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Payday lenders come under closer scrutiny as weak economy sparks fear of scams

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Canadian officials are stepping up scrutiny of payday lenders over fears they will prey on vulnerable clients at a time of record household debt and rising unemployment in oil-producing regions.

Payday lenders have grown in popularity in Canada with more than 1,400 stores now open, according to the Canadian Payday Lenders Association (CPLA). He said about 2 million Canadians a year take out loans to hold them until their next paycheck.

The industry had only a handful of stores when it emerged in the mid-1990s, according to the Canadian government. Payday lenders have become increasingly popular as they offer quick access to cash without the extensive checks performed by banks and are ready to lend to borrowers with damaged credit records who may have had debt. struggled to repay their loans in the past.

However, such access to cash comes at a cost. Consumer groups say the interest rates charged by payday lenders – typically up to 600% on an annualized basis – can leave borrowers trapped in crippling debt cycles.

These concerns have led Canada’s financial consumer watchdog to launch an investigation into the industry, while several provinces revise the regulations. Their mirrors of action repress in other countries. Britain introduced new rules two years ago that capped the interest payday lenders could charge.

And the American authorities seek to eradicate the abusive practices of the lenders. “From my perspective, this has always been a concern,” said Brigitte Goulard, Deputy Commissioner of the Financial Consumer Agency of Canada, which will release the findings of its payday loan investigation this year. and works with provinces to understand the industry’s impact on consumers. .

Alberta’s left-wing NDP government introduced legislation to end what it called “predatory” lending. Cabinet Minister Stephanie McLean said she feared tough economic times are pushing hard-pressed Albertans to payday loans. Oil-rich Alberta suffered 19,600 job losses last year and also saw a sharp rise in consumer defaults on bank loans as sharply lower crude prices pushed the economy of the province in recession.

“There is currently a unique vulnerability given the economic environment and predators taking advantage of such a vulnerability, so I am very concerned about an increase in the use of these loan products,” McLean said in an interview.

A typical consumer loan from a bank would charge a single digit interest rate, with the best rates around 2 percentage points above the base lending rate. Most personal loans would be in the range of 3-5% annual interest if the customer has a good credit history.

Credit cards have much higher rates at around 20 percent. Although payday loans are often taken out by people with low incomes, credit counselors in Alberta say they are increasingly dealing with oil industry workers who have gotten into trouble because their incomes have fallen and they are “maximized” on credit cards and bank loans.

Nadia Graham, who works for the Credit Counseling Society in Calgary, said a recent client had a high-paying job at one of the world’s largest oil companies, but got into trouble after her cut back. premium. “We see people who are professionals, who are aware of interest rates and who are not naive, and they’re going to go to payday lenders out of sheer desperation anyway,” she said.

McLean said Alberta is considering lowering the current maximum allowable cost of borrowing rate and looking for ways to restructure loans to allow customers to repay in installments. Lenders can now charge up to $ 23 for every $ 100 borrowed. Last year, Nova Scotia reduced the maximum interest that could be charged.

New Brunswick and Ontario are revising the regulations. Parts of British Columbia have either banned new payday lenders or placed severe restrictions on store openings.

Tony Irwin, president of the Canadian Payday Loans Association, said lawmakers should be careful not to impose regulation on the industry so onerous it forces lenders to shut down, warning that alternatives could be worse .

“If they can’t go to a licensed and regulated payday lender, they’ll find credit another way. And the proof is that the void is being filled by unlicensed and unregulated internet lenders,” he said. Irwin said, adding that unregulated operators charge even higher rates.

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