With one Canadian province’s economy tanking, local officials are trying to prevent consumers from taking out payday loans by putting forward new legislation that could rein in the contentious industry.
Earlier this month, the province of New Brunswick proposed legislation that would limit how much credit payday lenders could extend to borrowers. The proposal would also include how much payday loan stores could charge customers. These measures are meant to protect impoverished consumers.
According to a draft regulation presented by the province’s Department of Finance, the maximum total cost of a credit a customer could be charged is $15 for every $100 lent. Moreover, if a borrower defaults on the payday loan then the lender may charge a maximum penalty of 2.5 percent per month. Another $20 could be charged if a check or pre-authorized debit transaction fails.
New Brunswick residents will have until July 29 to make a public comment on the draft legislation.
Many analysts are wondering if payday loan stores could shut down because of these proposed regulations, which are being described as the toughest restrictions across the Great White North.
However, one expert suggests that the issue of constant borrowing from multiple stores is the biggest issue that the provincial government has to contend with. But it isn’t happening, says Credit Counselling Services of Atlantic Canada client program specialist Gordon Arsenault.
“They go to one company, then they go to another company and to another company and then they do internet payday loans,” said Arsenault.”They’re into a circle of payday loans where they’re borrowing from one to pay the other and it just goes on and on and on.”
Some industry trade groups feel the restrictions could severely impact several operators. Ryan Murphy, a media relations manager warns some businesses could actually close their doors. This, he says, will ultimately negatively affect the most vulnerable who rely on payday loans.
“I certainly think there will be some businesses that will find it very difficult to operate and in fact may have to close,” said Irwin. “Where will borrowers go? What they’ll end up doing is they’ll go online and more often than not, they’ll find themselves going to an illegal unlicensed lender.”
If New Brunswick does move ahead with the regulation then Newfoundland and Labrador will be the only remaining province without any payday loan regulations in the books.
Provinces and municipalities across the country have been installing their own rules and regulations to minimize the impact of payday loan stores. The Ontario Government has, for instance, suggested placing limits on how much payday loans can be charged, while the city of Calgary has placed ordinance laws to stop new payday loan stores from clustering in impoverished neighborhoods.
Critics of payday loans say these alternative financial products hurt the impecunious by getting them into endless cycles of debt. Proponents argue that payday loans help the poor because most of them do not have access to traditional forms of credit.