Critics welcome N.B. payday loan regulations, but want more consumer protection

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Short-term, unsecured payday loans in Canada

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 · Unlicensed offshore payday loan providers are doing a booming business in Nova Scotia due to a strict provincial stipulation for bricks-and-mortar locations in the industry, regulators heard Service Nova Scotia Telephone: (in metro) A form that a borrower may use to give written notice of cancellation of a payday loan; (c) A form of the receipt the payday lender uses to acknowledge receipt of what was paid or, returned by a borrower when cancelling a loan; Chapter 92 Payday Lenders Regulations, made under  · “While payday loan regulations in Nova Scotia prohibit the granting or acquisition of rollover loans, there is no system of tracking that would identify a borrower who acquires a loan from one’spayday.

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'They get into a cycle'

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Although two years later the Gaillards now have their finances under control, they're still struggling. He's been off work since last August, receiving Workers' Compensation after rupturing a tendon in his foot.

But, no matter how tight money gets, Gaillard vows there's no way he would ever borrow again from payday lenders. As a matter of fact, payday lending is a form of legalized loan sharking. In , the federal government amended the criminal code to allow payday lenders to set their rates higher than 60 percent per year.

That 60 percent maximum had been intended to stop loan sharks from preying on people in desperate financial straits by lending them money at excessively high rates. The change in the criminal code gave payday lenders just what they wanted. Now, they could legally charge more than 60 percent on an annual basis without having to worry about class-action lawsuits on behalf of customers angry about criminal rates of interest. A series of such lawsuits had cost the companies millions in legal fees and settlements.

However, there was one tiny catch. Payday lending would be exempt from loan sharking rules only in provinces that adopted regulations governing the industry. Nova Scotia obligingly cleared the way. In , it became the first province to regulate the industry.

Eventually every western province from Ontario to BC followed suit, creating a variety of rules and interest rates. Only in Quebec and the rest of eastern Canada—except Nova Scotia—are the payday lenders potentially vulnerable to class-action lawsuits for charging more than federal law's 60 percent interest rate.

The regulations also required payday lenders to post the cost of their loans on an annual basis so that customers could compare their rates with other sources of credit. And such comparisons can be eye-opening. Mark Furey, the provincial cabinet minister in charge of payday loan policies, agrees such loans are expensive, but says payday lenders provide a service for people who can't borrow from banks or credit unions. The Nova Scotia Utility and Review Board is planning to look at those regulations again this year, but Furey has asked it to hold off until a federal-provincial committee completes its review of payday lending practices.

In Ontario, for example, one payday lender, The Cash Store, has been offering lines of credit that exceed the interest cap on payday loans. The company filed for bankruptcy protection from its creditors in May and put itself up for sale after the Ontario government barred it from making new loans in that province. Furey says the federal-provincial committee will also be looking at other lending practices such as loans for which clients put up their cars as collateral and high-cost rent-to-own leases for appliances and furniture.

The minister says he's looking forward to the committee's report followed by a review, probably this fall, by the NSUARB.

When asked why the new Liberal government is following its NDP predecessor and leaving the rules for payday lending up to an unelected regulatory body, Furey replies that governments are criticized if they seem to go too far in regulating business, but on the other hand, can also be criticized for not doing enough to protect consumers.

Oddly enough, when he was federal minister of finance, the late Jim Flaherty seemed to suggest that the balance between the payday industry and its customers was out of whack and Ottawa needed to work with the provinces to strengthen regulations.

In his last budget statement in February, Flaherty said: Payday lenders typically target vulnerable populations, including low-income workers and families, persons with disabilities and the elderly. Gordon Arsenault, the credit counsellor who helped rescue Thomas Gaillard from the payday lenders, wonders about Flaherty's words pointing out that "the federal government is the one that basically washed their hands of the payday loan industry.

Arsenault adds that payday loans are a "vicious cycle" for people who need small loans. That means, he says, payday borrowers must keep taking out more loans just to stay afloat, often borrowing from one lender to pay off another.

Arsenault says about 70 percent of Credit Counselling's clients have payday loans. They usually have anywhere between three and five and sometimes even more," he says. Melanie Delorey knows all about juggling payday loans. Delorey, 28, now works full time as a nurse's aide at the IWK children's hospital. She says there were payroll problems because her manager would repeatedly submit fewer hours than she had worked and the mistakes couldn't be corrected until her next pay.

Sometimes she'd get only half the money she was owed, other times only a third. So to top up her paycheque, Delorey started taking out payday loans. A friend mentioned Credit Counselling Services and with their help, she has consolidated her debt and is sticking to a repayment scheme that is within her budget.

She says she will never borrow from payday lenders again. It's just a way to get further into debt. When asked about the payday debt trap with customers struggling to repay several loans, Keyes insists that careful payday lenders wouldn't hand money over to such customers because it's too risky.

He acknowledges, however, that a payday loan clerk may not know if a customer is juggling several loans, but adds a careful look at a client's banking records could reveal it.

Keyes argues that, in some cases, payday loans are just what a cash-strapped customer needs. So, in many instances, the payday loan is the smarter choice. Jerry Buckland doesn't agree that payday lending is a good system for people who need small loans. Buckland argues that Canada's chartered banks should be doing more to provide basic banking services including lower-cost, small loans. He points out that the big Canadian banks are highly profitable.

He also points out that Canadian banks have been closing branches that serve lower-income people in inner cities.

So, he says, in return for protection from foreign competition, the federal government should require the banks to provide better service including the kind of small loans that payday lenders now provide. It seems unlikely, however, that a government led by Stephen Harper and his ultra-conservative colleagues will compel the big chartered banks to provide small loans at reasonable rates.

The provinces, which regulate credit unions, could require them to offer small, low-interest loans and indeed, Nova Scotia's minister, Mark Furey says it's something he's prepared to look at. In the meantime, the forthcoming regulatory review is being left firmly in the hands of the business-friendly Nova Scotia Utility and Review Board. Thomas Gaillard—still bitter about his experiences with payday lenders—has some advice for the board.

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 · Nova Scotia's Utility and Review Board has started a series of hearings into payday loan regulations in the province. The hearings will examine everything from the cost of borrowing to the cost of  · NOVA SCOTIA UTILITY AND REVIEW BOARD IN THE MATTER OF THE CONSUMER PROTECTION ACT - and - "payday loan" means an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security  · [6] Nova Scotia was the first province in Canada to enact regulations respecting payday loans when it enacted the Payday Lenders Regulations ("Regulations"), effective August 1, /