New legislation aimed at protecting consumers from building up debt through payday loans will ban lenders from a number of typical practices that financial advisers say have led to serious financial hardship for some of Earth’s most vulnerable- Newfoundland and Labrador.
A federal exemption granted late last year allowed the provincial government to move forward with new regulations, which set limits on interest rates, eliminate ‘ruble’ loans that often incur fees and tightens rules on how lenders communicate with their customers.
We still have to ask ourselves why people borrow.-Mohamed Abdullah
The considerable list of the regulations will come into force on April 1.
Al Antle, executive director of Credit Counseling Services of Newfoundland and Labrador, said he couldn’t be happier with the changes, after seeing hundreds of desperate cases caused by the current short-term loan market. .
“With the old way of doing things, if you borrowed a payday loan and it was due on your payday…and payday came around, and for some reason you couldn’t pay it back, you were renewing it,” Antle explained.
But it meant that “all the fees and commissions associated with the loan became applicable again. And then, if the next payday came and you couldn’t pay, you would postpone it anyway”.
“These are the situations where you’ve seen people borrow $200, who two months later have paid off six.”
This will end with the new laws. Consumers can pay a maximum of $21 in interest for every $100 borrowed under “non-renewal” clause in the new legislation, he said.
“That’s all you’re going to pay, whether you paid this payday, next payday, or whatever.”
Antle said these practices unfairly affect people who don’t make enough money to catch up.
“In our experience, this consumption option is chosen by people at the bottom of the income scale, who have exhausted all borrowing options and are in desperate need of money,” he said. .
That, coupled with a lack of financial literacy, as Antle puts it, drives people to his door, desperate for a way out of the cycle of debt.
Older people at risk
Older people are often among those who feel the pressure. Seniors tend to use payday loan services at a high rate, said Mohamed Abdallah, co-founder of the nonprofit service center Connections for Seniors.
“If you need the money and you don’t have the support of your family, or there’s no access to government benefits more than you’re getting, you’ll turn around and go. to one of the payday loans in order to support yourself – whether it’s to pay for your medication, transportation to a medical appointment, [or] to pay your rent,” Abdallah said.
Borrowers might find it easy to repay the first loan, but debt can quickly snowball, he added.
Costs of aging
Some seniors are also caught off guard by falling incomes and rising expenses that could affect retirement.
With drug costs, ballooning heating bills and an income that sometimes reaches $1,600 a month — most of which could go to rent — there is sometimes little left over for anything else, Abdallah pointed out.
The new rules will significantly help vulnerable borrowers, Abdallah said, but added that the root causes that send someone to a payday loan company in the first place should also be addressed.
“We still have to look at why people borrow,” he said.
“I hope we will see at some point that we don’t need to ask for money – with this amount of interest – just to cover our daily needs.”
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