City reviews payday lending
The head of a national nonprofit group has alleged that payday loan companies routinely provide short-term loans at criminal rates of interest. On April 14, John Young, executive director of ACORN Canada, told Vancouver city council's planning and environment committee that every payday lender in the country charges at least 300 percent interest, and often 900 percent, on an annual basis.
Under the Criminal Code, lenders cannot charge more than 60-percent annual interest. "We have a case before the attorney general of British Columbia over an interest rate of 1,242 percent," Young said.
Young asked council to take action because the federal and provincial governments are not regulating the industry. "The City of Langley brought forward a moratorium on the issuance of any new payday lending licences in their jurisdiction," he said. "The payday lending industry wasn't delighted by that, but they haven't fought it or contested it."
After Young's presentation, Vancouver city council voted unanimously in favour of COPE Coun. Jim Green's motion to ask city staff to report back on options for restricting payday loan businesses, including limiting their number and locations. Green mused about the possibility of using business-review panels to revoke licences.
"If there are violations of the Criminal Code that are alleged, that's very similar to what happens with people who are using shoplifters to supply cheese to their pizza operations," Green said.
COPE Coun. Tim Louis suggested that council could immediately ban new licences for payday loan companies. City manager Judy Rogers responded that the staff report would likely examine the feasiblity of such a prohibition. She added that this would have to be considered in camera because it's a legal issue. At that point, Louis said he would be content to wait for the staff report.
Bob Whitelaw, president and CEO of the Ottawa-based Canadian Association of Community Financial Service Providers, told the Georgia Straight that more than one million Canadians have used the services of payday loan companies. He said that three-quarters of all "stores" are owned by companies that belong to his association, which created a code of ethics banning members from "rolling over" loans, or accepting partial payments and allowing interest to accrue on the outstanding balance.
Whitelaw claimed that his members do not charge more than 60-percent annual interest. "However, there are additional fees and service costs to get the product out the door," he said. "We're actively engaged in discussions with the federal and provincial governments to create a regulatory regime that will allow the viability of the industry."
He emphasized that every borrower must have a bank account and a job. Whitelaw added that the average loan granted by a member of his association is for $279. "Canada is the only country that we're aware of that regulates interest rates under the Criminal Code," he said.
Last November, ACORN Canada estimated there were more than 1,200 payday lending stores in Canada, which do over $1 billion worth of business annually. The ACORN Canada report recommended that all lenders be licensed, disclose their corporate structure and governance, publish their complaints history, and regularly provide detailed reports of transactions to a regulator.
Green's motion also asked staff to report back on encouraging existing financial institutions to improve access to loans for poor people. COPE Coun. Raymond Louie, the seconder of the motion, is married to an assistant branch manager of the Royal Bank of Canada. Louie later told the Straight that he didn't see any problem debating the issue because it's "questionable" whether or not there would be any benefits for the company that employs his wife. He added that neither he nor his wife would directly receive any benefit from her employer getting into the business of payday loans.
In 1997, the Straight reported that a former B.C. government debt counsellor, Larry Whaley, had written a report for the NDP caucus urging a provincial response to payday loan companies that offer short-term loans at criminal rates of interest. NDP governments under former premiers Glen Clark, Dan Miller, and Ujjal Dosanjh did not create a regulatory framework.