Thursday, May 25, 2006

B.C. laggard in regulating payday lenders

VICTORIA - Everyone - even Solicitor General John Les - agrees the province should be regulating payday lenders to protect British Columbians.
So what won't the government do something?
Payday loan companies were almost non-existent a decade ago. Now there are about 1,350 branches across Canada doing $1 billion in business a year.
Unlike banks and other lenders, the industry is virtually unregulated. The safeguards that protect consumers dealing with other financial institutions don't exist.
The companies serve a useful purpose, despite critics' complaints that exploit the poor. They offer loans to people who have no other access to credit. For someone who urgently needs $100 to make to the next payday - to fix a car, or provide for a child - the companies are a valuable service. Show them a pay stub, write a postdated cheque and you can borrow a small amount for a brief period.
For a price. The Criminal Code makes it a crime to charge more than 60 per cent interest. Typically the companies charge 59 per cent. But they also levy fees for each transaction that push up the real cost of borrowing, in some cases to 1,000 per cent.
The loans can quickly become a trap. Borrow the money against your pay cheque, pay it back and then run short again and go back for another loan. A court case in Ottawa heard that a person borrowed $280. A month later, the amount owing for the original loan had risen to $551, a Tony Soprano kind of transaction.
The companies defend the fees. They run a big risk of not getting paid back, they say, and it's tough to make money on a lot of small loans.
But they agree - mostly - on the need for proper government regulation.  The Canadian Payday Loan Association, which represents operators of about 800 of the 1,350 outlets, has urged governments to step in and set rules for the industry.
The B.C. government says no. When New Democrat MLA Rob Fleming introduced a private members' bill this month to regulate the industry, Les was dismissive.
The bill’s contents are fine, said Les, nothing he could disagree with.
But, Les said, the province can't do anything until the federal government changes the Criminal Code and gives the province the power to set maximum interest rates. Fleming has “the cart before the horse.”
It sounds like an excuse, a lamish one.
It would be helpful if the federal government finally acted on the Criminal Code changes after five years of dithering.
But in the meantime B.C. could act, if it had the will.
The Manitoba government has introduced legislation regulating payday lenders. It acknowledges some provisions require changes to federal law. The fact that Manitoba has passed the legislation and is waiting on Ottawa is intended to add pressure.
But the Manitoba law also introduces useful measures that don't require any federal action. Payday loan companies will be required to warn customers in clear language about the high cost of loans. Borrowers will have 48 hours to change their minds about the agreement. Most importantly, the companies will be required to get provincial Public Utilities Board approval for their fees. Their operations will come under close independent scrutiny.
Many of the same measures were included Fleming's bill.
The Liberals aren't going to adopt an NDP members' bill, but the government could and should bring in its own legislation this fall.
The industry fills a need.
But it can also exploit the vulnerable. If any sector of the financial services industry requires regulation, it's the payday loan operators. Yet governments have largely chosen to ignore them. (Not entirely. Manitoba prosecutors have laid charges under existing Criminal Code provisions; Quebec introduced regulations limiting interest rates and the companies have stayed out of the province.)
The government has acknowledged the need for action. Les has indicated general support for Fleming's bill. B.C. has the ability to start protecting consumers and bring some order to a Wild West industry.
It's time for the excuses to stop and some action to start.
Footnote: The only remedy available to introduced so far has been class action lawsuits. But they are a costly and slow vehicle to bring about change. The amounts claimed are typically small and the base of claimants tough to identify and the legal process could take years.

1 comment:

Anonymous said...

Thes outfits are everywhere. The charges are extreme but as you said, the working poor get sucked up in the deals. We know a fellow who got involved, they have collectors that get quite abusive if a client uses your name as a reference, and they figure their client might be staying away.

One of them phoned us from Vancouver, we are in Victoria, and he threatened us and attempted to convince us it was our fault the client was a couple of days late. I told the guy if he threatended me again I'd have the cops on him so go get lost. The person involved is an adult and we were not aware we were shown as a contact. we had no intention to pay any late fees that they had dreamed up. We convinced our friend to pay what he owed,and to never darken their door again and stick to a Credit Union. They are like blood suckers but they do get a lot of business. They should be heavily regulated but Gord and crew will drag their feet as long as possible