A significant trend has been noticed in the mushrooming of Canada payday loan industry. Wherever the banks have not been giving the small amount loans to the needy people, the payday loan shops have come up sensing the requirements of the people. However, the consumer protection groups and even the government have been quite critical of the way these organizations carry on with their works. Therefore, the state and province governments have been bringing in legislation wherein the borrowers are given some respite from the high interest rates enabling them to come out of the spiral of debt.
Some of the main focus areas of regulations by the federal and State governments are:
1. Capping Interest rates: Some States have fixed the upper limits of the interest that can be charged from the customers. For example, Manitoba has a regulation for not charging more than $17per $100 of lending. Earlier, even the cheap payday loan came at $40 for every $100.
2. Ending the roll-overs and Extensions: Once you get into the debt trap, there is no room to escape because the interest is very high. So, you end up seeking more extensions or taking one more loan after paying off the earlier one. The government serious about ending this continued misery of the borrowers. It proposes a cooling off period between the back to back loans and this has to be longer than one pay cycle so that the borrower can try and pay off his debt with his pay.
3. Limits on amount of lending depending on the person’s ability to pay back. This can be fixed at a percentage of his salary. Say, a person will be able to get only 25% of his salary as a payday loan. Further, there might be stricter adherence for the verification check by the Canada Payday loan lenders in order to ascertain that the person has does not have other credit liabilities.
4. Tougher licensing norms: Licensing shall be made mandatory for this billion dollar industry. The government may ask for publication of complaints history, making public the corporate structure and ownership and regular reporting to the designated regulator.
With ever increased focus on the need of regulating this industry, it has become pertinent for the provincial governments to take concrete steps in this direction for the better protection of the consumers. It is time for the Canada payday loan industry to change the way business is being done.
