Province seeks opinions on payday lenders

The Office of the Attorney General has just released a consultation paper inviting the public to comment on the regulation of payday lenders in the province. These lenders, who have moved into the province over the last few years and are operating store fronts in a number of Island communities, are not currently regulated by the province.

A payday loan is a short-term loan for a relatively small amount to be repaid on the borrower's next payday. The borrower writes a post-dated cheque for the principal, plus interest and fees. A typical payday loan might involve a loan for $200 cash with a $275 repayment due two weeks later.

The Criminal Code currently sets a limit of 60 per cent on the annual interest rate for lenders. With short-term loans, such as payday loans, the total cost of borrowing, including fees and charges, far exceeds that limit. For example, in the loan described above, the effective annual interest rate is close to a thousand per cent. A recent amendment to the Criminal Code exempts payday lenders from the 60 per cent limit, if there is provincial regulation in place and the province has set the maximum cost of borrowing.

"Most provinces are moving toward regulating payday lenders," says Attorney General Gerard Greenan.

"The P.E.I. government is currently considering a similar initiative and we want to know what Islanders think. This is an opportunity for the public to tell us how the province should respond to payday lenders and what rules they would like to have applied to the industry."

In addition to dealing with the cost of borrowing, many provincial laws are also setting best practices for payday lenders.

For example, the legislation in other provinces requires full and clear disclosure of all terms of the loan in the loan agreement. Generally, lenders are also prohibited from extending further credit until the borrower has fully paid off all previous loans.

To participate in the consultation, members of the public and interested parties are asked to submit written comments by Dec. 31.

The consultation paper is available on the P.E.I. government website at www.gov.pe.ca/consumerservices. Copies can also be requested from the Consumer, Corporate and Insurance Services Division of the Office of the Attorney General at the Shaw Building (4th Floor), 95 Rochford St, PO Box 2000, Charlottetown, PE, C1A 7N8 or by telephone at (902) 368-4580 or 1-800-658-1799.