Crackdown on payday loans puts lenders on tighter leash

New legislation to protect consumers from amassing debt from payday loans will prohibit lenders from a number of typical practices that, according to financial counsellors, had ledto deep financial trouble for swaths of Newfoundland and Labrador's most vulnerable.

A federal exemption granted late last year allowed the provincial government to forge ahead withthe new regulations, whichsetlimits oninterest rates, eliminate "rollover" loans that often entailadditional fees, and tighten the rules on how lenders communicate with their clients.

We still need to look into why people are borrowing.-MohamedAbdallah

The considerable list of regulations will come into effect April 1.

Al Antle, executive director of Credit Counselling Services of Newfoundland and Labrador, said he couldn't be happier about the changes, having seen hundreds of desperate cases caused by the currentshort-term loan market.

"Under the old way of doing things, if you borrowed a payday loan and it was due on your payday and payday came, and you for some reason couldn't repay it, you rolled it over," Antle explained.

But that meant "all the charges and fees associated with borrowing became applicable again. And then if the next payday came andyou couldn't pay, you'd still roll it over."

"These were the situations where you saw people borrow $200, who two months later, paid back six."

That will end under the new laws. Consumers can pay a maximum of $21 in interest for every $100 borrowed under the "no renewal" clause in the new legislation, he said.

"That's all you're going to pay, whether you paid this payday, next payday, or whatever the case might be."

Antlesaid those practices unfairly affected people who didn't make enough moneyto catch up.

"In our experience this consumer option is chosen by people at the lower end of the income scale, who have run out of all the borrowing options and who are desperate for cash now," he said.

That, plus a lack of financial literacy, as Antle puts it, leads people to his door, desperate for a way out of the debt cycle.

Elderly at risk

Seniors are often among those who feel the squeeze. Older peopletend to use payday loan services at a high rate, said Mohamed Abdallah,co-founderof non-profit services centre Connections for Seniors.

"If you need money and you don't have support from family, or there's no access to government benefits more than what you're getting, you will turn around and go to one of the payday loans in order to support yourself whether to pay your medication, your transportation for a medical appointment, [or] to pay your rent." Abdallah said.

Borrowers might find it easy to pay back the first loan, but debt can quickly snowball, he added.

Costs of aging

Some older people are also caught off guard by falling income and rising expenses that might hit around retirement.

With medication costs, bloated heat bills and an income that sometimes tops out at $1,600 a month most of which might go to rent there's sometimeslittle left over for anything else, Abdallahpointed out.

The new rules will help vulnerable borrowersconsiderably, Abdallah said, but addedthe root causes that send someone to a payday loan company in the first place should also be addressed.

"We still need to look into why people are borrowing," he said.

"Hopefully we see at certain point that we don't need to ask for money with that amount of interest just to cover our day-to-day-life basics."

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