By MPP Toby Barrett
It is a criminal offence to charge more than 60 per cent interest on a loan.
However, with the Ontario Payday Loans Act of 2008, Ontario was exempted from the Criminal Code of Canada. Interest rates being charged by the payday loans industry are north of 500 per cent on an annualized basis.
An article form the Ottawa Business Journal titled, “The True Price of Payday Loans” begins, “If you think interest rates on credit cards are too high, think again.” The article explains hundreds, and perhaps thousands, of people in the Ottawa area pay more than 500 per cent in annual interest to get a loan, pointing out it is perfectly legal.
For a $100 loan “A rate of 21 per cent for two weeks works out to an annual interest rate of 546 per cent. And that’s before compounding and any late-payment fees.” And there are other fees in this industry.
The Globe and Mail, in a series on payday loans, describes an industry that charges $21 on a $100 loan – or 546 per cent a year. We read that in British Columbia, Alberta and Saskatchewan, the industry is allowed to charge 600 per cent a year. Newfoundland does not have legislation. That means they’re subject to the Criminal Code of Canada, and the interest rate there is 60 per cent. New Brunswick charges the same. It’s quite interesting, by way of comparison, the Province of Quebec has a rate cap of 35 per cent. It probably goes without saying there aren’t many payday loan vendors in Quebec.
During legislative debate on the Payday Loans Act, all agreed payday lending is a last resort for many people who’ve got either bad credit or no track record of credit at all, or who have experienced an unexpected drop in income. If co-workers or friends aren’t able to bail them out, people walk into one of these storefronts.
At time of writing the Royal Bank prime lending rate is 2.7 per cent. A standard credit card charges 19.99 per cent in annual interest. And regrettable, so many of our most financially vulnerable – those who can least afford it – by comparison, are paying well over 500 per cent annualized interest.
We’re told this is not meant to be a regular source of funding. However, there are those who regrettably become addicted to this source of funding – somewhat akin to the doctor shopping that we see with someone addicted to narcotic analgesics. You may get cut off at one particular payday lending company, but in so many areas – and they do seem to be clustered in neighbourhoods – you can merely walk across the street and pick up that second, third or fourth loan. So you can cut off a repeat customer, but there seem to be ways to access yet another loan to compound on the previous borrowing.
For those who are simply struggling, payday lending only makes one thing easier – falling further into debt. In an ideal world, payday lenders wouldn’t be needed. We don’t live in an ideal world and won’t see one in the foreseeable future. Payday lending is the safety valve that stands between people’s legitimate need for cash and the unregulated underground debt market.