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Lenders can hike interest rates up to 59 per cent. One senator is trying to make that illegal.
Payday loans are a problem, because as all astute readers will have already surmised, "$18 on a hundred" isn't as good as it sounds. If you borrow and repay every two weeks, it is the equivalent of an annual interest rate of 468%. How does that impact borrowers?
Sherry's financial needs were not met through payday loans, but made worse by them -- and, as a result, she and her family were caught in a long-term cycle of debt from which they could not escape. Unfortunately, Sherry's form of repeat payday loan borrowing is common and it can sink families into poverty.
Obviously we should all do our best to live within our means and pay off our other debt, but if you have lost your job, or had a medical issue, or have gone through a divorce you may have more debt than you can handle, which is why an increasing number of Canadians are turning to solutions like a consumer proposal. What should the Ontario government have done to help address the specific problem of payday loans?
Recently the Ontario government asked for comments on potential reductions in the maximum total cost of borrowing a payday loan in Ontario. In particular, the Ministry was recommending that the cost be reduced from the current $21 per $100 advanced, to either $15 per $100, $17 per $100 or $19 per $100.
We're looking at roughly 220,000 payday lending customers here in Alberta. Thankfully the NDP government here in Alberta has announced new legislation on payday lending. The government is proposing the lowest payday lending rates in the county while simultaneously fostering better alternatives to help people get short-term credit.
There are times when bounced checks or the penalties for arrears exceed the cost of a payday loan. To end payday lending -- even if it is predatory -- might leave people worse off. What is needed is a better loan, and to get that, we need a better market that re-balances the interests of the lenders and the borrower.
However, the industry has concerns over the name of the bill.
A list of the terms our society uses to describe payday lenders almost tells you everything you need to know. It reads a bit like a description of a B-grade horror film: predators, thieves, vampires, slave-drivers, or (my favourite) rapacious usurers. But if they're so awful, why are they everywhere? Why is it that, despite a seemingly universal hatred for them, they have popped up like mushrooms in cities across Canada?
Payday loan companies in Ontario can charge a maximum of $21 on every $100 borrowed. That may not sound like a lot, but if you take out that loan every two weeks, for a year, you will have paid $546, which is an annual interest rate of 546 per cent. That's a lot higher than even the highest credit card interest rate.