New Data on the Cost of Providing Payday Loans in Canada

Since the passage of Federal Bill C-26 empowered the Provinces to set payday loan rate caps, politicians, bureaucrats, public utility boards and special advisers have all struggled to determine what an appropriate cap would be. Today, Deloitte, one of Canada's largest and most respected accounting firms, provided more data to assist key decision makers with the release of their BC study, creatively titled "Cost of Providing Payday Loans in British Columbia."

While the firm may not receive any style points for the title of their report, they should be praised for its substance. This report, funded by the Canadian Payday Loan Association (CPLA) and completed with the participation of CPLA members and non-members alike, is the most representative study ever completed on the cost of providing payday loans in a Canadian province. The study includes data from 12 BC payday lenders, representing 57 of the estimated 121 private payday loan locations in the province (the study excluded publicly-traded payday lenders).

The result:

This report estimates the cost of providing a $100 payday loan in British Columbia to be $25.21, which can be further illustrated as follows:

The results of this study are particularly relevant in BC because of the approach the government there has taken in its search for an appropriate rate cap. In a payday loan consultation document circulated earlier this year, the BC government defined its objective for a maximum allowable rate as "the lowest charge possible that still allows a viable payday lending market." Deloitte seems to have provided them with their answer.

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%.