’s most vulnerable.
“In Centretown, in L’Esplanade Laurier, there’s a large payday loan provider in that building, and another one just down the street,” he says.
“The majority of this clientele are public servants, not ill-informed, not on welfare, but with a dependable income stream.”
Thompson adds that a typical loan in this situation would be approximately $280, to be repaid within ten days, together with interest at $57.
André Bolduc, a vice-president with BDO Dunwoody a trustee in bankruptcy, says people come to him when they are in over their heads, with collection agencies after them, when they’ve “hit the wall.”
Bolduc remembers a couple of people in this situation. He says they don’t blame the payroll loan companies, and that they were already on a slippery slope. The companies, according to Bolduc, just accelerate the downward slide into debt.
“We see people in really bad situations, who keep rolling over their loan. If they keep the loan over a year and figure out the ‘effective interest’, they can’t believe it.”
Whether consumer protection comes from the government or from the payday loan companies themselves, the new president of the CPLA agrees that the people deserve the consumer protection afforded to those who borrow from bigger institutions.