The province of Alberta is dealing with immense wildfires that have torn through towns and forced families to evacuate. As most politicians focus on relief efforts, other legislation has been put together, debate on and passed. One of the bills that has generated a lot of attention from the provincial press is regarding payday loan reform.
Earlier this week, the Alberta government moved forward in cracking down on payday loan stores and the allegations made that they are “predatory.” Changes made to the way payday loans operate will help lower income Albertans who rely on bad credit loans, says Service Alberta Minister Stephanie McLean.
So, what will change in the oil-rich province? Interest rates, payments and fees.
According to the legislation – Act to End Predatory Lending – will reduce charges customers face for receiving payday loans. Right now, customers pay $23 for every $100 loan, but under the proposed reforms that would be lowered to $15 for every $100 loan. Business will also be required to provide financial literacy information and provide them with instalment plans.
Moreover, customers will have a minimum of 42 days to pay back the principal amount before the interest begins to accrue.
Moving forward, the provincial government will be partnering with financial institutions and credit unions to encourage them to offer bank accounts to consumers who use payday loan stores. This is a common complaint that poorer consumers make: they don’t have access to products from banks and have to turn to alternative financial services.
What is drawing the biggest amount of criticism is the change to interest rates. Under the new proposal, interest rates would be brought down to 88 to 130 per cent, from the present 600 percent. These rates would be instituted sometime in the summer.
But are these interest rates low enough? McLean told legislators recently that it would be.
“Currently lenders are able to charge very high interest rates to Albertans who are the least able to afford it,” McLean told members of the legislative assembly. “This bill will reduce the high cost of borrowing for payday loans and help ensure that alternative financial assistance and short term credit options are available to all Albertans.”
Others aren’t happy.
Tony Irwin, president of the Canadian Payday Loan Association, said the reforms could prompt massive layoffs and will force Alberta consumers to “make tough choices” in the future.
Bill Baker of Cash Money, a United States-based payday lending firm with 28 Alberta locations, told CBC News that the bill goes too far, especially in a fragile economy where many households depend on payday loans to get by.
“The biggest thing that’s concerning is that this is going to limit the availability of short term credit for folks in Alberta,” Baker said.
Lisa Holmes, president of the Alberta Urban Municipalities Association, says because the provincial economy is in shambles right now that this legislation is very much needed to protect Albertans.
“The economy in Alberta is not the greatest right now,” Holmes said. “We’re seeing more people that are laid off. More people will be accessing these types of loans and so this is an important way to be able to protect them in a proactive sense.”
According to the Alberta government, the province has nearly quarter of a million payday loan users. The industry, which includes 30 payday loan companies, lends out approximately $500 million each year at its 220 branches.