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Cash Store cancels high-cost loans

Interest rates reached 59.9 per cent, just under Criminal Code limit

Cash Store Financial Services has agreed to stop offering lines of credit from third-party lenders to customers as part of a court-ordered restructuring plan.

The Edmonton-based company, which operates as the Cash Store, has sought protection from its creditors in an Ontario court.

The Ontario Superior Court of Justice granted a request by an independent restructuring officer to discontinue the brokered loans, which saw consumers charged interest rates as high as 59.9 per cent (just under the Criminal code limit of 60 per cent) plus fees.

Provincial regulators, including Manitoba's Consumer Protection Office (CPO), had raised red flags about the third-party loans. The Cash Store charged a broker's fee for each transaction.

The company ceased offering the third-party lines of credit on May 14. It started offering them in Manitoba after it got out of the payday loan business. Based on consumer complaints, the CPO launched an investigation that determined the company was violating provincial laws governing payday loans and loan disclosure requirements.

Gail Anderson, the CPO's director, said Manitoba is relieved the high-cost loans are being discontinued.

"The province has welcomed the news because it really protects consumers in Manitoba and across Canada," she said.

She also noted as part of the court process, several high-ranking Cash Store Financial Services executives have been given the boot.

An employee at a local Cash Store outlet Thursday referred a reporter's request for comment to the company's head office. Officials there did not return phone calls.

Manitoba brought in regulations in October 2010 that limit the cost of credit for payday loans to 17 per cent of the principal advanced.

Last fall, the CPO compelled Cash Store Financial Services to pay refunds to 61 Manitoba borrowers after a series of complaints by consumers. Borrowers had been overcharged anywhere from $27 to $238.

The Selinger government introduced a bill last December that would provide consumers with more protection from high-cost lenders, including requirements that companies post clear signage explaining costs and make detailed disclosures about costs and fees before a credit agreement is signed.

Borrowers would be able to cancel a high-cost credit agreement within 48 hours of entering into it -- or at any time if they were not informed of the costs when they signed the contract.

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