Payday loan industry caught off guard by throne speech

The payday loans industry says it was caught off guard when the Alberta government announced in Tuesday's throne speech it intends to introduce legislation against "predatory lending."

"We were unaware of any sort of plans to introduce legislation up until now," said Tony Irwin, chairman of the Canadian Payday Loan Association. "That's a surprise to us. That was something new that we hadn't expected."

Irwin said the association had been working with the provincial government for several months and expected changes would be made through existing regulations rather than a bill called An Act to End Predatory Lending.

"I think it's the name, certainly, that probably gets lots of sort of strong reaction from people," said Irwin when asked about it.  

"It's certainly a word that is quite — it's not one that we're used to seeing, put it to you that way."

In the throne speech, the government indicated one of its priorities during this session will be to cap interest rates charged by payday loan companies, which it said can be as high as 600 per cent a year.

Irwin said that number misrepresents his industry.

"It simply doesn't reflect the nature of what the product is," he said. "A payday loan is a fee-based product not an interest-rate based product.

"If we were giving someone a payday loan over the course of the entire year that's, of course, how you'd get to that 600 per cent APR (annual percentage rate), and that is certainly a high number.

"A payday loan is provided to someone — the average length of time is typically 10 days, so of course you don't get anywhere near that figure in such a short period of time."

Payday loans have long been a priority for her government, but now more so than ever, said Premier Rachel Notley.

"There's no question that there are more people who are vulnerable to them now with the slowdown in the economy that we're experiencing," she said.

"We believe it's really important to step as quickly as we can to try and limit the damage that can occur in those situations."

The government is also working with other providers such as credit unions and Momentum, a Calgary organization that promotes community economic development, to offer short-term loans at reasonable rates, she said.

Currently there are more than 30 payday loan companies operating in Alberta, with more than 220 outlets.

Lenders can charge $23 per $100 borrowed in Alberta, which according to the province is the second highest rate in the country.

The province said it consulted with Albertans from October to December through an online survey that saw more than 1,400 responses, in addition to in-person interviews with payday loan clients.

The government said the vast majority think allowable borrowing costs are too high.

Three of four also said Alberta should limit the amount of money that can be borrowed.

Irwin said whatever limits the government decides on must be based on sound analysis so the industry remains viable.

"That decision really should rest between the lender and the borrower," he said. "All lenders number one have an interest in being repaid.

"So they certainly take seriously how much they're lending, because obviously businesses can't operate for long if you give loans and don't get them paid back."

Liberal leader David Swann has already said his party would be supporting the legislation.

"I don't think there are enough products out there so I think ATB has to step up," he said. "These private operators either need to step in line with more reasonable interest rates and terms or they need to get out."