Alberta moves to end 'predatory' payday loans

Province clamps down on payday lenders Kevin Green reports on new rules for the pay day loan industry in order to end predatory lending

Acting on a pledge to end loan services that keep many Albertans in a vicious cycle of debt, the NDP government has announced it has lowered the interest rate on payday loans and ended hidden fees and charges.

On August 1, the Alberta government lowered the rate from $23 per $100 borrowed down to $15 per $100 borrowed, making it the lowest borrowing rate in the country.

As a result of the new legislation, payday lenders will also not be able to charge any fees to cash loan cheques, solicit by e-mail or phone or offer another loan when one is still outstanding.

The government will also work to encourage banks and community groups to offer alternative short-term loans that are fair and accessible.

A pair of banks has already begun plans to offer such micro-loans. First Calgary Financial and Chinook Financial are offering loans with an interest rate of 19 percent and a payback period of six to 18 months.

Servus Credit Union is also on board with going forward with such proposals.

The cost of such micro-loans, over a two week period, is 73 cents per $100.

“I am so pleased First Calgary Financial will launch its Cash Crunch loan on August 22. It is credit with reasonable rates, longer payback terms and financial literacy supports that set Albertans up for financial health, not ruin,” said Stephanie McLean, Service Alberta Minister.

"I am happy to see their signs change from the current rates to $15."

Jeff Loomis, the executive director of Momentum, an organization that helps Albertans deal with debt, says the reduced cost of borrowing will save low income earners hundreds in debt payments.

“The Cash Crunch loan is also a great opportunity for people to reduce their debt and build a positive relationship with their lender. We are grateful to the Government of Alberta and First Calgary Financial for their important work on this issue.”

As for the lenders, the Canadian Payday Loans Association says the new regulations will make it harder for people to secure loans and harder for lenders to turn a profit. That, in turn, will force some businesses to shut down.

McLean says that's not the intent of the new rules at all and the only change residents will see is the increased ability to get out of debt faster.

"Current payday lenders that operate outside of financial institutions will certainly have to 'sharpen their pencils' to be competitive under the current regulations and I have no doubt that many of them will."

Whether or not businesses shut down will be up to the lenders themselves. "Our purpose is to advertise and promote the alternatives as I am required to do by legislation."

McLean says that the City of Calgary, which has long-struggled with blocks of payday lenders in low income communities, is also on board with the new regulations, which could help diversify those areas with new businesses.

Timothy Afolayan, who was stuck in a payday loan cycle himself, is glad to hear about the new rules and the new form of loan from First Calgary Financial.

Afolayan says he worked for $12 per hour, and 80 hours biweekly. "For low income Albertans, there is not much wiggle room... At the end of the day my take home pay was about $850. After the $850, I couldn't just close my eyes and pay back the $600. All I could do was service the loan and pay back the $120 every two weeks."

He says that people can still take advantage of lower rates even if they don't take a Cash Crunch loan from First Calgary. "It's a much more even playing field."

The changes to Alberta’s payday loans come from weeks of public input gathered since October 2015.

Some residents that CTV spoke to on Tuesday say that the changes are long overdue, but they're still not enough. "I think it is criminal exploitation of the poorest classes. Charging 600 percent [interest] should be a criminal offence. Even 15 percent is high," said James Cellan.

"It's a repugnant way for corporations to make a living on the backs of the poorest people living in our community."

One woman, who secured a loan on Tuesday morning, is happy about the rule change. "When you need to get some extra money, it's a good place to go and get it. It's not too expensive," said Sherri Hockley.

Hockley also said that all the paperwork was the same and it was as simple to secure a loan as it was before.

In 2014, $575M was handed out in the form of payday loans, with the majority of those going to low income Albertans.

The average income of clients of payday loan businesses is about $30,000.

More than 30 payday loan companies currently operate more than 220 branches in Alberta.

The government will also be rolling out more changes to payday loan services in the near future.