New Brunswick Payday Loan Legislation Passes Today

New Brunswick today became the fifth Canadian province to pass enabling legislation. Bill 4 received royal assent today and New Brunswick will now move towards setting regulations and fixing a maximum cost of credit that payday lenders can charge for a cash advance in that province. A copy of the bill is available here: PDF - HTML

The New Brunswick Energy and Utilities Board will be charged with setting rates.

New Brunswick joins British Columbia, Saskatchewan, Manitoba and Nova Scotia as the provinces that have passed payday loan regulations. Ontario is expected to be the next jurisdiction to pass legislation - their bill is currently awaiting second reading.

Ontario Debates Payday Loan Bill - Part 1

Part 1 | Part 2 | Part 3

Some interesting and diverse views have emerged from the debates pertaining to Ontario's new payday loan bill. The full text of the debate at second reading is available here.

On account of being a bit of a slow reader, I will provide tidbits of the transcripts as I get through them over the next few days. Here's a start:

The Liberals understand the value of competition as part of a consumer protection framework:

"This proposed legislation would solidify our progress to date by creating a regulatory framework that encourages competition, while discouraging the now familiar cycle of debt dependency that can result from these loans, especially for those Ontarians who can least afford it. If passed, the proposed legislation would deliver real and positive changes and increase public confidence in the integrity of this industry."

"If the Payday Loans Act, 2008, is passed, payday lenders will have a regulated environment that affords competition and economic growth. Users of payday loans will be protected from harmful industry practices and will have remedies if payday lenders do not follow the new rules."

-Charles Sousa, Mississauga South


Brad Duguid (Scarborough Centre) offers his opinion of the NDP approach to payday loan regulation:

"...unlike the NDP, who no doubt are going to offer up some Pollyanna policy of probably zero per cent or something like that and think that's going to work. What that is going to do is drive the industry underground. People in very responsible positions in the area of helping those who are less advantaged are telling us to make sure, when we bring this bill forward, that we do it in a reasonable, fair and balanced way to ensure that we don't drive this industry underground."

More to come as I pick through this fascinating reading material so that you don't have to...

EZCORP considering "the prospect of expanding into Canada"

EZCORP, Inc. :: EZCORP Announces Fiscal 2008 Second Quarter Results: "Our EZMONEY operation continues with de novo growth in the U.S. and we have the prospect of expanding into Canada."

About EZCORP:
EZCORP is primarily a lender or provider of credit services to individuals who do not have cash resources or access to credit to meet their short-term cash needs. In 294 U.S. EZPAWN and 26 Mexico Empano Facil locations open on March 31, 2008, the Company offers non-recourse loans collateralized by tangible personal property, commonly known as pawn loans. At these locations, the Company also sells merchandise, primarily collateral forfeited from its pawn lending operations, to consumers looking for good value. In 462 EZMONEY locations and 73 EZPAWN locations open on March 31, 2008, the Company offers short-term non-collateralized loans, often referred to as payday loans, or fee based credit services to customers seeking loans.

Advance America hoping to open 20 to 25 Canadian locations in 2008

Advance America, Cash Advance Centers Inc. Q1 2008 Earnings Call Transcript - Seeking Alpha: "We opened three new centers in Canada during the first quarter, and we now have 10 open and operating. We expect to have approximately 20-25 centers operating in Canada by year-end."

Advance America operates in Canada under the National Cash Advance brand. A listing of their Canadian locations is available here.

From MotherJones Blog: Banks make payday lenders look like a bargain

As if to complement 310-LOAN's comments yesterday to the Nova Scotia Utility and Review Board, MotherJones is citing a study today about the high cost of overdraft fees from banks (thanks go to Payday Pundit for this find):

MotherJones Blog: Banks Give New Meaning to Protection Racket:
Payday loans have gotten a lot of bad press lately as state governments attempt to crack down on the 'legal loansharking' outfits that make very short term loans with interest rates going as high as 500 percent. But a new study by Marc Anthony Fusaro, a professor of economics at East Carolina University, found that the overdraft loans given by banks these days make payday lenders look like a bargain.

Hidden Consumer Loans: An Analysis of Implicit Interest Rates on Bounced Checks:
Payday lending attracts attention for its high interest rates, but bounce protection loans are much more expensive. Bounce protection is a program where consumers overdraft – write checks in excess of the checking account balance – and the bank pays the check allowing the account balance to be negative. For this service/loan, banks charge the standard non-sufficient funds (NSF) fee. When the amount borrowed is low and the time outstanding is short, the effective interest rate paid on this loan can be quite high. Using a unique data set we are able to quantify how high the interest rate is. We find that the median implicit interest paid by consumers is over 4,000%.

310-LOAN Responds to Manitoba PUB Decision

The Manitoba Public Utility Board decision on April 4th was the big news in the Canadian payday loan industry recently. The next big news will likely come when the Nova Scotia Utility and Review Board rules on the maximum allowable cost of credit in that Province.

In response to the Manitoba ruling, the Nova Scotia Board invited interveners to offer their input on the Manitoba decision. 310-LOAN, along with the rest of the interveners, submitted their response today. 310-LOAN's full response is available here. This is what they concluded:

The PUB’s order will reduce the number of lenders in the Manitoba market and limit the number of people who will qualify for a payday loan. Because the rates stipulated by the PUB are drastically lower than the cost of issuing those loans for many lenders, the magnitude of the aforementioned reductions is likely to be severe.

With their order, the PUB set out to reduce the financial impact of payday loan use on Manitoba borrowers. They acknowledged that their order will force some borrowers to “do without,” but were satisfied that those who do obtain payday loans in the future will enjoy a dramatically lower rate.

The PUB has erred in its failure to accurately account for the impact its order will have on those who will no longer have access to the product. Barring a dramatic change in economic conditions that affords every Manitoban abundant savings and a good credit rating, the number of people who find themselves in need of short-term, small-sum credit will not change in the near future. While those who still qualify for a payday loan will save 20% to 50% on their future loan, those who cannot access the product will see their costs rise, some quite dramatically.

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 net benefit to Manitoba customers is difficult to measure. Some borrowers will enjoy much cheaper payday loans and others will be forced to deal with less pleasant and far more expensive sources of credit. While well intended, it is our position that the Manitoba PUB order has needlessly abandoned an entire class of borrowers and in doing so contradicted its consumer protection objective.

California acknowledges that 36% APR is not feasible

The California Assembly's banking and Finance Committee yesterday took a stand against a 36% APR rate cap in that State: Bill to limit payday lenders defanged.

In doing so, they acknowledged that a 36% cap equates to a prohibition on payday loans: "'I'm not interested in a prohibition,' said Assemblywoman Lois Wolk (D-Davis). 'At the moment, there is no alternative to the products that meet the same needs that payday lending provides.'"

While lenders need to continually improve their efficiency and bring their costs down in order to remain competitive, a rate of 36% APR is simply not feasible. In their 2004 study, Ernst & Young found that it costs the typical payday lender $20.66 to issue a $100 payday loan in Canada. At 36% APR, the fee on a $100 payday loan for 14 days would be $1.38.

Payday Pundit is MIA

I am not sure what the folks over at Payday Pundit did to offend WordPress, but apparently the CFSA blog has been "archived or suspended" for violating the WordPress terms of service. I know some people find payday loans offensive, but come on!

(Update: As of April 21st, Payday Pundit is back online - WordPress must like payday loans afterall!)

Alberta Consultation Due April 21st

In case you missed it, the Alberta government is seeking input from payday loan stakeholders. Customers, lenders and consumer advocates are invited to provide input through a questionnaire posted on the Service Alberta website: http://www.servicealberta.gov.ab.ca/payday.cfm
(deadline is April 21)

Lenders and consumer advocates were invited to roundtable discussions in Edmonton and Calgary in the first week of April. Service Alberta plans to put the comments from those sessions together with the questionnaire responses to formulate a working paper for their regulatory framework. I will keep you posted as the results of these consultations become available.

Little-known cheque law

This isn't really in the payday loan realm of topics, but I though it was worth sharing anyway. Money Mart has taken a Vancouver Sun columnist to court using an obscure Bills and Exchange Act violation. Apparently if you place a stop-payment on a cheque that is then subsequently cashed at Money Mart (or any other cheque casher), you, the cheque writter, are liable for the amount of the cheque:
Before you write a cheque, take note of this little-known law

Ontario Advisory Board

It looks like Ontario will have a rate cap decision by the end of September. On March 31st, they announced that an advisory board would determine the maximum cost of credit for payday loans in Ontario:

"The Ontario government is searching for an academic, a businessperson and a social advocate to form an independent advisory panel tasked with deciding how much it should cost to get so-called payday loans – short term, often used by people to make it to the next paycheque – in this province." (from the Toronto Star)

The posting for board members is now online: Ontario Public Appointments

"Board members will be appointed by Order In Council and will work a maximum of 40 days ending September 30, 2008."

The deadline for applications is April 25, 2008 - suggesting that the government already has some candidates in mind.

From Payday Pundit: “Public need more, not less options”

Payday Pundit dug-up a commentary from Tim Miller at the Center for Consumer Freedom today arguing that the "Public need more, not less options"

Given the Manitoba decision to cap payday loan rates in a way that drives at least some (at worst most) cash advance companies out of business begs the question: what do consumers think? While some bigger American firms may step in to fill the gap left by the small to medium-sized lenders who cannot compete at 17% of the loan amount, there will certainly be a smaller number of companies offering this quick cash service. What concerns me about this decision is that nobody has asked consumers what they think. Do consumers want choice taken away from them? And at what cost? There are plenty of "experts" who are happy to speak for consumers (myself included), but it would be refreshing if someone would let consumers speak for themselves.

The Americans are Coming...

Joanna Smith of the Toronto Star provided a summary today of the U.S. firms who are looking at Canada now that regulations are starting to be finalized: New Rules Attract U.S. Lenders. She quotes Uriah King of the Center for Responsible Lending as saying that we will see "explosive growth in the industry." It is more likely that we will see large American lenders taking out small to medium-sized Canadian operators and the net number of stores will not change dramatically. If anything, the number of stores will decrease because the large lenders won't be interested in the small, low volume stores that are only financially viable if they are owner operated.

NDP using payday issue to score political points in Ontario

Cheri DiNovo has received some attention in Toronto this week for her stance on Ontario's newly tabled payday loan legislation. She is advocating for a rate cap of 35% per annum (article), following the model that is used in Quebec. It is no secret that companies cannot deliver payday loans for 35% per annum. If they could then there would be no need for Bill C-26. The NDP knows this, or at least they should. Ernst & Young released a study in 2004 documenting what it costs to issue a payday loan in Canada. Deloitte did the same thing with their Manitoba study released this past fall. If Ms. DiNovo needs further evidence then she can take a drive down the 401 to Montreal and she will find that there are no payday loan outlets in that city or anywhere else in Quebec.

If Ms. DiNovo and the NDP want to ban payday loans then they should come out and say it so that Canadians, and specifically payday loan customers, can consider this position on its merits. Unless the NDP really hasn't done the math, their stance on payday loans in Ontario is designed to grab headlines and nothing more. Payday loan consumers deserve better.

Reaction to the Manitoba Decision

I will put together some background information on what is happening on the Manitoba regulatory front shortly, but first I would like to share some reaction to the Manitoba Public Utility Board's long awaited ruling on April 4. Among other things, the Board decided that the most a lender can charge for a payday loan in Manitoba is 17% of the first $500, 15% of the next $500 and 6% on any amount over $1000. The British Columbia Payday Loan Association was quick to point out that the Manitoba decision will likely force the closure of all small and medium-sized lenders in that Province (see BCPLA press release). The Canadian Payday Loan Association saw things much the same way (CPLA release).

The Consumers Association of Canada, Manitoba Branch, commented that the rate cap should be viewed favourably by consumers: "While payday loans are still very expensive, Manitoba consumers can expect to save between 20 per cent and 50 per cent on what they currently pay."

Unfortunately the nuances of how the market will react to this new cap may have been overlooked by the Public Utility Board. On the one hand, rates will be lower, but on the other hand, there will be fewer lenders offering the service. Dollar Financial, parent company to Money Mart, was certainly pleased with the ruling (DLLR release) because they are fully capable of operating in this rate environment. The question is, who else can operate at these rates and what happens to the consumers who don't qualify at Money Mart?

Advance View Introduction

Welcome to Advance View, a blog for the Canadian Payday Loan industry. If you follow the industry closely then you are aware of a number of developments in the regulatory field that have been unfolding recently and that will continue to unfold in the months ahead. We will cover these developments and others that will be important to consumers and industry watchers alike. Over our first few posts, we will provide some useful background information about what is at stake as governments in Canada try to figure out the best way to regulate this relatively new industry.