When Manitoba consumers are seeking out short-term payday loans online, they are more likely to discover unlicensed lenders than licensed ones, says a new national study by a non-profit consumer organization.
According to Consumers Council of Canada, 12 online lenders in the province of Manitoba were investigated as part of the study and the researchers found that just two were licensed by the provincial government.
Despite maintaining some of the strictest bad credit loan rules in the country, the organization believes “you are not safer in provinces with more regulation.”
For instance, the Manitoba government instituted some of these rules on the payday loan industry:
- The province has the lowest borrowing rate in Canada: $17 per $100 borrowed.
- Licensed lenders are required to limit their borrowing to 30 percent of net pay.
Businesses are mandated to issue a notice to the customer at the point of borrowing, which highlights the high cost of borrowing, credit counselling information and the right to cancel the loan at anytime.
“Licensing has not made illegal lending go away,” said Ken Whitehurst, executive director of the Consumers Council of Canada. “Unlicensed lenders seem to request highly specific banking information. It’s very difficult to know who you are dealing with online.”
When measured from British Columbia to Prince Edward Island, the study noted that the province of Newfoundland had the smallest amount of regulation. This means a great number of consumers are faced with a growing number of unlicensed bad credit loan companies. Many of these companies utilize affiliates who build an online presence through websites to funnel “leads” to them. Swift Bad Credit Loans is not caught up in this scheme but it’s an example of a payday loan website.
Overall, study authors averred that close to all licensed lenders had followed the rules and abided by regulations. However, non-licensed enterprises offered very little compliance with the regulations, whether at the federal or provincial level.
Canadian Provinces & Cities Taking Action
Last month, the city of Hamilton garnered headlines after it was reported that several city councilors were looking to introduce legislation that would tighten rules regarding bad credit loan establishments.
If the proposed legislation is enacted then it would become the very first city in the province of Ontario to restrict and regulate payday loan stores at a municipal level.
Matthew Green, Ward 3 Councillor, asked city staff to assess the possibility of such action.
Green’s initiative came as Tom Cooper, director of Hamilton’s Roundtable for Poverty Reduction (HRPR), referred to this industry as “predatory lending,” adding these storefronts “prey on the most vulnerable in our society.”
Stan Keyes, president of the Hamilton-based Canadian Payday Loan Association, said, however, that sometimes a short-term, high-interest loan can be the “smartest solution” for somebody who has rent to pay or a utility bill to cover.
“Payday loans are less expensive than a series of overdrafts or defaulting on an auto loan,” stated Keyes. “They are a better deal than having the electricity or the heat or the telephone turned off, and as a consequence to later pay to have them turned on again.”
A Billion-Dollar Industry in Canada
Since the financial crisis, the payday loan industry has immensely grown.
As of 2014, it is estimated that there are approximately 1,350 payday loan stores across the country. The industry is worth about $2 billion, despite just three percent of families taking out a two-week loan in the past three years.
Experts say that Canadian users of bad credit loan lenders are young with a bad credit rating, who prefer the convenience and can’t access other forms of credit from traditional financial institutions.
Instead of relying on a payday loan to cover expenses, financial experts highly recommend to start a budget and, most importantly, within your means.
“Don’t set yourself up for failure. Create a budget, understand when your money comes in and when your money needs to go out,” said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc. “Live within your means.”