New legislation has stopped so-called “predatory lending” and enacted the lowest payday loan borrowing rate in the country, down from $23 for every $100 borrowed to $15.
“It was really easy for people to be taken advantage of,” said Service Alberta Minister Stephanie McLean.
“We wanted to put some consumer protections in place. There is still the need for people to take out micro, short-term loans in many cases. That option still exists, but in a more financially healthy way.”
The bill, dubbed An Act to End Predatory Loaning, took effect Aug. 1. All fees related to payday loans must also be included in the cost, eliminating any potential hidden fees or charges.
“They can’t solicit you directly by email or phone,” McLean said.
“And they can’t offer you a loan when you have one outstanding with them.”
The legislation will affect money-lending companies such as Cash Money and Money Mart. More than 30 payday loan companies operate more than 220 branches in the province currently, according to the Province.
Derek Lalonde, a financial advisor with Edward Jones in Airdrie, said even with the recent legislation he would advise Albertans to steer clear of these types of short-term loans if possible.
With lower rates, Lalonde said more people might be drawn to short-term lending as a means to make do until the next paycheque when they can settle the loan.
“More often than not, it doesn’t go that way,” he said. “It tends to go the other way and then that interest will compound on itself.”
Payday loans include those loans of $1,500 or less with a term of 62 days or less.
McLean said future changes to payday loans could be on the way in the winter.
“What phase two will do is bring in installment payments and requiring the payback in installments,” she said. “That will bring the annualized percentage down to that 80 per cent-ish range, and make it even more affordable.”
- with files from Dustin Ruth