Payday loans have earned nothing but bad press over the last five years or so, and Canadians have begun to rally against what they see are unlawful and criminal behaviors.
A payday loan center is a lending company that provides short-term loans to consumers who need funds to tide them over until their next payday. Loan denominations can reach $2,000 or more, and the interest rates or brokerage fees add considerable weight to the original loan.
In Calgary, a lawyer named Bill McNally has filed a lawsuit against an Alberta-based payday loan company for disguising interest rates in order to lure in potential customers. According to McNally, this is not an isolated incident, and that the lack of regulation for payday loan centers is causing massive financial damage to low-income families.
The plaintiff in the suit – which might progress to class action – borrowed $500 from the payday company in question, and was subsequently charge $11 in interest and a $95 brokerage fee, the latter of which he was not aware upon signing the paperwork.
In Canada, the Criminal Code allows lending companies, including payday loan centers, to charge up to 60% in annual interest. The payday loan centers have gotten around this clause by adding on the brokerage fees, which are not construed as interest in the traditional sense.
John Lawford of the Public Interest Advocacy Centre in Ottawa is lobbying for regulation of payday lending companies so that such situations do not recur.
Many activists in Canada have proposed a statute for irresponsible lending. When a company gives multiple loans to individuals who obviously cannot afford them, the company knows that the customer will not be able to satisfy the debt, and therefore this is irresponsible lending. Forty Canadian payday loan systems have formed a sort of union and drawn up ethical business practices that all members must follow, but membership is not mandatory. This means that there are many payday loan centers who are still behaving irresponsibly and making millions of dollars through high interest rates and brokerage fees.
Industry Canada will be held a hearing in June to determine whether or not to regulate the payday loan industry, and if so, how they should proceed. The results of that hearing have not yet been made public.
The criteria that Canadians must meet in order to obtain a payday loan are typically:
Full-time employment with the same company for at least three months.
A minimum salary of $1,000 per month after taxes or a fixed income of at least $800 per month.
Canadian citizens at least 18 years of age.
An active checking account with a bank in Canada.
Once an individual has received a loan, he or she can reapply once fourteen days have passed, which means that many Canadian citizens are given multiple payday loans that they cannot pay back. This can result in thousands of dollars in debt.
Canadian payday loan centers have also been accused of abusive credit collection practices. Several Canadian citizens have reported threats of jail and even bodily harm. If an individual fails to satisfy the loan on the next payday, the balance of the loan is deferred or “rolled over”.
This is the point at which collection attempts begin. Customers are called at their homes and places of work, and are demanded to remit payment immediately at risk of their credit and possible legal action. Some payday loan centers have been known to call up to twenty times each day, making the same threats and demanding the same payment.
This is part of McNally’s lawsuit – after asked to stop calling and to contact customers only through the mail, the requests were unheeded.
Not only that, but ridiculously high charges are placed on a delinquent account, and can be anywhere from 30% to 2,000% of the amount owed. Even when an individual has paid the full amount owed in fees, he or she still owes the original debt.
One of the reasons that the payday loan industry has grown so quickly is the sheer amount of companies who offer the service. One only has to type “Payday Loans” into a search engine to come up with hundreds of companies from which to choose.
Consumers are encouraged to be wary of these companies and, if one is considering them, to do their research. Learning the fees involved is important, as is checking into the reputation of the company in question. Payday loan centers make their money by charging astronomical fees for their services. Their interest rates are higher because the length of the loan is shorter, and this is the only way they can make a considerable profit.
If you have fallen victim to what you believe are unfair payday loan practices, you are encouraged by Canadian consumer advocates to contact a lawyer to seek compensation. Lawsuits are popping up all over Canada, and lawyers are seeking not only a return of the monies paid, but also punitive damages for failure to disclose fees and interest rates.