The Nova Scotia Utility and Review Board released a decision today that appeared highly sympathetic to payday lenders. The Board lowered the maximum rate of borrowing from $31 per $100 to $25 per $100, but the new rate is still the highest maximum, regulated fee in Canada.
The president of the Canadian Payday Loan Association, which represents some payday lenders, praised the decision as fair and balanced. “It’s important to find the right balance between protecting the consumer and having a viable, competitive industry which meets the demands of the customer,” Stan Keyes told the Coast in a phone interview from Ontario.
“Most certainly there is a demand for the payday loan product, a small-sum, short-term loan,” he added. “We at the CPLA believe that it’s best that that product be made available, but in a regulated fashion with a fee cap that ensures that customers are not being gouged by unscrupulous lenders who charge exorbitant rates.”
The CPLA represents Money Mart which, along with The Cash Store Inc., dominates payday lending in Nova Scotia. Keyes points out that the two rival lenders’ rates vary dramatically, with Money Mart currently charging $19.50 per $100 borrowed while The Cash Store has until now, imposed the maximum regulated rate of $31 per $100.
See previous story on today’s decision
Board claims payday rates not exorbitant
The Board says payday loan profits “are significantly less than those earned in the financial and insurance industry as a whole.” It also endorses the industry argument that the media distort the cost of payday loans by reporting annual rates of interest and fees. (A federal brochure on how to calculate the cost of payday loans shows that a 14-day loan at the new maximum rate of $25 per $100 would carry an annual rate of more than 650 percent. The brochure warns borrowers that payday loans are “much more expensive than other types of loans, including credit cards” and encourages them to seek cheaper alternatives such as lines of credit, bank account overdraft protection or credit card advances.)
The Board, however, suggests the costs of payday loans are overblown especially when short-term loans are assigned annual percentage rates. It cites industry comparisons to the cost of hotel rooms: “Using the figure of $150, plus tax, for the cost of a hotel room for one night in Halifax, results in about $170 per night, or about $62,050 a year ($5,170 per month).” Yet, as with payday loans, the Board reasons, customers are happy to rent hotel rooms for short terms with no hassle and no long-term commitment because they don’t actually pay those huge, annual costs.
Linda Wilke, a certified counsellor with the non-profit Credit Counselling Services of Atlantic Canada in Dartmouth, rejects the hotel room comparison partly, she says, because payday loan customers end up borrowing repeatedly and for long periods.
“These are people who don’t have any money and they go to borrow money and then two weeks later when they get paid again they can’t really afford to pay it back,” she says. “We had a client in our office this week who has cycled a payday loan for over two years. In that case, it would be 800 percent or 600 percent or whatever it was.”
Besides, Wilke says, calculating the annual percentage rate of interest and fees is a standard way of comparing the cost of various loans.
“You think a credit card’s bad at 19 percent [per year], well what about a payday loan at six or seven hundred or eight hundred whatever it is. It doesn’t look good to the payday loan companies so of course they don’t like it.”
Wilke also criticizes the Board for refusing to impose any limits on repeat loans. Instead, the Board recommends that payday lenders be required to submit yearly figures on customers who take out new loans within 24 hours of repaying previous ones. Wilke says that means there will be no statistics available for at least another year.
“Meanwhile, people are floundering and floundering with these loans that just seem to go on forever,” she says adding that clients who do take out payday loans, often borrow from several lenders at once.
“If somebody repeats a loan more than two or three times they need to be referred to a credit counsellor,” she says. “As a form of borrowing I absolutely wouldn’t recommend it ever because it is so exorbitantly expensive.”
This article appears in Jan 27 – Feb 2, 2011.
This should surprise no one. The NSURB has been in the pocket of business for a long time now. Just ask NS Power when the last time was they were denied a rate hike.
The UARB cannot deny any “reasonable” claim. It is up to the parties to present and defuse and or provide evidence. The UARB makes its decision based on the evidence presented, so if you have anyone to blame, blame everyone for not providing evidence to defuse NSPI’s evidence. Just like in a court room the Judge judges the evidence before him (her), they cannot add their own evidence or force others to. Maybe instead of blaming NSPI, look in the mirror as it is you, I, and all others that are to blame
Unlike most commenters here (and in fact, I would bet most Coast readers) I have actually taken out payday loans. Two years ago when I was just getting on my feet financially. Yes they are expensive but what other option is there if you don’t have cash and can’t get a credit card?
Informant how long have you worked in Nova Scotia Power’s PR dept?
I Have taken out Payday loans. Dozens and dozens of payday loans. Hell, that woman in the article from the Credit counceling place in Dartmouth may have been talking about me. I was in there 3 weeks ago desparetly seeking a way out of about 5k in payday loans. I couldn’t seek their services because I would have really hurt my credit. Two weeks ago I had payday loans from 11 different spots, ELEVEN. I made over 70k last year. They do not only hirt the poor, but they hurt the financially stupid, like me. NO ONE KNOWS PAYDAY LOANS LIKE I DO. A few random and poorly writen (yet insightful) thoughts from my wealth of payday loan knowledge.
1) Cash Store and Instaloan are the same company. I think Instaloan came in because they stopped allowing top ups on payday loans, so the same company just opened up with a different name and allowed customers to borrow with them.
2) Cash Store and Instaloan are the absolute worst. THE WORST. I only went there because I ran out of places to go. I was charged 177 to borrow 100 once. I don’t even think that was legal, but god knows they have so many little fees that it just may have been there way around the law.
3) I don’t like the women from CCSofAC idea of having to be reffered to Credit Counciling after the third loan. Hurts credit and sounds a bit like a money making scheme on her behalf.
4)They need a centralized database that tracks ALL payday loans that the lenders have to use to ensure their clients are not borrowing from anywhere else. They will fight tooth and nail over this because so many of their clients have multiple payday loans.
5) This is what would help people get out of the cycyle. I say that if a person has to get 5 straight payday loans then the 5ht loans should be allowed to be paid off over the persons next 5 or 10 pays.
6) Here are my rankings of payday loan companies in Halifax, based on experience and rates.
a)Major Cash (cheapest)
b)Money Mart
c)Cash4Less
d)Cash Money
e) Cash Store/ Instaloan (absolute worst)
I think there is a place for them. But they need to be regulated. And the best way to get people out of the cycle they need a database and allow multiple time borrowers eventually earn the right to pay off their loan in smaller incriments if the perso chooses to do so.
Cash4Less is actually the cheapest payday loan provider in Canada!!!