Pay-day lenders facing new rules

Pay-day lenders facing new rules



By The Canadian Press - For Business Edge
Published: 10/13/2006 - Vol. 6, No. 21



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The federal government has introduced Criminal Code changes that would end the legal uncertainty over high-interest short-term lending by the booming pay-day loan industry.

The bill would give the provincial governments authority to regulate pay-day loans, which typically involve lending a few hundred dollars to get borrowers through to their next pay day.

Justice Minister Vic Toews says the proposed legislation gives provinces the tools they need to protect consumers from what he called "questionable business practices."

It is illegal under federal law to charge annual interest of more than 60 per cent.

Yet the effective rates charged by pay-day loan outlets on short-term borrowings can amount to 1,000 per cent on an annualized basis, once service charges are included. There also are fears that borrowers can be trapped in a cycle of revolving debts.

Meanwhile, the industry has grown into a business estimated to lend $2 billion a year to two million Canadian clients.

The Conservative government's proposed legislation would allow provinces that have legal protections for pay-day loan customers to permit interest charges above the Criminal Code's 60 per cent threshold.

Pay-day loan companies have complained that limiting small short-term loans to 60 per cent interest would not enable them to cover even basic administration costs.

The proposed legislation appears likely to get all-party consent and rapid passage through the Commons.

The Canadian Payday Loan Association, an industry group representing 850 of the 1,350 outlets offering these short-term loans, welcomed the bill, saying it "will ensure consumer protection and the ongoing viability of this important industry."

Michael Thompson, president of the association, said the group, which has been calling for government regulation, will work with the provinces as they prepare their rules.

The biggest operator in the business, National Money Mart Co., also welcomed the government's action.

Money Mart, a subsidiary of U.S.-based Dollar Financial Corp., added that the provincial regulations will have to "balance consumer protection with the continued importance and viability of this industry."

The Consumers' Association of Canada has expressed doubts about the proposed legal change, warning of a "hodge podge" of provincial regulations that would leave consumers in a worse position.

The association added borrowers are already protected by the existing Criminal Code provision, and suggested that the government enforce the usury law on short-term loans.

Consider the Costs of Pay Day Loans

Posted by April Thompson
Consider the Costs of Pay Day Loans

Oct 4, 2006 10:47 AM






Memphis - They are quick when you need cash fast. They are on just about every corner, pay day loan companies. A few years ago, LaTanya Thigpen thought it was the answer to her financial bind.

"When you hear the commercial it looks like, it looks easy. They make it seems like it solves your problems." says Thigpen. It came back to bite LaTonya. She borrowed $200 and ended up paying back almost $100 in fees.

Corky Neale, with Memphis Debt Collaborative, says people often over look the costs.

"Very often they go on for months and months so there is the rollover transaction costs. Ultimately that small amount of cost end up costing a great deal of money." says Neale.

On a $100 loan, the fee could run $15. If you can't repay the loan, it rolls over. If the loan rolls over 3 times, you could end up paying $60 to borrow that $100 and interest rates can run as high as 400-percent.

It's big business. Advisers say there are now more of these quick cash places than there are banks. What may surprise you is just who is signing up for these pay day loans. Advisers say it's not the low income, but mostly working middle class people, teachers and police officers.

At the RISE Foundation, which helps people get their finances in order so they can purchase homes, Brandon Ford advises people to check out other means for cash first.

"You may be able to get an advance from your employer or negotiate directly with your creditors." says Ford.

He says start an emergency fund and cutback on spending. It's a lesson LaTanya Thigpen learned.

"Just live without some things and you will get yourself out the hole." says Thigpen.

Some states are cracking down on the cash advance business, requiring that loans be repaid in full within a certain amount of time. A push is also underway in Tennessee to make changes in the lending practice. Meanwhile, cash advance companies remind borrowers that the loans they make are designed to be short term loans and paid off with your next paycheck.

Volume of education loans growing fast

Volume of education loans growing fast

P. Venugopal

THIRUVANANTHAPURAM: The volume of education loans disbursed by commercial banks in the State has gone up more than 250 per cent during the last two years, throwing up certain issues that the banks want to be sorted out.

This portfolio of the banks went up from Rs.521 crore in June 2004 to Rs.1,358 crore in June 2006. As many as 1,13,290 students in the State were beneficiaries of bank finance as on June 30, this year, according to data presented at the quarterly meeting of the State Level Bankers' Committee (SLBC) held here this week.

The banks in the State account for nearly 17 per cent of the total volume of bank credit to students in the country.

The banks are, as the fast growing size of this portfolio suggests, responding positively to the Government's call to help needy students, although there may be some exceptions. No reputed bank will want to be accused of turning away a student approaching it for assistance, especially in the light of the incident involving the suicide of Rajani, an engineering student, in Thiruvananthapuram, two years ago.

All the same, they are a little wary of the possibilities of a higher than normal level of non-performing assets under this portfolio in the coming years.

The SLBC's meeting felt that the Government should put in place a credit guarantee scheme for the students on the lines of the one existing for small- scale industries. The meeting felt that such a scheme was necessary to instil further confidence in the banks in helping the students.

The forum opined that there should be some mechanism to enable the banks to keep track of the student borrowers. The Kerala SLBC raised these issues before the Indian Bankers' Association (IBA) a few months back.

A working group constituted subsequently by the IBA to study these issues suggested that the bank should be allowed to disburse education loan through its branch situated closest to the permanent residence of the student concerned.

Another suggestion was to make the parent/guardian `co-obligant.'

The recommendations of the working group, now before the Finance Ministry and the Reserve Bank of India, also touch upon the proposed Credit Guarantee Fund, the SLBC meeting was informed.