Human beings, when trying to accomplish any task, always look for two main criteria: ease and simplicity. These factors can be applied to any aspect of our daily tasks. We all know how long and tedious it is to get a loan from a financial institution.
This cumbersome and lengthy process is considerably shortened when payday loans are availed. In the financial world, payday loans are defined as low value unsecured loans borrowed for a short period of time. The problem with payday loans is the generally high interest rate, which has been a bone of contention since its inception. There are other loan programs available to small businesses and individuals
A brief history of online payday loans in Canada
Canada has seen a huge increase in the use of payday loans over the past decade and a half. If you have any questions about this, then your answer for payday loans in canada can best be provided through the Internet. Payday loans first came into the limelight in Canada after a famous lawsuit that took place in the Supreme Court of British Columbia on August 14, 2006.
One of the more popular payday loan companies charged an additional processing fee of $9.50 for every $50, on top of the high interest rate of 21%. Moreover, a huge deferral fee was also charged at the rate of $25 per $100, in case the customer wants to delay the refund. The court ruled that the deferral and processing fees were part of their interest, which was considered a “criminal rate of interest”.
The landmark decision resulted in a multi-million payout. This incident triggered a major change in the Canadian legislature and the government began to proactively regulate the payday lending industry to protect the best interests of borrowers and lenders. All provinces in Canada, with the exception of Newfoundland and Labrador, have laws and regulations in place regarding payday loans.
User demographics for payday loans
In 2012, the Pew Charitable Trusts compiled a study that highlighted various aspects of payday loan consumers in the United States. Their study suggested certain conclusions that apply equally to any clientele, such as:
- The main user base of payday loans are usually individuals or families belonging to the low income group, with an average income below USD 40,000 per year.
- Single or divorced parents also made up a significant portion of the payday loan user base
- Not having a conventional degree in education also showed links to increased use of payday loans.
- Immigrant and non-white races were also found to be avid users of payday loans
The common link to all the above categories is the financial crisis. Individuals in these categories generally have sufficient resources to cover monthly expenses. However, when an unexpected expense like immediate car repairs occurs, these people exhaust their regular expenses and end up taking out quick and easy payday loans.
The other user base is made up of people with substance abuse disorders or gambling addictions. While the previous ones need protection from criminal loan sharks who hide behind unauthorized payday loan companies, this group is often not salvageable due to their bad habits.
Government intervention in payday loans
The Government of Canada proactively monitors the payday loan industry in the country to prevent any malpractices. The government licenses payday lenders after a thorough review of their background and the amount they charge for interest rates and services. This practice not only helps consumers but also lending companies.
While government intervention may appear to only benefit payday consumers, in hindsight it also protects the interests of lenders. Like any other industry, a payday business also has its fair share of scammers. These handfuls of evil individuals often ruin the business of honest business owners. Government regulations also help honest businessmen to run their business smoothly and develop a healthy clientele.
A recent article by bay Report very explicitly describes the current payday lending scenario in Canada. The article also mentioned how an average Canadian manages their finances. The central government as well as the provincial governments of Canada take extremely good care of the financial interests of the people. For example, Toronto has not issued new payday loan licenses since last year given the city’s difficult history with payday loans.
Regulation as exercised by Canadian provinces
Canadian law permits payday loans pursuant to Section 347.1 of the Criminal Code. However, each of the provinces has its own set of specific payday loan regulations.
The lowest interest rate on payday loans is found in Alberta. Its effective rate is 3.724%.
This province has capped the maximum fee at 23% of the principal amount, which includes both fees and interest. The borrower can only benefit from one loan at a time.
This province allows payday loans at the rate of $17 per $100 once every two weeks. The consumer can take out subsequent loans at 5% within a defined period.
The maximum fee that may be charged in this province is $15 per $100. The borrower has the power to cancel the loan within 48 hours.
Newfoundland and Labrador
This province has no specific regulations regarding payday loans and follows the federal default capped rate of 60%.
The province allows a maximum rate of $19 per $100.
The rate in this province is 15 dollars for 100 dollars, which also corresponds to a rate of 3.724%.
Prince Edward Island
The rate in this province is 25 dollars per 100 dollars for a fortnight.
This province has regulated all loan rates to be capped at 35%. This effectively prohibits the industry in the province.
This province has similar rates to British Columbia. Additionally, payday lenders must pay a license fee of $2,000 for each location.