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Motion Other Than Government Motion 511

November 3, 2008 - Payday Loan Interest

511. Ms Blakeman moved: Be it resolved that the Legislative Assembly urge the government to introduce legislation to establish a ceiling for the daily accrual of interest on payday loans.

Ms Blakeman: Thank you very much, Mr. Speaker. I’m pretty sure this is the only motion I’ve ever had actually get before the House in all of my 12 years, so persistence pays off in actually getting it here.

I’d like to talk about a couple of things as I try and encourage my colleagues to support this motion. I am aware that the government has been moving in the same direction, so that tells me that this is an idea whose time has come. It’s also a shared recognition on both sides of the House that there is a role for government in consumer protection, and that role comes when we see an opportunity where citizens are being taken advantage of, and that disadvantage starts to roll through the rest of our society and affect a fair number of people.

We have a situation where there have been some very clever entrepreneurs, and good for them for identifying a need. They’ve opened what are called payday loan companies or cash stores or some variation on that theme. Essentially, they will offer short-term loans, usually based on your paycheque. You write a postdated cheque for them that’s due on the date that you’d receive your next paycheque, and you get some sort of small amount of money, or we hope it’s a small amount of money.

These entrepreneurial ventures have up to now been entirely unregulated because, of course, they’re not banks. They’re not credit unions. They do not accept deposits. They just give out the loans. So they haven’t been regulated up until now. The government recently made amendments to the Criminal Code which allowed provincial governments to bring in regulations that would affect these payday loan companies, and that’s the situation we’re in.

We’ve already seen Manitoba bring forward a model that I recommend to the House, but I’m not saying: adopt those exact numbers. What we have in Manitoba is that on the cost of their payday loans the maximum interest that can be charged is 17 per cent for loans up to $500, 15 per cent for loans of between $500 and a thousand, and 6 per cent for loans between a thousand and $1,500.

I think we would want to work out what works best for Alberta because we have a different economy here. It’s driven by different things. We have a different per capita wealth ratio here. I think we should figure out for ourselves what that’s going to be both through consultation with the community – the sector, the industry – and also with the client base and with consumer advocate groups. I’m sure we can do that.

The other thing that Manitoba did that I’d also recommend to the Assembly is to look at the idea of putting a ceiling or a limit on loans that are granted to people that are on employment insurance or social assistance of some kind, on social benefit of some kind. Again, if those folks are looking for a short-term loan and they’re getting some sort of assistance from the taxpayer already through the government, we really don’t want to see them get into a cycle where we’re having to use taxpayer money to in effect assist them further because that’s highly unlikely, and then we’ve really got people in need. What they’ve done in Manitoba is said: 6 per cent maximum on these loans up to $1,500 for anyone. Of course, then they have to prove and give bona fides to prove that they’re on EI or social assistance in some way.

I think what really brought this home to me was looking at a paper put out by the Financial Consumer Agency of Canada, which is a federal agency, in which they gave a little chart of how much it would cost to borrow $300 on a 14-day loan period. Using a regular line of credit, that would usually cost someone $1.15. Using an overdraft on a bank account, it would be $2.42. Remember that this is on a $300 loan for 14 days. If you got a cash advance on your credit card, then that’s probably going to cost you about $4.13 for that same $300, but a loan from a payday loan company would probably cost you $50 for that same $300. So that’s a range of charges and interest between $1.15 and $50.

Mr. Speaker, I love my small businesses in Edmonton-Centre. I want to see them do well, no question about it. But as a legislator I also have to look out for the citizens. I think this is an instance where there’s an opportunity for small businesspeople, for payday loan companies in that sector, to make a good profit and for us as legislators to still protect Albertans from any kind of usury costs. It’s not that the payday loan companies are in fact charging interest rates that are extraordinarily high, but what they are allowed to do is charge for things like brokerage fees, administration, all kinds of other fees that get lumped into this. If you default on your loan, then you also end up paying an NSF charge from your bank, and then the payday loan company charges you an NSF administration fee, and all of those fees get figured in. We have people where it’s not unusual to see these percentages all added together amount to between 300 and 600 per cent the value of the original loan, and that’s where there’s a problem. I think it’s more than fair for small businesses to make a good living at this, but I think we have to balance it with some kind of consumer protection.

Now, I know that the government has moved along approximately at the same rate as I did because this idea was originally submitted in September of ’07. I know there have been consultations with the sector, and I think there has been some consultation with consumer advocacy groups, but I’m also aware that it takes quite a long time for government to work the regulations out and get the legislation proclaimed. So if I can encourage the government and members of the Assembly to support this motion and also to do anything they can to move the process along that they are involved with and to get legislation in place and get this proclaimed as quickly as possible.

I’m a little concerned, as I look at a lot of the economic indicators that are available today, that we may be experiencing – and there are all kinds of words for it – touching the brakes, slowing down, a pause. There are all kinds of euphemisms, but I have a concern that we could end up with a group of people who may end up using more of these payday loans, and I’d like to see legislation in place sooner rather than later.

Mr. Speaker, the people that this really affects the most according to StatsCan – and that’s where I’m going to go as my sort of expert witness in this – the people who are most likely to benefit from legislation like this are young, small, middle-to low-income families.

Those are the ones that tend to get a little loan to tide them over, perhaps to pay off a bit of a credit card debt, and they default on the loan. Now they are in the spiral, and it makes a huge difference to their lives. These are the people that are the security in our communities. We want them to stay. We want them to do well. We want them to buy a house. We want them to, you know, enrol their kids in the local community, recreation, and artistic programs. We don’t want them out there working four jobs trying to pay off a loan and not being involved in their community and having a bad credit rating and not being able to qualify for a mortgage. That’s not doing any of us any good.

I really urge my colleagues to take advantage of my Motion 511, to please support it, and to give support to the government to move through their legislative process and get legislation in front of us and proclaimed and the regs in place as soon as possible.

I think there is a role in government for consumer protection. Here is an opportunity for us to see that role and to follow through on it and to offer some protection to a lot of Albertans but also enable a group of businesspeople to continue to operate, albeit with some regulations but, I think, with regulations that are quite fair to put in front of them. I’ve talked about Manitoba as an example, but I think the need is for Alberta to develop our own. This is a mostly unregulated sector, and here is our opportunity to do it the way we’d like to see it done in Alberta.

Once again, I urge all of my colleagues to support Motion 511. Thank you very much, Mr. Speaker.

[…]

Ms Blakeman: Thank you very much, Mr. Speaker. Well, this has been a very interesting night in this Assembly. As I said when I started, clearly, this is an idea whose time is come. When you’re getting agreement and essentially the same concerns and hopes and vision being expressed by all three sides of the House, then I would say that this is definitely an idea that we need to pursue and support in the Assembly.

I thank everyone who has spoken on the various issues that have been raised. I’m really delighted to hear from the minister that she is continuing to pursue legislation on this. I thank her for that and encourage her to move quickly as much as possible. Just in response to the last speaker, I want to be clear that I think there is a role for payday loan companies and small, you know, cash loan companies. They do clearly serve a purpose. Some of the people representing rural areas have spoken about that. They serve a purpose in the cities as well. I have no interest in shutting them down or making them unprofitable. Downtown is served by a lot of small businesspeople, and I’m delighted to have them and their contribution to our city and to our province. But we also need to be able to make it possible for everyone to thrive here, and that was what was behind the intention of my motion.

Thank you very much to everyone that spoke tonight. I hope I can encourage all of you to vote in support of Motion 511.

[Motion Other than Government Motion 511 carried]