Payday loan customers need more time to repay debt, regulator tells Manitoba government

An independent regulator is asking the Manitoba government to make changes so fewer people are trapped in the cycle of taking out another loan just to pay back an earlier payday loan.

The Public Utilities Board is recommending people be offered more time to repay their payday loans, according to a report stemming from its 2024 review of the payday loan industry in Manitoba.

The board is suggesting people be allowed to pay back loans in instalments, instead of having to make a full payment, plus fees, within 14 days, or the end of a pay period. It is recommending that customers have between 42 and 62 days to pay off their loan.

The change, if adopted by Manitoba's government, would be similar to a law in place in Alberta.

That province has noticed a significant decrease in the number of customers defaulting on their loans, said Chris Klassen, a lawyer who represented the interest of consumers during the Manitoba review.

"It's the difference between having to have all that money at once or being able to budget over a period of four to six weeks in order to pay that loan back," Klassen said in an interview.

'Very hard' to pay back loan quickly

He said the current 14-day repayment plan is "very hard" to achieve, "and that's why these loans have historically created such a significant risk of a vicious debt cycle."

The longer borrowing time is among the recommendations made in the review, which the board issued last week.

Other recommendations stemming from the review is that the government work with credit unions to develop barrier-free access to small amounts of credit and to give other types of loans — instalment loans, pawn loans and rent-to-own loans — the same consumer protections as payday loans are afforded.

A request for comment from Finance Minister Adrien Sala on Monday night wasn't immediately returned.

Klassen said the consumers' coalition, which consists of the Manitoba branch of the Consumers' Association of Canada, Harvest Manitoba, Community Financial Counselling Services and the Aboriginal Council of Winnipeg, are "very happy" with the recommendations.

The Public Utilities Board "clearly saw an acute need for regulatory reform in Manitoba," Klassen said. "Change is long overdue."

The board embarked on the review late last year after it was requested by the NDP government.

The province's regulations around payday loans and government cheque-cashing services haven't been studied since 2016.

The provincial government has the authority to direct the Public Utilities Board to review the sector every three years, but the former Progressive Conservative government declined the opportunity in 2019 and 2022.

'Necessary evil'

Klassen said his clients consider payday loans a "necessary evil" because, while expensive and risky, it fills a gap for consumers who cannot otherwise access cheaper mainstream credit options.

That's why the recommendation the province work with credit unions to develop ways more people can have a modest amount of low-cost credit available is invaluable, he said.

The board recommends the financial risk of this offering be borne by the province, rather than individual credit unions.

One change to the payday loan product recently took effect after the Public Utilities Board issued an order last week.

It's lowered the maximum fee lenders can charge people for cashing government cheques. The new cap is $2, plus 1 per cent of the cheque's face value up to a maximum of $10.

The change may only amount to several dollars in some instances — the previous cap was $3, plus 2 per cent of the cheque's face value — but Klassen said it will make a difference to some customers of high-cost lenders who face significant financial hurdles.

"For Manitobans living benefit cheque to benefit cheque, we expect that this will make a big difference."

A person cashing a $500 benefit cheque will now pay a maximum fee of $7, rather than the previous limit of $13.

"That's a six-dollar difference," Klassen said. "And for a person relying on those benefits, that could be a meal."

Payday lenders absent from review

In the board's report, it said it wasn't able to fully hear the perspective of the payday loan industry because the Canadian Consumer Finance Association, which represents the lenders, declined the opportunity to be an intervener.

As a result, the board couldn't treat the association's written submission as evidence, because "they cannot be tested by way of information requests or cross-examinations."

"Accordingly, the board did not rely upon these submissions in making its recommendations."

The association said in its submission that Manitoba shouldn't alter any fees or charges until the impact of the federal government's decision to lower the maximum amount lenders can charge, now $14 per $100 loan, is assessed.

It said more stores will likely shut down as a result of the new federal regulations, which took effect on Jan. 1, 2025.