Hell Paying: New Payday Loan Rules Still Too Soft, Group Says
A single high winter heating bill, a major auto repair or unexpected illness, and many New Brunswickers could find themselves in dire financial straits.
In a financial emergency, payday loans – short-term, unsecured loans, usually for a few hundred dollars – can seem like a quick fix.
But with some annual percentage rates (APRs) above 600 percent, payday loans are one of the most expensive ways to borrow money.
They can trigger a cycle of debt that many low-income New Brunswickers cannot escape.
On Monday, New Brunswick became the eighth Canadian province to introduce regulations governing the payday lending industry.
But agencies fighting against abusive lending, say more could be done to protect New Brunswick’s working poor.
Prior to this week, loans weren’t regulated at all in that province, according to Randy Hatfield of the Saint John Human Development Council.
“It was the Wild West,” he said. “We didn’t know how many payday lenders there were, how much they loaned, how much their rates and fees were, what their penalty structure was.”
Earlier this week, the Financial and Consumer Services Commission announced a new set of regulations, including a compulsory license for payday lenders, then requiring posters to show their rates and making insurance on them. optional loans.
Lenders are also prohibited from making more than one loan at a time to the same consumer, or from lending more than 30 percent of the consumer’s take-home pay.
Under the new rules, the commission is able to take action against unauthorized lenders and those who do not comply with the law.
The new regulations are “a very good start,” Hatfield said.
He gave the province “full marks” for tougher disclosure rules, which ensure borrowers are aware of the annual percentage rate they are paying and what they owe.
He also praised the Financial and Consumer Services Commission for capping the amount payday lenders can charge at $ 15 per $ 100 borrowed – among the lowest fees in Canada.
But there is still “an unfinished business,” Hatfield said.
Stricter rules are needed
The new regulations don’t deal with repeat borrowing – when people take one loan, find themselves unable to pay, then take another to pay off the balance, going into more debt, Hatfield said.
They also don’t deal with simultaneous borrowing: people borrowing from one payday lender and then “walking across the street to another lender.”
Other jurisdictions, including Nova Scotia, have rules that give people more time to repay their loans if they have taken out more than three payday loans in a 62-day period, Hatfield said.
“It essentially lengthens the time a borrower has to pay off their debt so they don’t have to go back to the well,” he said.
Better data collection could also help study and measure the impact of the payday loan industry on low-income New Brunswickers, Hatfield said.
“The data reporting requirements that are currently in place in the new regulations are not as stringent or as detailed as they are in other provinces.
‘Be careful what you wish for’
Payday lenders “prey on the working poor,” Hatfield said, opening windows in the heart of low-income neighborhoods, around liquor stores and in malls.
But banning such businesses could also have unintended negative consequences.
“You have to be careful what you want,” he said. “If you put these guys out of business then you could bring back the criminal element, and more loan sharking and more pawn shops.” “
“They fill a need, but there is a need to regulate the industry.
More recommendations to come
The problem remains that the working poor “have very few credit instruments to which they can access,” Hatfield said.
“In the past, it was not uncommon to go to your employer and ask for an advance. But in the age of electronic payments, this kind of discretion is less and less available. loans to people.
Until better options exist, there is more regulatory work to be done to protect consumers, Hatfield said.
“There are other more consumer friendly regulations that we could have adopted,” he said. “We will definitely recommend more in the years to come.”