The B.C. government has lowered the limit on payday loan charges. The regulations on high-cost, short-term loans came into effect on January 1, meaning the maximum allowable charge—including all fees—for a payday loan of up to $1,500 is $17 per $100 borrowed.
The government had previously lowered the maximum allowable charge to $23 per $100 borrowed. Until 2009, when the regulation came into effect, borrowers paid whatever the lender charged, which was as much as $30 per $100 borrowed. The government also required lenders to post signs letting customers know that they were paying an annualized interest rate of up to 600 per cent.
A payday loan is any loan of up to $1,500, for a period of 62 days or less. Borrowers typically have a bank account and a regular source of income, and provide a cheque or pre-authorized debit to the lender for the full amount of the loan, plus fees, to be repaid on their payday.
Payday loan companies in British Columbia are highly regulated, and must be licensed by Consumer Protection BC. They must publicly display the cost of credit, and disclose all charges, terms, and conditions in the loan agreement. They are not allowed to roll an old loan into another one with new charges, and they cannot issue more than one loan to a borrower at the same time.
People who have been overcharged for payday loans have recourse, through Consumer Protection BC, against the companies. Since 2012, several payday loan companies have been ordered to refund a total of more than $1 million to consumers who were overcharged.
The new change to the payday loan charges means that B.C. has the second-lowest payday loan charges in the country, behind only Manitoba, but they aree still not low enough.
That’s according to Melody, a New Westminster woman who did not want her last name published, who uses payday loans and is a member of BC Acorn, a group that fights for lower fees and better regulation for short-term loans.
She said by the time someone needs a payday loan, every cent counts. The group has fought for a $15 maximum charge, and while they’re happy that the government is doing something, they want more.
“That $2 makes a big difference when you already need a help,” she said.
Although Melody doesn’t use them often, she has used them twice this year and said it could become a regular thing. Her budget takes a hit when family comes to visit in the summer and again during the Christmas holidays.
“I had to get a payday loan about 10 days ago,” said Melody, who gets $931.42 in disability payments each month.
“It’s not because I don’t know how to budget. I do know how to budget. We just don’t get enough on disability—we’re still below the poverty line.”
A Financial Consumer Agency of Canada report found that the number of Canadians using payday loans more than doubled from 2009 to 2014: from 1.9 per cent to 4.3 per cent. Almost 159,000 people took out payday loans in British Columbia in 2015.
Tyler Shymkiw, a councillor in Maple Ridge, has seen at first hand the dangers of payday loans, with their high interest rates and fees. “They often threaten to trap people in a vicious cycle of debt, the unfortunate effects of which I often saw when I was president of the local food bank, and continue to hear about. These changes are an important step forward for protecting working families and vulnerable people in British Columbia.”
Scott Hannah, president and CEO of the Credit Counselling Society, also applauds the recent move.
“Consumer debt levels are at record levels,” he notes. “By lowering the borrowing costs for payday loans, government is helping make it easier and more affordable for those British Columbians who take out a payday loan to repay their financial obligations.”
With files from Katya Slepian/Black Press