Payday loan outfits are the convenience stores of the banking industry.
If you need something quick and the grocery store is too far away or closed, you pay a little more for the convenience factor: the store is open, it’s close and you can get what you want right away.
That’s what payday loans provide. It’s a quick source of cash if you’re a bit light in the wallet for something you need right away, and you don’t have to go through a long approval process for something you might not qualify for anyway.
But these outlets don’t just charge a little more. The small size of the loans conceal this fact, but the cost of this service is much more than the extra 50 cents you pay for a bag of chips at Needs.
Payday loan operators in Nova Scotia charge $22 over two weeks for every $100 borrowed. If you calculate that over a year, that’s an interest rate of over 500 per cent. Consider that the next time you gripe about credit card rates.
That rate is among the highest in Canada, something that the province’s Utility and Review Board is looking at in reviewing the rules surrounding the industry.
Nova Scotia and B.C. are the only provinces that require these operations to report yearly statistics to the province as a condition of their licence.
Earlier this month, hearings on the industry were held and the board heard from Michael Gardner, a consultant who prepared a 22-page report comparing practices in Nova Scotia report for consumer advocate David Roberts.
Gardner said there’s a good case for lowering the fees for these loans. Lower fees appear to sustain the industry in several other provinces. He also recommends lowering the interest rate penalty for defaulting on these loans.
Gardner’s recommendations make perfect sense. Final reports are expected to be filed to the board by mid-October.
The NDP waded into the debate this week, introducing a bill that would allow credit unions to offer a similar service at lower fees.
Like most opposition bills, it’s likely doomed, but at least it’s proposing alternatives.
NDP MLA Susan Leblanc told The Chronicle Herald’s Francis Campbell that the bill contemplates offering “much lower interest micro-credit loans which would be offered through the credit union system.”
Since the province regulates both credit unions and payday loans, it could consider this option, at least as a pilot project. If a little competition for these loans entered the marketplace, payday loan operators might have to drop their rates, even if the province doesn’t force them to.
NOTE: This editorial has been changed to reflect attribute payday loan recommendations to Michael Gardner.
