People come and go from Winnipeg's payday loan companies July 31, 2008. The short-term loans are becoming more popular, but B.C. is seeking more regulation and lower interest rates for the industry to protect ‘vulnerable’ consumers.John Woods/The Globe and Mail
The British Columbia government is cutting the maximum interest rate for payday lenders and promising additional changes to protect "vulnerable" consumers from an industry that critics have condemned as predatory.
As of Jan. 1, the maximum allowable charge for a payday loan will drop from $23 to $17 per $100 – among the lowest rates in Canada, the province said on Wednesday.
But the government also announced a 30-day period of consultation with stakeholders, including credit counsellors and loan providers, to help map out further measures.
Payday lenders offer short-term loans of $1,500 or less that some consumers use to get by between paycheques. Anti-poverty advocates say payday loans target low-income people with high interest and unfair fees, while the industry insists such loans provide a valuable source of money in times of sudden need.
Solicitor-General Mike Morris said he is interested in the challenges loans impose on customers, including those who use the title to their vehicles to leverage money. But he added that, while his government promises more changes, specific measures are unlikely before the next May's provincial election.
"I don't think we will be able to get it out that quick," Mr. Morris said. "I don't expect anything in the foreseeable future on this, but it is something we will continue to work on."
Surveys show payday loans becoming ever-more popular with Canadians. A report from the Vancity credit union in B.C. released in January suggested the use of payday loans in the province increased 58 per cent between 2012 and 2014, the years assessed in the research.
Mr. Morris said "pretty vulnerable" people are relying on payday loans in B.C. – 159,000 last year, according to a statement from his ministry – and he wants to ensure that payday loan operators are not taking "undue advantage" of those borrowers.
Jerry Buckland, a professor of international development studies at Menno Simons College in Winnipeg who has taken an interest in payday loans as part of research on microcredit, said jurisdictions have taken varied approaches to dealing with the issue.
In Canada, he said, Quebec stands out for essentially disallowing them. "In the rest of the country, they're allowed through a kind of a managed system that seeks to find what's the fee or the cap that will enable the efficient payday lenders to operate their business and try to minimize some of the harmful practices," Dr. Buckland said.
Carole James, finance critic for the B.C. New Democrats, said in an interview that her party supports the government measures, but a larger issue worth debating is how fees and larger trends have made life less affordable, forcing some to use the payday services.
Tony Irwin, president of the Canadian Payday Loan Association, which represents most of the operations across the country, said he was disappointed that the B.C.government acted to reduce the borrowing rate without consultation, and that his organization will consult members to figure out how to respond.
He said his organization is concerned that further government action might make it more difficult for his members to operate, effectively restricting their ability to offer credit, adding: "The demand for [our] product won't go away."
But Scott Hannah of the Credit Counselling Society, a B.C.-based non profit organization, said the announcement is a "positive step," and he is hoping the government goes further.
"We hear from consumers who tell us, 'I wish I had never taken this [loan] out. I didn't realize how this was going to impact me.'"
Mr. Hannah, president and chief executive officer of the society, said governments have a responsibility to prevent "harmful" financial practices, a process that B.C. began with initial measures in 2009.
He called for government action this year, moving beyond rates to adjust the terms and conditions for borrowing money. Specifically, he called for limits on the number of times consumers can borrow funds from lenders and extended repayment periods for people having trouble repaying loans.
Ian Bailey