Alberta payday loan crackdown shrinks industry

The payday loan industry is shrinking in Alberta after the province cracked down on the businesses often accused of predatory lending, though dozens remain in Calgary.

The number of licensed payday lenders in the province fell to about 165 in recent weeks, dropping 25 per cent from 220 before the province legislated changes to the industry in the spring of 2016, according to the group that represents lenders.

It's welcome news for some. 

"We had what we felt was a proliferation of these types of businesses," said Alison Karim-McSwiney, executive director of the International Avenue BRZ in southeast Calgary, where a third of these businesses closed in the past year or so, falling to six.

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Karim-McSwiney said there is now more room for growth along the commercial strip of 17 Avenue S.E., while rental rates might fall for new tenants. She said payday lenders "artificially raised rents" because landlords often charged them top dollar.

"Them leaving is a very positive thing for us," she said.

The province took action against the industry over fears that too many Albertans were taking out high-interest loans just to make ends meet, and then taking out more loans to pay off the old ones.

The changes reduced the costs of payday loans for borrowers and extended the payment period. Instead of having two weeks to repay loans that cost up to $23 per every $100 borrowed, borrowers now have up to six weeks to repay loans that cost $15 per every $100.

Reduced income for lenders

The changes reduced income for lenders and scaled back their access to capital. According to the Canadian Consumer Finance Association, which represents payday lenders, dozens of storefronts closed.

In Calgary, 11 businesses stopped payday lending last year — a 22 per cent drop — though 38 remain.

"There are people who come to our members because they have nowhere else to go," said Tony Irwin, chief executive of the industry group.

"Whether it's a single mother who's trying to work two jobs just to make ends meet to feed her kids, or a pensioner who's living on a fixed income and is finding that their expenses are going up at a higher rate than their benefits, these are all people that have very serious and real needs... If they can't access credit from a safe, licensed, reliable payday lender, where will they go to find it?"

Courtney Mo, public policy manager at Momentum, which helps low-income families, said credit unions and social agencies have stepped in to help Calgarians who may have otherwise taken out high-interest loans.

"For many, a loan is not a good idea, and the more that we can do to support people to access alternatives, the better," she said.

"They could be over-extended and unable to pay back, and that could lead to even greater hardship in paying exorbitant fees and incredibly high costs to dig themselves out of debt."

Service Credit Union, which provides short-term loans of up to $2,500, has issued 185 of them worth a total of almost $295,000 since the fall of 2016.

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First Calgary Financial also offers short-term financing to get families through difficult periods when funds are low.

Shelley Vandenberg, president of the credit union, said she is "cautiously optimistic" the province's crackdown is actually behind the decline in licensed vendors, and not some other factor, such as leasing costs.

Despite the decline in storefronts, Vandenberg said predatory lending has grown online.

"There are people who are still going to payday lenders," she said.

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