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Brandon Sun - ONLINE EDITION

Payday lender battles fee limit in court

Cash Store opposes cap of $17 for every $100 loaned

By: Mary Agnes Welch

28/07/2010 8:49 AM | Comments: 18

‘The effect will be a continued exploitation of a lot of people who, unfortunately, have few options’ -- Wayne Helgason

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‘The effect will be a continued exploitation of a lot of people who, unfortunately, have few options’ -- Wayne Helgason (MIKE DEAL / WINNIPEG FREE PRESS)

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(MARK REIMER/WINNIPEG FREE PRESS)

Manitoba's crackdown on payday loan shops has hit another snag: A quick-cash company has asked a federal judge to quash new provincial caps on fees and interest rates.

The Edmonton-based Cash Store argues Manitoba's fee cap is "unreasonably low," well below what other provinces allow and so low it will cause irreparable harm to payday lenders.

Cash Store chronology

2006 -- A police investigation uncovers one payday lender charging its customers effective annual interest rates as high as 20,000 per cent on small, short-term loans. The legal rate is 60 per cent interest under the Criminal Code. That, and the proliferation of payday loan shops in the inner city, prompts the Manitoba government crackdown on the complex mess of fines, fees, interest and surcharges many lenders levy.

April 2008 -- Manitoba's Public Utilities Board, after weeks of hearings and a 326-page decision, caps the cost of credit at 17 per cent for loans up to $500, 15 per cent for $501 to $1,000 and six per cent for loans between $1,000 and $1,500.

May 2008 -- The Cash Store asks Manitoba's Court of Appeal to quash the PUB's ruling.

January 2009 -- A Court of Appeal judge agrees to hear the case, noting the new caps would likely put many payday loan shops out of business. Before the case can proceed, the province changes tack and tries to regulate payday lenders directly.

April 2010 -- The Manitoba government proposes new legislation allowing it to cap loan fees and rates at $17 per $100, as long as the federal government allows it.

July 7 -- Ottawa passes a cabinet order allowing Manitoba to regulate criminal interest rates, normally a federal job.

July 20 -- Manitoba proclaims the legislation, slated to take effect in mid-October.

The Cash Store also argues the federal government didn't consult with lenders, ignored key pieces of information and failed to follow its own procedures when it passed a cabinet order allowing Manitoba to regulate payday loan charges.

The Cash Store is asking the Federal Court for a judicial review of the matter, a move that could again delay new rules meant to protect poor people from predatory loans.

"Our intent is to bring in the legislation on the date we intended," government spokeswoman Rachel Morgan said. "If there's any change as a result of this case, we'll deal with it when it comes."

Until now, new payday loan rules appeared to be chugging along, finally, after a four-year battle. Earlier this month, the federal government approved Manitoba regulating payday loan rates and the province announced the new cap would kick in Oct. 18.

Manitoba's new rules cap interest and fees at $17 for every $100 loaned -- the lowest fees in the country. To protect people from a spiralling cycle of debt, a loan can only be made for 30 per cent of a person's next paycheque. A host of other regulations protect the poor by ensuring all fees are explained in plain English and lenders can't use rewards or incentives to woo borrowers.

The quick-loan industry balked at the new rules, saying they would put many stores out of business and harm customers who have no other access to emergency credit, except to pawn their goods.

As big banks close their doors in the inner city, payday loan stores have mushroomed. There are at least 33 stores in Winnipeg, plus many more online, that advance a few hundred dollars to customers with poor credit until their next paycheque or welfare cheque.

Wayne Helgason, executive director of the Social Planning Council of Winnipeg and one of the poverty activists who have long called for a quick-loan crackdown, said any delay will harm low-income Manitobans. "The effect will be a continued exploitation of a lot of people who, unfortunately, have few options," Helgason said. "It's obviously a lucrative business that takes money directly away from those who most need to keep it."

maryagnes.welch@freepress.mb.ca

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18 Commentscomment icon

Maybe all you know-it-alls should go apply for the top EIA position and apply all these cost saving ideas you spout about here there-and save us a bundle!

The Province could tell the Banks Cash the Social asistace cheques or we will we will not do business with you. I am quite sure the Credit Unions would help if the Province went to bat for the people who can not get there cheques cashed.

You know, before these places opened up, there were was only one thing to do: live within your means. When I started out, I had nothing but I made do. No TV, no stereo, a really crummy little car, only two sets of clothing, no sheets for the box spring on which I slept but I made do. One chicken had to last me an entire week. Buying luxuries was out. I once lived in an area which was heavily welfare residents and I used to see their grocery carts: filled with processed food, boxed dinners, those BBQ chickens that the store sells, etc. all expensive items while I, who was working and struggling, bought vegetables off the clearance rack, meat that had been reduced because it was at its due date, week-old bread, etc.

There really is no need for these places but they do exploit people's propensity to spend. You really can't blame them for existing and it must be remembered that nobody is holding a gun to anybody's head and forcing him to borrow against his paycheque.

I have to ask, "Hold on there", if a person is living paycheck to paycheck, having to make use of payday loans - why the heck are they buying their child an xbox? Is that the only way there is to show demonstrate their love? And what kind of message does that pass along to the child, "get things you can't afford, because you a special snowflake who deserves it."

Absolutely, allow these companies to market bank accounts and related services to their clients (ensuring that they maintain adequate cash reserves to cover their obligations, just as banks currently need to) - let's see how long they can do so with whatever fee structure you are envisioning... I have a funny feeling that in a year or two, you would be complaining about how high those fees are.

To be clear folks, credit card companies charge 19% APR (Annual Percentage Rate), this is setting a cap at 425% APR. Decades ago, the federal government put in the criminal code that no-body could charge more than 60% APR for lending money - this was to deal with mafia and loan sharks. Yet this province says that 425% is OK business ethics?

In the 90s, the number of banks in the North End went from about 20 to 2, and the fringe banks went from about 2 to 23. Strong correlation; the banks created a financial services desert. In the US, they have the Communtiy Reinvestment Act, meaning that financial institutions cannot just leave certain areas, or if they do they have to "reinvest" in some other agency or service or credit union that will go in to provide those services.

Be like Arizona, drive them out of business.

You think people are getting loans at these places. Call it what it is. It's a payday advance so they can make it to their next payday. They don't have credit and some cannot even open a bank account unless you have good credit. Once you do open an account it's a plain checking account with no checks so you can't even use it as your main account. They also put restrictions on your check deposits, like having to wait 7 days for it to clear. There are men who make good $$$ but live payday to payday due to child support payments. They use these services cause little Billy wants a new Xbox for christmas who he what, gets to see a couple of times a year. I'm happy with loans of 20/100. It's the check cashng that's crap. They say 3/100 for check cashing but it winds up costing you about 8 or so. Fix that and allow them to offer bank style accounts. Then again that would constitute competition for the other banks, can't have that now in this country.

Keep in mind people, this is 17% PER LOAN, not per annum like credit card companies. This means for someone who is stuck in the "revolving door" is paying 17% interest EVERY 2 WEEKS to loan from these sharks! Insanity!

Go after the credit card companies and their loanshark rates.Theres more people affected by this than by the payloan companies

@null :
No, banks shouldn't be in the business of extremely high risk, high interest, tiny short term loans to unqualified clients. Canadian banks that is, I'm sure 5 years ago the Bank of America would have given anybody who walked into a Payday loans a $1.5m mortgage at 0% down, but that's a different story....

These companies do absolutely nothing but damage to the communities they pop up in, and should be regulated and choked as much as possible. They're obviously still making enough money, or they'd start closing locations (which would be good). Opening up some public "credit clinics" (NOT owned by banks or credit card companies) would do a world of good to allow a second (or first, for many) chance at legitimate credit for the patrons of these Cash-Store scammers.

I agree that there needs to be a cap... but 17%? Think about it for a second, why are we capping them at 17% but allowing credit card companies to charge people in poor financial situations (or pretty much anybody holding a store credit card) 29.9% interest (plus late fees when applicable).

Forcing banks and CU's to make these loans is ridiculous as well - as a member of a CU, I don't want my money being risked unnecessarily. Giving the poor more loans isn't going to get them out of their situation (you can't borrow your way out of debt), teaching them how to handle their money, increase their revenue while decreasing their expenses - that will help.

Why not start with making it mandatory for people receiving social assistance to have drug testing, as well as testing for nicotine. If you can afford dope or smokes, perhaps you shouldn't be receiving welfare. Of course, give them free access to smoking cessation aids and drug rehabilitation programs, as required.

The money individuals who want to receive social assistance and quit their habits/addictions will let them perhaps get further ahead (killing debt, perhaps being able to train for new jobs etc.), and the money saved by the cessation of some people's social assistance will pay for the increased costs in drug rehab/smoking cessation, and I would expect probably help create financial education classes aimed at low-income individuals. Health Care costs would also decrease as the smoking and drug use rate declines

The Province should just shut down the Payday Loans!!!

I would be a happy man to see Winnipeg devoid of payday loan and cheque cashing companies.

I disagree that regular banks should make high risk loans in order to protect those of us who are not high risk. At the same time, these payday loan shops and lenders to people with no credit should be reined in. As an example, I know somebody who had declared bankruptcy. Once it was discharged, he went car shopping and I advised him to wait at least six months and, in the meantime, get himself a credit card with high-risk and use it sparingly, making full payments on whatever he charged for a period of 6 months to establish some sort of credit rating. Then, go for a bank loan with a reasonable interest rate and make his payments with complete regularity. No, he went out and got a loan from one of those places which charges 21% and a 13k car will end up costing 31k. The way I see it, charge 21% in the first year and keep on reducing it year after year as the person builds up a credit rating.

Unfortunately, these places make a fortune off of people who do not know how to manage their money - and remember, not just poor people use these services. I know employed people with good salaries who are in this revolving door. These places are as bad as loan sharks - except they don't break knee caps or give out cement shoes.

well, a suggestion would be for low income people to not use the cash store, as there are others that will not oppose. people should become aware of community financial services, by mount carmel, which offers free credit union accounts. maybe if more social service agencies were aware, and eia, sent out info about it with their cheques we could get rids of these pathetic companys that prey on the poor.After all, today is cheque day and they rake in tens of thousands of dollars, that is really the taxpayers money. You do need a referal to community financial, but welfare as a social service agency is able to do this, as well as other community based agencys. maybe welfare could hire a few clients to give out leaflets outside the cash stores, or the gov't could pass a law, making money lenders have to give this info to people cashing gov't cheques. after all, it is in the gov'ts interest.

Perhaps many of the people who get these loans should be required to to money management courses. Forcing banks/credit unions to make these loans is rediculous. I don't need my bank charges going up to cover the losses for these types of loans. It is not someone elses responsibility to ensure that you get a loan. Manage your money properly and you won't be going to these payday loan places.

The province should pass legislation requiring banks and credit unions to make these types of loans. Let's get these userers out of business and keep the poor from being ripped off.

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So Manitoba has made a law that protects cash-strapped consumers from opportunistic companies?? So what do they do fight in court to have it over turned?? Different province, different economy... the Cash Store should drop this and take the financial hit in Manitoba... MOST companies have different pricing for different areas!!! Why do you think you have to enter your Postal Code when looking at an online flyer? This should be no different - if you wanna do buisiness in MB, play by the rules. I am glad these companies have had their legs pulled out from under them! They prey on the needy! (Edited)

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