If passed, An Act to End Predatory Lending will bring substantive changes to the payday lending industry, including the country’s lowest borrowing rates.
“This legislation will end predatory practices that expose Albertans to vicious cycles of debt. Albertans told us loud and clear they want lower interest rates and longer payback periods. These new rules for responsible lending mean Albertans can access the credit they need without spiraling into financial hardship.”
Along with regulatory changes, the government is actively encouraging credit unions and community groups to offer alternative, short-term loans that are fair and accessible and that include financial literacy supports to improve a borrower's credit.
“This is ground-breaking legislation. It ensures vulnerable borrowers are protected, particularly now when budgets are tight. These changes will positively impact our community's revitalization efforts, and help attract new businesses to our neighbourhood.”
“We are delighted with this legislation and are proud to collaborate with the Government of Alberta, Momentum and our credit union partners to introduce fair and responsible small-loan alternatives for Albertans. This is an exceptional first of many steps we need to take collectively to help vulnerable citizens build toward long-term financial stability.”
The proposed legislation includes changes that:
- Reduce borrowing fees from $23 to $15 per $100 borrowed, making it the lowest rate in Canada;
- Allow borrowers to repay loans in instalments, rather than all at once;
- Require lenders to refer borrowers to financial literacy resources;
- Prohibit lenders from directly soliciting potential customers;
- Include all fees in calculating cost of borrowing
- Prohibit lenders from charging a fee to cash a cheque for a payday loan;
- Prohibit lenders from soliciting, negotiating or concluding an agreement for another form of credit with a borrower while a payday loan is outstanding.
“Momentum applauds the provincial government for ensuring payday lenders will no longer be able to charge such high interest rates. Many participants we work with struggle with payday loan debt, and these changes will support people living on a low-incomes to exit the cycle of debt. We are also very supportive of the Government working with financial institutions to develop more affordable alternatives.”
“Servus Credit Union is pleased to work with the Government of Alberta and our credit union partners to deliver an alternative to expensive payday loans. We are actively developing a socially responsible loan product that will provide Albertans a fast, fair and smart alternative to payday loans by the end of 2016.”
“We've been advocating for restrictions to predatory lending practices for some time because of its harmful impact on communities, local economies and the working poor. We are so pleased to see the government take bold action to protect vulnerable Albertans.”
“This legislation is an important step in breaking the cycle of poverty and debt for many vulnerable Albertans as it requires lenders to provide financial literary information to borrowers, reduces the high cost of borrowing, and requires loans to be repayable in installments. We appreciate that the province will continue to work with financial institutions to ensure borrowers have access to alternatives to payday loans.”
- A payday loan is a loan of $1,500 or less that has a term of 62 days or less.
- There are more than 30 payday loan companies operating more than 220 branches in Alberta.
- Payday loans became regulated in Alberta on September 1, 2009.
- The regulation expires on June 30, 2016 and must be reviewed before expiry.
Loan Consultation Results, March 2016
From October to December 2015, the Government of Alberta consulted with Albertans about the payday loans regulation. An online survey was conducted along with in-person interviews with those who use and provide payday loans.
More than 1,400 Albertans responded, with the vast majority saying that the allowable borrowing costs are too high. Currently, payday lenders in Alberta can charge $23 per $100 borrowed, the second highest rate in the country.
Highlights from the survey
- 80 per cent said borrowers should be allowed to make instalment payments.
- 76 per cent said that Alberta should limit the amount of money borrowed through payday loan companies.
Borrowing costs in other provinces
Currently, other Canadian jurisdictions that regulate payday lending have caps ranging from $17 to $25 per $100 borrowed.
- Prince Edward Island: $25 per $100
- British Columbia: $23 per $100
- Saskatchewan: $23 per $100
- Nova Scotia: $22 per $100
- Ontario: $21 per $100
- Manitoba: $17 per $100