Human beings when trying to accomplish any task always look for two primary criteria: ease and simplicity. These factors can be applied to any aspect of our daily jobs. We are all aware of how lengthy and tiresome is to get a loan from any financial institution.
This cumbersome lengthy process is considerably shortened when payday loans are availed. In the financial world, payday loans are defined as low-value unsecured loans borrowed for a short amount of time. The catch in payday loans is the usually high-interest rate, which has been the bone of contention since its existence. There are other loan schemes that can be accessed by small businesses and persons
A Brief History of Online Payday Loans in Canada
Canada has seen a huge surge in the use of Payday Loans for the last one and a half-decade. If you have any queries about it, then your answer for Canada payday loans can be best provided by the internet. Payday loans primarily came into the spotlight in Canada after a famous Lawsuit happened in the Supreme Court of British Columbia on August 14, 2006.
One of the popular Payday Loan companies was charging an additional processing fee of 9.50 dollars for every 50 dollars on top of the high-interest rate at 21%. Moreover, a huge deferral fee was also charged at the rate of 25 dollars per 100 dollars, in case the customer wished to delay the repayment. The court ruled that both the deferral and processing fees were part of their interest, which was considered as a ‘criminal rate of interest’.
The historic decision resulted in a payout of several million. This incident started a major change in the Canadian legislature and the government proactively started to regulate the payday loans industry to protect the best interests of both the borrowers and lenders. All the provinces in Canada except Newfoundland and Labrador have some laws and regulations in practice when it comes to payday loans.
User Demographics for Payday Loans
In 2012, the Pew Charitable Trusts compiled a study, which pointed out various aspects of the payday loan consumers in the US. Their study suggested some findings that are equally applicable for any customer base, such as:
- The primary user base for payday loans is usually individuals or families that fall in the low-income group, with an average income of less than 40,000 USD in a year.
- Single parents or divorcees also formed a major chunk in payday loans user base
- Not having a conventional degree in education has also shown links to the higher use of payday loans
- Immigrant and non-white races were also found to be avid users of payday loans
The common link in all of the above categories is the financial crunch. The individuals in these categories usually have enough resources to cover monthly expenses. However, when an unexpected expense like immediate car repairs happens, then such individuals run out of their regular expenses and end up taking quick and easy payday loans.
The other user base is formed out of those individuals with spending disorders or gambling addictions. While the previous ones need protection against criminal loan sharks hiding behind unauthorized payday loan businesses, this group is often not salvageable due to their bad habits.
Government Intervention in Payday Loans
The Government of Canada has been proactively monitoring the payday loan industry in the country to avoid any malpractices from occurring. The government issues licenses to payday lenders after thorough scrutiny about their background and the amount they charge for interest rates and services. This practice not only helps the consumers but also the lending businesses.
While government intervention might seem to be beneficial only to the payday consumers, in the hindsight it protects the interest of the lenders as well. Just like any other industry, a payday business also has its fair share of crooks. These handfuls of evil individuals often ruin the business for honest business owners as well. The government regulations also help honest businesspersons to run their trade smoothly and develop a healthy customer base.
A recent article by Bay Net described the current scenario of payday loans in Canada quite explicitly. The article also mentioned how an average Canadian handles their finances. The central as well as the provincial governments in Canada take extreme care of people’s financial interests. For example, Toronto no longer issues any new payday loan licenses since the last year given the city’s difficult history with payday loans.
Regulations as exercised by the Canadian Provinces
The Canadian Law allows payday loans as per their Criminal Code’s section 347.1. However, each of the provinces has its own set of specific regulations, when it comes to Payday Loans.
The lowest rate of Interest in payday loans can be found in Alberta. Its effective rate is 3.724%.
This province capped the maximum charges at 23% of the principal amount, which includes both fees and interests. The borrower can only avail of a single loan at a time.
This province permits payday loans at the rate of 17 dollars per 100 dollars once in a fortnight. The consumer can take subsequent loans at 5% within a defined period.
The maximum fees that can be charged in this province are 15 dollars per 100 dollars. The borrower has the authority to cancel the loan within 48 hours.
Newfoundland and Labrador
This province does not have any specific regulation concerning payday loans and follows the default federal capped rate of 60%.
The province allows a maximum rate of 19 dollars per 100 dollars.
The rate in this province is 15 dollars per 100 dollars, which effectively sums at a rate of 3.724% as well.
Prince Edward Island
The rate in this province is 25 dollars per 100 dollars for a fortnight.
This province has regulated all loan rates to be capped at 35%. This effectively bans the industry in the province.
This province has similar rates to that of British Columbia. Besides, the payday lenders need to pay a licensing fee of 2000 dollars for each location.