The Maritimes region of Canada has been one of the weakest economies in the Great White North for years. With all of its natural beauty and kind populations, this region of the country doesn’t have a strong economy like that of Vancouver, Toronto or Montreal. High unemployment rates, high debt levels and a lack of significant investments have led to an exodus in this region, where everyone travels west.
Due to this precarious economic situation, a lot of consumers in this area venture to the nearest payday loan store in order to cover their day-to-day living expenses. And this is troubling public officials.
It was announced on Thursday that the Newfoundland government will introduce new limits for payday loans. The province is looking to permit payday loan stores to operate within Newfoundland but with restrictions on how they can do business and what they can charge customers moving forward.
The proposed legislation is being debated in the House of Assembly. If officials give the thumbs up to the new limits then it would mandate short-term, high-interest loans to charge certain fees. Although it has yet to be finalized, the suggestion is to require lenders to charge $21 for every $100 borrowed. This is far higher than other provinces that have installed similar limits, like Alberta which imposed a $15 limit.
Moreover, Newfoundland payday loan companies will need to be licensed and follow new rules. These include permitting borrowers to cancel the loan within two days and prohibiting lenders from rolling over old loans and adding new and higher fees, which proponents say would provide relief.
“We’re not promoting payday lenders. But we know they are here, we know they are going to operate,” said Newfoundland Service Minister Eddie Joyce. “So we want to put consumer protection in there.”
Ostensibly, the new rules will also be applied to payday loans online, though the province concedes that ensuring that these Internet lenders comply to new rules and regulations will be rather difficult.
Nevertheless, Joyce admitted that payday loan businesses are here to stay and are a reality.
“I think if people need to go to that, for some unfortunate reason, they’re going to find it somewhere,” he said. “So what we’re going to ensure is that there is protection there for them.”
Jurisdictions across Canada have attempted to rein in the payday loan industry this year.
Provincial governments have implemented caps on interest rates and origination fees. Even public officials at the municipal level have tackled the growing trend of payday loans by trying to restrict their operations or reach by limiting where they can open up new stores. Others just want to simply outright ban payday loan stores from the marketplace.
Critics of payday loans purport that these alternative financial services negatively impact society’s most vulnerable and even middle-income households because of exorbitant interest rates and excessive fees and charges. Proponents of payday loans say it differently. They believe that payday loans are essential for those who are unbanked, underbanked or need access to short-term credit since their banks don’t offer such products to their customers.
Canada’s payday loan industry is worth $2 billion and approves tens of thousands of loans each year.