Not according to plan

By Geoff Lee

May 18, 2017 12:00 AM

Loan legislation enables predatory lending?

Changes to Alberta’s payday loan legislation intended to end predatory lending, have enabled it, according to the Canadian Consumer Finance Association.
The association that represents the Canadian payday loan industry, says changes to regulations for short-term loans have forced more than 240,000 Albertans who used the service, to turn to illegal, unlicensed online lenders.
Alberta reduced the maximum allowable payday loan fee from $23 per $100 to $15, and increased the loan term from 12 days to between 42-62 days, with the passage of Bill 15 in 2016.
Association president, Tony Irwin says the demand for credit hasn’t declined, and the government’s assurances that credit unions would take up the slack haven’t panned out.
“It’s borrowers who can’t go to banks,” said Irwin.
“Credit unions, while they are offering a product, it might work for a few people; it won’t work for the masses.”
The association’s payday loan data indicates the number of loans has decreased by 94 per cent since the NDP rules were brought in with a nominal increase in short-term loans by credit unions.
A payday loan is a loan of $1,500 or less, with a term of 62 days or less.
Irwin says credit unions such as First Calgary and Servus have set credit rating scores too high, excluding 85 per cent of typical payday loan borrowers who have an average income of $50,633 in Alberta.
Christine Tucker, manager of retail banking for Synergy Credit Union, regulated by payday loan laws in Saskatchewan, says there is a cost of the risk associated with short-term loans.
“I think what maybe the government missed when they started talking about the credit unions is the cost for us, creating some of those types of loans has exponentially increased to a point that it makes it very tough to operate in that market,” said Tucker.
“The government is trying to protect the people that have the least money —the challenge with that is to service that market.”
Tucker said she suspects the Alberta government needs to go another step, and how do you fund that?
“The credit unions could support that industry, but the government is going to have to put some money in, so you could at least hit a break even point,” she said.
Tucker said credit unions in Saskatchewan do offer short-term loans, but the interest rates are higher than the rates paid by average to low-risk borrowers.
She said credit unions like Synergy have a tolerance for credit scores that are lower, but from borrowers that actually want to get out of the debt trap with financial counselling.
“Those are the people we do help,” said Tucker.
“It’s a very small percentage of our market because I am not sure if the payday loan people are open to that counselling.”
“We’re trying to educate people so they don’t get into that situation to begin with.”
She said some people want the money without the counselling.
“The challenge with that is, how do you ever get out; eventually the risk makes us write it off,” said Tucker.
Irwin says the members of his association support financial literacy.
“You can provide education and literacy, and you can still provide credit for your customers who need it,” he said.
He said that’s what the payday loan industry in Alberta has been doing since it was first regulated a number of years ago.
“All the changes from the current government have resulted in a virtual ban of the product,” said Irwin.
He asserts the legislation doesn’t change the need that still exists.
“If we can’t provide it, people will go underground and go online and find illegal unlicensed lenders who do not follow any regulations that would apply in Canada and will put borrowers in harm,” said Irwin.

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