The three provinces that have announced some of the highest allowable payday loan rates in North America all say they have no intention of lowering the fees that can be charged to consumers.
Ontario and British Columbia will allow companies to charge well over $60 in interest charges and other fees on a typical $300 loan over a 14-day period. The maximum in Nova Scotia will be more than $90 per $300 loan, when the new regulations take effect this summer.
As was disclosed by the National Post earlier this week, the fees, which work out to an annual interest rate of well over 500% in Ontario and B. C. and 800% in Nova Scotia, come at a time when state governments in the United States are trying to lower payday loan charges.
As well, two of the largest payday loan companies in Canada stated publicly last year that they could be profitable after a Manitoba regulator concluded that $51 per $300 loan should be the maximum.
Missouri is the only state where payday loans are regulated with maximums higher than those that will be permitted in Nova Scotia. (Six states do not have rate caps. At the same time, 15 states have interest rate provisions that effectively ban payday loans).
“The government has no plans at this time to change the fee structure,” said Wade Keller, communications director for Nova Scotia Premier Rodney MacDonald.
The B. C. and Ontario governments also indicated that they will not be reviewing their rates.
While the fees are the maximum allowed, an internal Ontario government policy paper issued in 2007 stated that U. S. data shows the maximum rate ends up becoming the standard market rate.
Five provinces have yet to set maximum fees. Two years ago, the federal government passed legislation exempting the industry from the 60% annual interest rate allowed under the Criminal Code and turned over regulating payday loans to the provinces.
Quebec has a maximum annual interest rate of 35% and has no payday loan industry.
In Manitoba, a bill to regulate the industry is in second reading before the legislature. No rates have been finalized, but it is expected the maximum will be the $17 per $100 recommended last year by an independent agency.
The province will ensure there is “responsible lending” by the industry without banning payday loans said Finance Minister Greg Selinger. “We have evidence these rates will allow the industry to be operational,” Mr. Selinger said.
B. C. and Ontario justified the rates based on studies that suggested payday loan companies have costs of over $20 per $100 loaned. But the studies used self-reported data from a small number of companies — less than 10% of the industry in the Ontario report.
The opposition parties in all three provinces are calling for a review of the payday loan rates.
Rob Fleming, an NDP member of the legislature in B. C. who put forward a private member’s bill for more oversight, suggested the government of Premier Gordon Campbell was won over by lobbyists.
“The payday loan industry moved from opposing regulation, to accepting it and then guiding it,” Mr. Fleming said.
When the Liberal government in Ontario announced the new rates this spring as consumer friendly, “they got a photo op, a headline and then ‘we are out of here.’ That is their style of government,” said Conservative economic development and trade critic Ted Chudleigh.
“These rates need a second look,” he stated.