CALGARY — Payday loan companies will not be banned under a review of the industry by the Alberta government despite concerns about high interest rates charged by providers.
“The government of Alberta is not going to ban payday lenders,” Service Alberta Minister Deron Bilous said Wednesday.
“We don’t want to drive them underground,” he said. “We know from talking to organizations that you’re actually doing the opposite of consumer protection if you drive them underground. They’re much more dangerous when they’re illegal.”
The current legislation, which expires June 30, regulates lenders that offer short-term credit to people who typically borrow smaller sums.
In Alberta, the companies can charge up to $23 of interest for every $100 borrowed, and if people don’t pay back the full amount on time, interest charges can mount substantially. Alberta’s rate is the second highest in Canada, only behind Prince Edward Island which allows $25.
Manitoba is the lowest at $17 per $100.
In tough economic times some Alberta families turn to payday loan services to help them deal with financial challenges, said Bilous, who added that the review will ensure “vulnerable families aren’t being taken advantage of.”
The minister said there is a need for payday loan companies, but he wouldn’t say whether there are lenders who take advantage of the less fortunate.
“There are Albertans who get a short-term loan which turns out to be an ongoing cycle, and a revolving door and we want to look at ensuring Albertans have the tools to find short-term loans when they need it to fill that stop-gap — but not to put them onto a perpetual (debt) cycle.”
The review is to begin with an online survey and then move to meetings with payday loan users, industry members and community organizations that provide support to low-income Albertans.
Jeff Loomis, executive director of Momentum, a community development organization that works with low-income Albertans, said not all providers are the same.
“I would say that some of the payday loan companies are a little bit better than others and the business model definitely can create a debt trap.”
Alberta Liberal Leader David Swann, who was at the announcement, said a review is necessary.
“I think we’re all concerned there is gouging going on and unnecessary profit-taking,” said Swann. “It’s what we used to call usury and that is why we need to look at this, especially when we’re among the highest in the country.”
Once the review is complete, any draft amendments are to be introduced in the Alberta legislature next spring.