Payday loan rates higher in Nova Scotia

Cap ranges from $17 per $100 borrowed in Manitoba to $31 here

THE CAP on what lenders can charge for a payday loan is much higher in Nova Scotia than in three other provinces that have also set maximum rates.

Payday loans are small loans, usually of a couple of hundred dollars, which must be repaid by the borrower’s next payday.

In July, the Nova Scotia Utility and Review Board set the maximum cost of taking out a payday loan at $31 per $100 borrowed.

But just last week, Ontario set its maximum cost at $21, while British Columbia recently set a rate of $23 per $100 borrowed. Early last year, Manitoba’s Public Utility Board set a rate of $17 per $100, although that rate is now under review.

"You have $21 in Ontario, $23 in British Columbia, and a whopping $31 in Nova Scotia," Stan Keyes, president of the Canadian Payday Loan Association, said Thursday. The trade association, based in Hamilton, Ont., represents much of the payday industry. "The approach by the provinces is very different."

The Nova Scotia review board said it decided to let competition in the marketplace keep payday loan prices in check. The rate will be reviewed in two years.

"The maximum rate set by the board must be sufficiently high to allow the marketplace to function properly, while also preventing lenders from charging excessive fees and charges," the board said in its decision.

In 2007, federal legislation was enacted allowing the payday industry an exemption from a Criminal Code provision that makes it illegal to charge more than 60 per cent annual interest. But that exemption only applies in provinces that begin regulating the payday loan industry on their own.

Most provinces are now setting maximum loan rates and drawing up consumer protection regulations specific to payday loans.

It is still too early to tell whether Nova Scotia’s cap of $31 will affect the average cost of a payday loan in Nova Scotia. Rates here range from about $15 to $35 per $100, according to evidence submitted to the review board.

While the Nova Scotia board set its payday rate more than seven months ago, this maximum rate, as well as consumer regulations governing payday loans, are not yet being enforced.

The new amendments to the Consumer Protection Law affecting payday loans have not yet been proclaimed, said Deborah Bayer, a spokeswoman for Service Nova Scotia and Municipal Relations. Once they are proclaimed, payday loan companies will have to file their rates with the province.

Bruce Cran, president of the Consumers’ Association of Canada, said the disparity in the cap on payday rates bothers him.

"I can’t think of a reason myself why Nova Scotians would be paying more than people with similar loans in Ontario," he said from Vancouver.

"(The cost) is grossly excessive and we are far better off with the previous law, which was federal. . . . This is legalized loan-sharking at best."

Mr. Keyes said competition among payday lenders in Nova Scotia will keep prices in check. He compared payday loan companies to the fast food industry and stores like Dairy Queen, Burger King and McDonald’s.

"They are not all of a sudden going to charge $10 each for a hamburger," he said. "They are not all going to charge the same price and go to whatever the market will bear. They are in competition with each other."

Michael Thompson, a spokesman for Cash Store, which is not a member of the association, also said he does not expect payday rates will change much in Nova Scotia. Competition will work to keep prices in check.

"We don’t feel a restrictive price cap is necessary in order to effectively regulate the industry," said Mr. Thompson, who is based in Ottawa.

Nova Scotia took the right approach by letting operators compete for market share, he said.

"Ontario has decided to intervene in the marketplace and force operators out of business," Mr. Thompson said. "We disagree with that and agree with Nova Scotia’s approach."

Story by CLAIRE MELLOR Business Reporter

News source: thechronicleherald.ca

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