As it looks to revamp payday loan regulations by next spring, the province is asking Albertans to share their experiences and opinions of the industry through an online survey.
Flanked by advocacy groups for low-income earners and those who need financial advice, Deron Bilous, Minister of Service Alberta, made the announcement Wednesday at the United Way of Calgary offices downtown.
Bilous added he will also hold face-to-face meetings with stakeholders, including low-income Albertans, next month.
“Protecting consumers is a priority of our government, ” said Bilous, stressing that in Alberta’s tough economic environment, the payday loan industry will be busier and will need stronger regulations.
“In tough economic times, we know some Alberta families turn to payday loan services to help them deal with financial challenges. This review will help ensure vulnerable families aren’t being taken advantage of.”
The industry review, which began under the previous provincial Tory government, is needed because the current payday loan regulations expire at the end of June 2016.
Payday loans are a short-term form of credit where people can borrow sums of money typically smaller than what traditional financial institutions would offer, with a limit of $1, 500.
In Alberta, payday lenders are allowed to charge $23 per $100 borrowed, with the rate accrued over a short time. That amounts to a 600 per cent interest rate on a two-week $300 payday loan at the maximum rate of borrowing.
Bilous said Wednesday he would consider looking closely at recently changed regulations in other provinces like Manitoba, where payday lenders cannot charge more than $17 per $100 dollars. As it stands, Alberta’s $23-rate is now the second highest in Canada.
But David Chen, president of Blue Copper Capital, says a rate as low as $17 could affect the bottom line of many lenders.
“It absolutely could hurt our business … our rate right now is $20, and we’re not getting rich, ” said Chen, whose company website advertises “up to $1, 500 instant cash without a credit check.”
“But it’s not just about rates, ” Chen added, explaining that many lenders, including Blue Copper, will allow clients to borrow only against “true income, ” or money that is being earned.
“Payday loans are like Donald Trump — they’re not as great as some might make them out to be, and they’re not as bad as some might make them out to be. But they’re definitely polarizing.”
Lucy Miller, CEO and president of the United Way of Calgary and Area, said she applauds the province for allowing the community to be heard on payday lending regulations.
“Consultations with industry, consumers and community partners are vital to the development of safe, affordable, financial and credit services.”
Jeff Loomis, executive director of Momentum, which provides financial advise to low-income Calgarians, argued that current regulations don’t work well for most Alberta consumers.
“These high interest loans can result in many Albertans getting stuck in a cycle of debt that takes many months to exit.”
Loomis told a story about a former client who simply wanted to send money home to his ailing mother in Africa and took out a $600 loan through a payday lender. Because he couldn’t pay it back right away, he was forced to take out more loans, and ended up paying $2, 400 after 10 months.
Momentum has already called on the province to lower the $23 charge to $16 or $17, making it the lowest rate in the country. The group would also like the government to institute new rules that would allow clients to repay loans in instalments rather than as a lump sum.
The Canadian Payday Loan Association, which represents 20 licensed payday loan companies across the country, said it had no one available to speak Wednesday on the provincial review.
But Stan Keyes, who until recently was president of the association, told the Herald in March that the changes advocated by Momentum would damage an industry that provides a service that banks and credit unions don’t.
“It certainly would make it even more difficult for the industry to provide the small-sum, short-term credit that’s in demand in Alberta, ” maintained Keyes, who said payday lenders operate on slim margins.
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