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Alberta Sets Rate Ceiling at $23

The Alberta government announced their new payday loan regulations today and have followed in the footsteps of British Columbia with their maximum allowable rate. In a release, the government said "The new regulation sets the maximum total cost of borrowing at $23 per $100 borrowed, including interest and any fees charged as a condition of the loan. The amount requires federal approval before it comes into effect." The regulations also set out a number of new rules that will take effect September 1st. These rules are consistent with what we have seen in other provinces and include the option to cancel your loan within two business days, restrictions on rollovers and disclosure provisions.

Alberta Rate News Expected Soon

It is expected that we could have an announcement from the Alberta government as early as today regarding their new payday loan regulations and maximum allowable rate. More information to follow.

Manitoba Amends PUB Role

For the better part of six months, spanning the second half of 2007 and into 2008, payday loan stakeholders spent a great deal of time participating in a public hearing process held in front of the Manitoba Public Utilities Board (PUB) to determine the maximum allowable rate that lenders could charge.

If you follow this blog then you will be well-versed in the PUB process and its outcomes. If you are new to this blog then the Coles Notes version is as follows: The PUB ruled that lenders could charge a maximum of 17% of the loan amount up to $500 and even less for larger loans (the current average rate in Manitoba is around 25%). Based on the balance of the evidence presented at the hearings, this was a rate that would almost certainly create a monopoly in Manitoba because there is only one company at present who can afford to offer payday loans at a rate that low and still remain financially viable. In response to the PUB decision to cap rates at 17%, The Cash Store (formerly Rentcash) took the PUB to court, challenging their decision on the grounds that the PUB overstepped their jurisdiction by issuing an order that was sure to put the majority of the industry in Manitoba out of business. The Manitoba Court of Appeal granted The Cash Store leave to appeal and now the case is waiting to be heard.

In January, we learned that the Manitoba government had decided to bypass the PUB decision and make their own decision on a rate cap for payday loans in Manitoba. Today, they tabled legislative amendments to do just that. In a press release that went out this afternoon, the government has proposed amendments to their legislation that will remove rate setting powers from the PUB and allow the government to set rates themselves though regulations. Here are the details:

A bill which proposes amending the Consumer Protection Act to revise the role of the Public Utilities Board in establishing the maximum cost of credit for payday loans was introduced today by Finance Minister Greg Selinger.

The bill would:

• Rescind the Public Utilities Board order that set maximum rates on payday loans.
• Allow maximum loan rates to be set out in a regulation.
• Change the role of the Public Utilities Board from its current mandate as a rate-setting body to one of an advisory body in relation to payday loans. In the future, the board would continue to conduct public consultations and would make recommendations to government respecting the maximum rates that could be charged for payday loans.
• Allow the board to make recommendations on other matters respecting the regulation of the payday loan industry such as provisions relating to business practices and enforcement.

Full Release: Manitoba Proposes Changes to Payday Loan Legislation

It's Official: Ontario picks $21

Ontario announced this morning that it will accept the recommendation
of their payday loan advisory board and implement a rate cap of $21
per $100. The province requires federal designation before the rate
cap comes into force. It will likely take until the fall for this
designation to be granted.

Here is the official release: Ontario Protects Payday Loan Users

Ontario Decision Soon?

The word on the street is that the good folks in Toronto will make a decision soon on whether or not to accept last month's recommendation on the maximum allowable rate for payday loans in Ontario. I am still trying to get a definition of what "soon" means, but with any luck we will have some answers before this month is through.

On February 9th, the payday loan advisory board issued their recommendation for a rate ceiling of 21% of the loan amount. It is up to the Minister to decide if he will accept the recommendation or institute a different rate ceiling.

BC sets rate ceiling for payday loans

Just in: British Columbia has set the maximum allowable rate for
payday loans at $23 per $100, effective November 1, 2009. More details
to follow.

UPDATE: Official Government Press Release

Key regulatory changes include:

· The maximum charges for short-term loans will be capped at 23 per cent of the principal and that must include interest and all other fees. Some payday lenders currently charge as high as 30 per cent.

· A loan agreement between the payday lender and the borrower that sets out all charges, terms and conditions. Payday lenders must also display posters and signage showing their rates and fees.

· Borrowers will have the right to cancel the loan by the end of the following day, without paying any charges.

· Payday lenders will not be able to collect repayment on a loan directly from the borrower’s employer, or get unrestricted access to the customer’s bank account. They will also 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 lenders will not be able to issue a loan for more than 50 per cent of the borrower’s next paycheque.

Macleans: Payday Lenders Winning Customers

A blog post on Macleans' website today notes that payday loan companies are "winning customers who need emergency loans, as well as those frustrated by tightening credit at the big banks," stating that "as the banks clamp down, the payday lenders are filling the void."

Repost: Banks quietly finding ways to charge more

Here is another article about the banks' approach to customer service in these difficult economic times:

From the Vancouver Sun: Banks quietly finding ways to charge more

If you think the global tightening of credit hasn't impacted you in any direct way, you might want to check your credit-card statements. Mine has quietly gone from a 26-day grace period to 21 days.

The interest rate on outstanding balances and cash advances is one per cent higher than last year (despite a significantly lower prime rate); there's now a $2 fee for cash advances; and the balances from current and previous statements must be paid in full by the due date to avoid interest charges.

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TD Canada Trust, for example, advised customers it would begin charging a $35 "inactivity fee" as of April 30 on those who hadn't accessed their unsecured lines of credit in the previous year.

The interest rate on lines of credit also was going up.

In other words, you paid more whether you borrowed or not.

Ontario Advisory Board Recommends $21 per $100

The Ontario Payday Loan Advisory Board issued its recommendations today and is calling for a rate cap of $21 per $100 in that province. The basis for its decision appears to be the result of an Ernst & Young study on the cost of providing payday loans in Ontario. The study concluded that the average weighted cost to provide a payday loan in Ontario was $21.50 per $100.

The E&Y study uses data from 9 of the more than 100 companies that provide payday loans in Ontario. To put this in perspective, the most representative cost study conducted to date was done by Deloitte in 2008. Deloitte looked at the cost of providing payday loans in British Columbia and surveyed 12 of the roughly 60 payday loan companies in that province. They found that the average cost of providing a payday loan in B.C. was $25.21 per $100.

The risk of using a cost study to determine the maximum allowable rate for a product in an industry with many participants is that if you settle on the average cost then you are still putting half of the industry out of business. Some have argued that lenders need only tighten their belts and all will be fine. Unfortunately it is not that simple.

First, business owners are likely our society's most efficient at tightening their belts. Those who have owned a business do not need to be told this, but for those who have not, you need only consider that every dollar an owner can save in efficiency improvement goes straight into his/her pocket. You will not meet a more motivated group when it comes to wanting to keep expenses at a minimum. I would argue that their belts are already tight.

Second, assuming that there are few notches left to tighten, where then does a payday lender cut costs? They could move to a cheaper location, shorten their hours, hire less skilled and lower paid staff. Each step leading to fewer customers and a less viable business, unless of course customers prefer poor locations, short hours and inexperienced staff. Not likely.

Finally, payday lenders could tighten their lending criteria and attempt to reduce their bad debt costs by being more picky about who they lend to. In E&Y's first payday loan study, The Cost of Providing Payday Loans in Canada, they identified a correlation between payday loan rates and bad debt risk, illustrating that the less a lender could charge the less risk they could assume.

In practical terms, a maximum allowable rate for payday loans that is based on the average cost to provide the product means that those companies who cannot tighten their belts enough (likely because they are already tight) will be out of business and those who can tighten will do so by restricting who they lend to. If consumer protection is the goal of this legislation then you have to look at where those consumers go and how protected they will be when their already limited credit options are restricted even further.

To steal from a previous post:

As the Policis study illustrates, some newly excluded borrowers may pay up to ten times the amount that they currently pay in order to borrow $100 from an illegal source of credit. Some will temporarily relinquish their personal assets in order to obtain a pawn loan and others will do without. Of the borrowers who do without, those who knew how to weigh the difference between the cost of a payday loan and the cost of bouncing a cheque will be worse off.

The best consumer protection is education and empowerment. Require consistent rate disclosure between all lenders so that consumers can easily identify the best option for them and their circumstances. Giving consumers fewer credit options in an already tight credit market does not get them any further ahead and I doubt it is what any of them are asking for.

The Ontario government has the final say on what the maximum allowable rate for a payday loan will be. I would encourage them to set a higher rate that will leave fewer people out of business and fewer borrowers out of options.

Banks Still Learning How to Treat a Loyal Customer

We already know that the current credit crunch has lead banks to become incredibly tight with their money, refusing to lend when our recovery from this mess depends upon it. An article in today's Toronto Star shows that not only are they not lending new money, but they are also putting the screws to longtime customers. The article chronicles the experience of Marvin Zuker, a provincial judge in Ontario for the past 30 years and a BMO customer for the same length of time. Despite his history with the bank, he recently had his account frozen and started receiving calls from an outside collections agency because he chose to use his overdraft for 6 months.

In good times and in bad, there is never an excuse for poor customer service and for not recognizing the value of longtime customers. One way that 310-LOAN has maintained its standing as one of Canada's leading payday loan providers is by making sure its customers don't feel like they are dealing with a bank. To get an idea of how 310-LOAN customers feel about the company's level of service, here are a few of the comments from customers, provided through 310-LOAN's Facebook page:

i have had nothing but the greatest of service from 310-Loan. Thank you for making it easy to get and to pay for a payday loan
-Troy S. (Calgary)

great service , good communication, and cool payment method and speedy!!
-Roberta B. (Winnipeg)

310 is the best out their!! thank you 310 loan
-Nicole M. (Saint John)

yes its nice and kewl to have a company like 310 i'm very grateful to u guys thx so much for making everything so easy
-Ricardo D. (Vancouver)

Yes, good & fast service, without the hassle of dealing with the bank, thanks 310-loan!
-Diane G.

I am happy with your service. Your customer reps are very friendly. When I have a problem with my account, they contacted me and discuss options with me. They deal with problem professionally and with respect. Thank you 310-loan.
-Daisy L.

I am very happy with your service; 310-loan is efficient, fast and effective, and meets all my needs. Thank you for being great professionals!
-Lorraine P. (Toronto)

Manitoba Changing Direction on Payday Loan Legislation

For those of you following along with the payday loan legislation adventure that is unfolding in Manitoba, a recent Vancouver Sun article has a few quotes from Manitoba Finance Minister, Greg Selinger indicating the new direction that the province is heading in:

"When one company, The Cash Store, won the right to appeal the cap — which had been set by Manitoba Public Utilities Board after a thorough examination of the industry — Selinger refused to let the issue be stalled. He promptly made plans to plug the loophole. 'We’re going to legislate the cap,' he told me. 'We’re not going to let it be tied up in the courts for a couple of years. 'As policy-makers we can do things a quasi-judicial body like the Public Utilities Board can’t.'"

It will be interesting to see what rate the 'policy-makers' choose to go with. The Public Utilities Board is being called out by the courts for possibly overstepping its jurisdiction by setting a rate so low that it will drive the majority of lenders out of the market. The Manitoba government, presumably free to set whatever rate they want (subject of course to whatever court challenges may arise) have the opportunity to set a rate that differs from the PUB's competition stifling approach. Borrowers who enjoy the ability to choose will certainly be hoping that they take a new direction.

More on Manitoba Payday Loan Ruling

BACKGROUND: Manitoba Decision Being Contested, Payday Loan Legislation Could Be Delayed, Judge's Initial Comment on Payday Loan Appeal

Yesterday I posted the first bit of news on the Manitoba Court of Appeal's payday loan ruling. Today the media has served up a bit more information and some comments from the province. I have provided some links above to previous posts on this topic, but the long and the short of it is that The Cash Store Financial Services is challenging the Manitoba Public Utility Board's ruling on maximum allowable rates for payday loans in that province. After several months of deliberation, justice Alan MacInnis has agreed to grant an appeal and a temporary stay of the PUB ruling while the appeal is heard. Unfortunately, this will delay the implementation of payday loan regulations in Manitoba. On the positive side, it will reopen the possibility of a maximum allowable rate that will enable a viable and competitive market to exist (see: problems with the PUB payday loan decision). While the delay is unfortunate, a competitive industry is in the best interest of everyone and should have always been the desired outcome.

Judge Sides with Payday Loan Company in Manitioba

I have only found one small mention of this in the press so far, but the Manitoba Court of Appeal has sided with The Cash Store and agreed to hear an appeal of the Manitoba Public Utility Board ruling issued early last year.

Here is the brief mention on the CJOB website:

"The Manitoba Court of Appeal has declared payday lenders were unfairly treated by the Public Utilities Board, when it set lending rates. The decision means The Cash Store Financial Services could argue the PUB acted beyond its scope in setting rates.

A decision last year by the Public Utilities Board capped maximum costs of credit at various levels depending on the amount of the loan. It's capped at 17-percent for loans up to 5-hundred dollars.

Loan companies said the lower rates would drive some of them out of business. Justice Allan MacInnes agreed saying in a written decision, a full appeal of the PUB's ruling should be heard. A date has not been set."

More Talk About Payday Loans vs. Overdraft in U.S.

An article that appeared in the Houston Chronicle over the weekend points out that many Americans don't understand the financial benefits of choosing a payday loan instead of bank overdraft for small amounts of credit:

Debt concepts a challenge for many in U.S.:

"According to a financial literacy survey by the Center for Economic and Entrepreneurial Literacy, which advocates personal finance education, just a quarter of adults knew that overdrawing their checking account (bouncing a check) for a quick $100 was more expensive than a payday loan, credit card advance or emergency wire transfer. More than half said they thought a payday loan would be pricier."

If you are considering between a payday loan, bank overdraft or a cash advance on your credit card, be sure to get the full fee schedule from both your bank and your payday loan provider in order to make an informed decision. It takes a little extra time to find all of the fees, especially at the bank, but it is the only way that you can be sure you are making the most of the credit options that are available.

Here are some other posts about the costs associated with various short-term credit options:
Bank Fees Have Ohioans "longing for a payday loan"
Mainstream Lenders Cranking Up Fees
Will Credit Unions Provide a Payday Loan Alternative?
Bank Fees Make Payday Lenders Look Like a Bargain