Earlier this month, provinces and territories got the go-ahead to regulate loan sharks and their payday-lending cousins.
The authority came through Bill C-26, federal legislation that received royal assent on May 3.
The new federal legislation allows provinces to set interest rates for payday lending, a relatively new financial industry that some estimate makes $1 billion a year from Canadians.
Already, Manitoba, Nova Scotia, Ontario, Saskatchewan and BC have introduced payday loan legislation.
But, with only one outlet in the territory, there are no plans to similarly protect Yukon consumers, according to Doug Caldwell, spokesman for the Yukon’s consumer and corporate affairs branch.
“At this point it’s not high on our radar screen,” said Caldwell.
Payday lenders are regularly accused of, but rarely prosecuted for charging criminal interest rates.
The feds set interest rate law, but rarely police it. The provinces issue business licences, but didn’t have jurisdiction over federal interest-rate policy, according to a parliamentary briefing on C-26.
“Unless they (provinces and territories) come forward and create legislation to protect the consumer, you’ve got Section 347 of the Criminal Code applying,” said Stan Keyes, president of the Canadian Payday Loan Association.
“But where’s the protection for the consumer in that?” he asked.
Canadian borrowers have little protection under the federal loan-shark regulation, said Keyes.
And so, consumers have little protection against usurious lending practices.
A payday loan is made against the security of an employed person’s next paycheque. They’re typically high-risk loans of a few hundred dollars that banks are unwilling to make.
“These are short-term, small-sum loans,” said Keyes. “They average $280 over 10 days.”
The interest rates seem innocuous enough — a few cents per day — but those little payments quickly add up.
Federal law sets out a maximum annual lending rate of 60 per cent, but lenders commonly apply “hidden” brokerage and insurance fees to bolster the interest rate.
Using the “average” loan cited by Keyes and the association, the Yukon News performed some quick calculations on the Whitehorse Cash Store’s rates, as stated by an employee.
It charges 16 cents a day for every $100 borrowed.
If you get $280 for 10 days, you pay $4.48 for the loan, an annual interest rate of 58.4 per cent. That’s just a smidge below the federal cap of 60 per cent annual interest.
However, The Cash Store also tacks on a “20 per cent broker fee.”
So, upfront, for the $280, a borrower would pay the $56 brokerage fee. Add the interest, and the 10-day loan now costs $60.68.
With the broker fee factored in, the loan interest is in the 78 per cent range. But that’s just for 10 days. As a yearly rate, the borrower is paying the equivalent of 788-per-cent interest on that money.
That’s not gouging, according to the loan association and The Cash Store’s parent company, Rentcash Inc.
Through Bill C-26, the territory can now introduce specific consumer-protection legislation and set a cap on charges for payday loans.
In a January news release, the CPLA recommended a maximum charge of $20 on a $100 loan.
But no one in the Yukon has issued complaints against Whitehorse’s Cash Store on 4th at Ogilvie — the only recognized payday lender in the territory — said Caldwell.
With nobody complaining, there’s no urgent need for new legislation, he said.
“As you can appreciate, it’s not in the same scope as what our colleagues Outside are dealing with,” he noted.
“I think there’s a perception amongst critics of the industry that payday lenders are somehow making money to an extreme degree,” said Michael Thompson, vice-president of investor relations for industry leader Rentcash Inc.
“I can assure that our earnings are nowhere near those of your average bank or resource company in Canada; our returns are pretty average for a publicly traded company in Canada.
Edmonton-based Rentcash Inc. has at least 430 outlets across Canada.
In 2006, it reported revenues of $130 million from its brokerage division — up from $64 million in 2005.
Critics of the payday-loan industry, which emerged in Canada only after 1995, claim the high-interest loans prey on society’s most vulnerable — those already experiencing cash-flow problems due to ongoing debt.
The payday loan association cites a poll it commissioned through Environics that found the “average” borrower to be a single employed Canadian making $41,500 a year.
More than 35 per cent of borrowers polled had a household income over $50,000.
That doesn’t jibe with a parliamentary research committee.
It found a typical borrower’s income to be less than $30,000.
But industry advocates cite the strong growth of the industry, from no lending outlets in 1994 to more than 1,350 in 2007, as evidence that Canadians clearly want the convenience of payday lenders.
“The industry is growing in response to market demand,” said Thompson.
“There are consumers out there who value the service that is provided by payday lenders and they recognize that there’s a cost associated with getting a payday loan, and our consumers feel comfortable paying those costs.”
Payday loan brokers, such as Money Mart, Cash Money and The Cash Store, typically allow customers to borrow up to half of their expected pay, providing they show pay stubs and proof of a bank account.
The Canadian Payday Loan Association, which represents more than 500 out of this country’s 1,350 payday lending outlets — though not The Cash Store — lobbied Ottawa to allow provinces to regulate payday lenders.
In the absence of provincial regulation, loan companies that charge more than 60 per cent interest are open to criminal charges under Section 347 of the Criminal Code, and even class-action lawsuits, a handful of which are currently making their way through the courts.
Nevertheless, the Yukon government has no plans to issue limits on interest rates.
Though the Yukon government uses its website to advise payday borrowers to be wary and informed, existing consumer protection legislation doesn’t set out limits on the behaviour of payday lenders.
“From a government perspective, if there is only one business operation in the territory, I’m not sure it makes a whole lot of sense to put in place a regulatory regime,” Thompson said.
“You can probably manage that one pretty easily just by having an open dialogue with the territorial government.”
If you have comments or concerns on interest rates or fees charged for loans in the Yukon, contact the office of consumer and corporate affairs with the Yukon government: 667-5111.