As the United States prepares to regulate the payday lending industry, why not Canada?


First order of business tonight: Short-term loans are under scrutiny in America. Post-crisis agency designed to protect consumers will attempt to do what Canada has failed to do: create national law to govern the practices of payday lenders, those who prey on the most vulnerable with loans short term with potentially crippling interest rates.

Here in Canada, the provinces regulate the industry and so far little has been done to protect users from the worst types of abuse. Perhaps the American example will spur Canadian governments to act.

– Amanda Lang


A decision by US regulators to tighten the rules for payday lenders is the first of its kind and aims to protect the most economically vulnerable countries.

The Consumer Financial Protection Bureau is working on a first draft regulation. He wants to put limits on the loan terms established in places like Cash Store and CashMoney. While these services promise “cash” and “no credit checks”, these short-term loans may have interest rates above 500%. An analysis of 15 million loans found that the median annual income of these borrowers was around US $ 22,000.

In one year, the median number of loans they accessed was 10. And while the midpoint of loan amounts was $ 350, the median fee was $ 458. And 80% of those loans were renewed within two weeks, signaling that many Americans are in a vicious cycle.

Now, the office wants to cap the amount and duration of loans, depending on the borrower, as well as the number of renewals of a loan.

These services are also under intense scrutiny in Canada. In 2007, provinces got more power to regulate the $ 2 billion industry. Many of them cap the fees charged. Still, critics say those limits aren’t tight enough.

According to the Canadian Payday Loans Association, more than 760 quick loan operators lend to approximately two million people each year. The average loan is $ 280 for a ten day period, and most of these borrowers are in Ontario, where payday lenders can charge a maximum of $ 21 for a $ 100 loan over 2 weeks.

This equates to an annual interest rate of over 500 percent.


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