Payday lenders will get a smaller share of Nova Scotians’ checks later this year.
In a decision released Tuesday, the provincial Utilities and Review Board (UARB) lowered the maximum interest such lenders can charge from $19 on a $100 loan to $17, effective Sept. 1. As of January 1, 2024, this number will drop. again, at $15.
Currently, Nova Scotia’s maximum is the second highest in Canada, with Newfoundland and Labrador capping interest at $21 on a $100 loan. Saskatchewan and Manitoba provide $17 per $100. At $15, Nova Scotia would equal British Columbia, Alberta, Ontario, Prince Edward Island and New Brunswick.
The move to $15 per $100 will raise the annual interest rate down approximately 390% (assuming a two-week term). If that rate sounds criminal, that’s because it is, but payday lenders in Canada are exempt from the Criminal Code provision interest capped at 60% per annum.
Nova Scotia was the first province to regulate payday loans, and the UARB first held a public hearing on the loans in 2008, choosing to set interest at $31 per $100 (about 800% per year). Since then, he has periodically reviewed the regulations, each time reducing the interest. Most recently, he held a hearing in 2018 and lowered the interest to $19 per $100.
In his decisiona panel of three council members – vice-chair Roland Deveau and members Richard Melanson and Jennifer Nicholson – summarized a hearing held in March 2022, when the council heard from members of the public, consumer advocates and payday loan industry representatives.
These representatives argued that lower rates would eliminate the payday loan industry. Patty Ko, a lawyer for the Canadian Consumer Finance Association (CCFA, formerly known as the Canadian Payday Loan Association), argued that the pandemic has already had a significant effect on the industry.
“Given the significant negative impact of the COVID-19 pandemic, she advised that now was not the time to make significant changes and urged that the maximum cost of borrowing of $19 per 100 $ be maintained,” the board wrote.
Patrick Mohan, president of the Canadian Association of Independent Payday Lenders, said rates should go up.
“Mr Mohan suggested that instead of lowering or maintaining the current maximum cost of borrowing, it should be increased to allow smaller operators to offer their product,” the board wrote.
“While his presentation provided anecdotal evidence, there was no verifiable data or expert opinion evidence to support the proposition that the maximum cost should be increased. The Council rejects this proposal.
The pandemic has led to a decrease in payday loans issued and repeat customers, but the board noted there was an increase in the percentage of default.
“The data shows, for the pre-COVID period, a decline in the number of loans from 2015 to 2019 of around 8%, although the decrease in the total value of loans was only around 3%”, wrote the board. “The data further indicates that the number of different companies offering payday loans in Nova Scotia and the number of retail outlets remained stable from 2017 to 2021, despite a reduction in the maximum cost of borrowing and a pandemic.”
The board ruled there was no reason Nova Scotia lenders couldn’t make a living charging the same rates as most countries.
“The CCFA has provided no evidence, or satisfactory explanation, as to why this would not be the case,” the board wrote. “While there are undoubtedly regional differences in overall population, demographics, income and other financial criteria, the consumer profile of the product should, due to the nature of the product, be relatively similar across the country. The industry as a whole should be able to serve this demographic at relative parity with the rest of the country.
Although it did not side with industry, the council wrote that it was considering the impact of the pandemic on business.
“Without the impact of the COVID-19 pandemic, the board would have been inclined to immediately move to the maximum cost of borrowing of $15 per $100,” the board wrote. “The Board is of the view that a phased approach to reducing the maximum cost of borrowing, to a level where Nova Scotia consumers enjoy the same rate protection afforded to most other countries, is reasonable in the circumstances.”
The board also reduced the maximum interest rate on post-default arrears to 30% from 60%, and left the default penalty at $40, the highest in the nation.
The council noted that many members of the public had called on it to abolish payday loans altogether or adopt regulations similar to those in Quebec, where a 35% annual interest cap effectively ended the practice. .
The council endorsed the provincial government’s position on this issue, stating that “the elimination of the regulated payday loan industry in Nova Scotia would reduce the short-term credit options available to consumers.”
“It would also increase the presence of unscrupulous and unregulated lenders, especially unlicensed online lenders, which could lead to the unfortunate consequences of innocent borrowers accessing such unregulated loans over the internet,” the council wrote.
The board will then review payday loan rates in three years, unless “a critical issue comes to the attention of the board in the interim.”
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