One criticism often aimed at pay day lenders is that they operate without regulation and target the uneducated and uninformed. However, both of these statements appear to be myths in Canada.
Canada seems to be a model country when it comes to pay day lending – It has a number of regulations for the control of such loans and many responsible lenders encourage regulation. One such body which brings these lenders together is the Canadian Payday Loan Association (CPLA). The CPLA represents 764 retail financial services outlets providing payday loans and/or cheque cashing services to customers in Canada. The CPLA boasts it is a leader in best business practices and consumer protection. The CPLA works to ensure payday loan companies hold themselves to a higher standard of responsible service and to help customers make informed financial decisions. It seems to have real “teeth”.
Regulation is to be welcomed in an industry which is fast growing. The CPLA report that more than 2 million Canadians have used payday loans to cover small-sum, short-term emergency and unexpected expenses. The average payday loan is approximately is $300 for 10 days.
So how much can you expect such an average loan to cost? Thanks to responsible lenders and regulations which are in place the amount you can be charged is limited in most provinces. The maximum charge does vary from province to province though. Wonga.CA is a relatively new lender in the Canadian pay day loan market. However, it has an established reputation in the UK having made more than 7 million loans since 2007. For the average Canadian loan ($300 for 10 days) Wonga’s website informs you it will charge $24 in interest and fees.
So do Canadians understand the ins and outs of pay day loans? Canada has a wealth of money management financial resources. The CPLA provides links to many, many websites which educate Canadians about budgeting, borrowing and getting help with debt. Interestingly CPLA report that a recent survey by Pollara (PDF) shows that people who borrow using payday loans are educated Canadians. It reports that borrowers are fully aware of the “dollars and cents” cost of obtaining a loan. However, they appreciate the convenience and flexibility of the product.
In a number of countries pay day loans are being attacked. However, Canada appears to be treating the industry sensibly. No bank seems to be willing (either now or in the immediate future) to lend for a few days (at least not without a mountain of paperwork and fees). People sometimes need money in a hurry or for emergencies. Where will these people go if they do not have access to a pay day loan lender? Some people may have no alternative and others may simply chose a pay day loan over other possibilities. The answer for consumer protection is not to ban such loans but to ensure that regulations are tight enough to protect the borrowers (but wide enough to ensure the industry is not killed off) and to make available to every Canadian the proper resources so that they can effectively manage their own money and debt.