Tag: Canada payday loan laws


Canada Payday Loan Laws & Legislation Update

The Province of Ontario will complete its regulation of the payday loan and cash advance industry as of December 15, 2009. This includes includes a maximum rate of $21 per $100 loaned. Included in the new regulations are strong consumer protections in conjunction with good, solid, and fair legislation thus, assuring the future of the payday loan industry in Ontario.

Shortly, the Province of Saskatchewan will announce the maximum rate of borrowing for payday loan transactions at $23 per $100 loaned. Saskatchewan becomes the fifth province to have set a maximum cap for payday loan transactions.

Ontario joined Nova Scotia and British Columbia in being exempted from Section 347 of the Canadian Federal Code. This move allows the Province of Ontario to implement a maximum rate and enabling legislation for payday loan lending.

The Province of Alberta is also in the final steps of completing its exemption from Section 347.

The provinces of Manitoba, New Brunswick and Prince Edward Island are still in the process of negotiating payday loan legislation, maximum caps, and licensing.


New Payday Loan Industry Survey Results Available.

New Payday Loan Industry Survey Results available.
(Access to the actual survey is available at the bottom)

You want to know who your customer is? Still trying to figure out who uses payday loans, why they use them and what they really want?

A most interesting payday loan survey is now available! It was sponsored by the Government of Alberta, Canada. It reveals some great insight into the wants and needs of the following respondents to the survey:

• individual consumers and consumer organizations;
• payday loan businesses;
• credit counselling agencies;
• “other stakeholders.”

(Our Thoughts: Don’t let the fact that this survey was conducted in Alberta, Canada cause you to dismiss it as having little relevance to your situation. We have access to multiple studies in various locales and the conclusions are very much the same. Micro-lending consumers are similar throughout the world. And micro-lending products, like the payday loan, car title loans, and pawn services will continue to be in great demand as long as consumers breathe. Government cannot legislate our product out of existence nor will the so-called “consumer protectionists” ever reach into their own product to help an anonymous consumer in need!)

Leger Market Research Company, the firm hired to perform the survey, listed the folowing conclusions. These HIGHLIGHTS are insightful as there are some surprising conclusions to be drawn from their results.


User Satisfaction with Payday Loan Lenders
The majority of payday loan users are satisfied with their most recent payday loan experience,
including 49% who are very satisfied. Users are highly satisfied with the rates and terms being
explained to them (82%) but their satisfaction with the cost of the payday loan is substantially lower

(Our Thoughts: Why can’t the so-called consumer protectionists who continually attack the payday loan industry GET THIS THROUGH THEIR THICK SKULLS!)

Motivations for Using Payday Loans
Users cite a range of situations of great need, or emergency situations in general, as their reasons for needing payday loans. The most frequently mentioned reason for needing a payday loan is to pay bills or prevent overdue bills (40%).

When asked for top of mind reasons for choosing a payday loan instead of another form of lending, users say it is a last resort (41%). Convenience factors represent other motivators for obtaining payday loans; for example, that it is easy to apply (12%), faster to get the loan (10%) and the location is convenient (6%). However, when asked to rate the importance of a number of specific aspects of payday loans, users rate speed, ability to borrow a small amount, hours of operation, convenient location, and ease of applying for the loan substantially more important (87-92% important ratings) than being the only place they are confident to apply (61%) or not being approved at other places (44%).

(A number of other studies of our industry have consistently pointed out the same thing; IT”S ABOUT CONVENIENCE!)

There is a degree of
stigma associated with payday loans, with 25% of users agreeing they would be concerned about
being seen at a payday loan store.

A low percentage of users obtain their loans through the Internet (3%). Almost all users obtain their loans from a payday loan store, usually somewhat or very close to their home. Most users (82%) have Internet access, at about the same incidence as the general population (84%).

(OUR THOUGHTS: Only 3% of payday loan users have used the Internet to get a payday loan and yet 25% of users admit to being concerned about being seen in a payday loan store. This is further evidence that those of us offering payday loans should implement the Internet for our product offerings and, we suspect, strive harder to deliver peace of mind to those payday loan consumers contemplating the use of the Internet to get a loan.)

Users believe that payday loans serve a need because they allow for emergency loans to consumers who cannot obtain alternative financing. However, users and non-users alike are in favour of regulating the following areas to eliminate unfair or predatory practices:
1. a limit to the allowable cost of borrowing and, to a lesser extent,
2. making agreements easier to understand,
3. allowing a “cooling off” period during which the loan can be cancelled without penalty,
4. allowing the borrower to repay only the principal amount borrowed if the business violates the
5. the practice of “discounting,” and
6. rollover loans.

Payday loan users acknowledged that they are under financial hardship and have poor budgeting skills. They also appeared to have little comprehension about the actual cost of borrowing from payday lenders when all of the rates and fees are converted to an annualized percentage rate.

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Characteristics of Payday Loan Users
The payday loan users participating in the survey demonstrated a higher than average likelihood to be between 25 and 35 years of age (35% vs. 18% of the Alberta general population) and a lower likelihood of being under 25 (6% vs. 14%) or 65 years and over (5% vs. 14%). Reflecting their ages, 46% of users report having children in their household under 18 years of age, versus 39% in the general population. Users’ annual household incomes are below average, with 37% having incomes between $20,000 and $49,999 per year versus 23% for the general population.

Use of Payday Loans
The study estimates that 3% of Albertans have ever taken a payday loan. Another study Leger
Marketing conducted in December 2008 provided an estimate of 6% based on a sample size of 900 respondents (+1.6 percentage points, 19 times out of 20).

(The potential for HUGE growth remains for the payday loan product.)

The vast majority (93%) of non-users rate themselves unlikely to consider a payday loan. Supporting this view, most Albertans would not need a payday loan if they needed $300 in cash, as they tend to have access to funds from their bank accounts, relatives, lines of credit, overdraft protection and cash advances.

Non users are more confident than users about being able to obtain the funds they need
through their bank account or through a line of credit, while users and non users demonstrate similar levels of confidence about getting the required funds from other sources.

Albertans who have had a payday loan before tend to be repeat users (79%), using payday loans an average of four times in the past. However, only 22% anticipate using payday loans again in the future.

Users perceive that they pay their loans off as soon as they are due (80%) and only use
payday loans as a last resort (62%). Some users see themselves using payday loans at certain times of year (20%) and 10% use payday loans as part of their regular banking.

Payday loans most frequently involve obtaining between $200 and $499 (52% of users’ most recent loan value), and the amount is almost always under $1,000 (88%).

Payday Loan Agreements
While almost all payday loan users (92%) report having received a copy of their payday loan
agreement, only 66% read the loan agreement before signing.

(We would bet the percentage of payday loan consumers who actually read their contract EXCEEDS those homebuyers who read their loan new documents!)


Most of the consumers and their advocates said they would prefer, for simplicity’s sake, to see the
maximum rate set as a percentage or dollar amount of the loan. One exception is a senior citizens’
association. This association would like to see the government set a limit of $15 per $100 on the first $300 of the loan, $10 per $100 on the next $500 and $7.50 for any amount above that.

Credit counselling agencies are also in favour of a tiered system. “These loan schemes take advantage of those least able to afford it,” says an outreach program for street people. “If indeed the service is required, then it needs to be better controlled – it is a circle whereby one never gets the loan paid off.”

The Industry
Most payday loan businesses that responded to the public consultation are in favour of a regulated maximum rate.

One payday lender says it opposes interest and fee limits because the current level of competition in the market is healthy and the “normal range” of rates charged in Alberta is consistent with those charged in other provinces. “We believe that a market-based approach to rate-setting is the most effective way of setting rate caps.”

Another industry stakeholder did not say in the discussion paper what rate it would like to see the
maximum set at, it charges interest and fees of as high as $41.50 per $100 based on information
received by regulators or disclosed in writing on disclosure statements to borrowers. In 2006, an
Edmonton television journalist posing as a first time borrower reported he was charged $52.70 per $100.

The stakeholder would like to see the government set a maximum fee as a percentage of the loan, i.e.: $23 per $100 lent. While it does not disclose what rate cap it would like to see set, the $23 figure is consistent with figures it has said publicly that it would like to see charged.

Several small payday lenders said they would like to see the maximum set between $30 and $35.

The payday loan business respondents are unanimous in their desire for some form of industry
regulation, and almost universally in favour of creating this with federally approved legislation. The sole exception is one payday lender in a small Alberta city that prefers regulation without federally approved legislation.

Read the entire report here: Payday Loan Report


Payday Loan Laws in British Columbia – Canada

Canada: British Columbia announced new regulations capping total charges for payday loans offered in the province at $23 per $100 loaned including all interest and fees.

Additional British Columbia payday loan regulatory changes include:

A payday loan agreement between the payday lender and the payday loan borrower must be created that sets out all charges, terms and conditions.

Payday lenders must also display posters and signage showing their rates and fees.

Payday loan borrowers will have the right to cancel their payday loan by the end of the following day, without paying any fees.

Payday loan lenders will not be able to collect repayments on a payday loan directly from the borrower’s employer, or get unrestricted access to the customer’s bank account.

Payday loan lenders will not be allowed to ask for repayment of the loan before the borrower’s payday.

Payday lenders will not be able to issue more than one loan to a borrower at a time, and rolling one loan into another with new charges attached will also be prohibited.

Payday loan lenders will not be able to issue a payday loan for more than 50 per cent of the borrower’s next paycheck.

There has been significant growth in the short-term, payday loan lending industry in British Columbia in recent years. There are about 250-300 payday outlets in British Columbia.

As of Nov. 1, 2009 payday loan companies in B.C. will need to be licensed by the Business Practices and Consumer Protection Authority (BPCPA).

Payday loan borrowers will have the ability to resolve complaints outside of the courts. Furthermore, the BPCPA will have the tools to ensure industry compliance once the rules come into effect. The regulations will be reviewed in two years.

“These measures will help consumers clearly understand the costs associated with payday loans and assist those who find themselves in over their head financially as a result of repeatedly using payday loans,” said Scott Hannah of the Credit Counseling Society.

The B.C. government introduced payday loan legislation in the spring of 2007 and it was passed in the fall. The regulatory changes being announced today follow changes the Federal government made to the Criminal Code that year to allow provinces to set their own rates for payday lenders.