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'An end to 600 per cent interest': Lower payday loan costs now in effect in Alberta

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Timothy Afolayan was making $12 an hour when he found himself short $600 to help out his mother with her medical bills back home in Nigeria.

The father of two had $600 in savings but went to a payday lender to cover the full $1,200 he needed to send overseas.

With $850 on each paycheque and regular bills to cover, there wasn’t much wiggle room in his budget. Afolayan said he ended up stuck in a “vicious cycle,” unable to pay back the loan for 10 months.

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During that nearly year-long period, he ended up paying back $2,400 in interest.

“I couldn’t just cough out $600,” he said. “I had to either pay rent this month or buy groceries or pay some bills with the next paycheque.”

Afolayan spoke as provincial legislation regulating the payday loan industry came into effect.

At a news conference, Service Alberta Minister Stephanie McLean said Alberta now has the lowest maximum borrowing rate in the country. Fees have been lowered from $23 to $15 per $100 borrowed.

“We have put an end to 600 per cent interest rates, which are predatory payday loan interest rates,” McLean said.

“Rates that prevent Alberta families from affording their basic needs; rates that make it hard to pay the loan back; rates that require you to take out a loan to pay back the first loan.”

As of Aug. 1, payday lenders are also prohibited from charging a fee to cash a payday loan cheque, soliciting customers directly by e-mail or phone, or offering a loan when customers already have one outstanding with the company. The legislation also requires government to encourage financial institutions and community groups to offer alternative, short-term loans. 

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This month, First Calgary Financial and Chinook Financial will be the first to launch an alternative micro-loan program in Alberta, with an annual interest rate of 19 per cent and a payback period of six to 18 months.

Shelley Vandenberg, the president of First Calgary Financial, said every year, the credit union sees hundreds of its members making fund transfers to payday lenders that amount to thousands of dollars. 

Its new Cash Crunch loan program, which stems from a year-long pilot program, aims to help people facing unexpected expenses or budgeting challenges. Cash Crunch loans will be available in amounts of $500 to $1,500, with an interest rate of 19 per cent and a repayment period of up to 18 months. 

“Our ultimate goal in the development of this loan is to provide options to southern Albertans who need a short-term bridge in their finances,” she said.

Jeff Loomis, the executive director of Momentum, said his organization knows of single mothers, seniors on full benefits and new Canadians who struggle to get by with payday loan debt. 

“We fundamentally believe that those least able to afford credit should not have to pay the most to actually be able to borrow money,” he said. 

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When Afolayan found himself in need of a loan a second time, to help cover the cost of a new van for his family, he secured a short-term Cash Crunch loan through First Calgary Financial and Momentum — an experience he described as “night and day” from dealing with the payday lender. The total he paid in interest on a $1,500 loan over a year was about $68.

“Life happens — sometimes you find yourself in a tight spot,” he said. “The industry … were taking advantage of a bad situation. So things I believe will get better from here.”

Tony Irwin, the president of the Canadian Payday Loan Association, said 220,000 Albertans relied on payday loans last year.

“The demand is not going to go away,” he said in a phone interview. “The people who rely on this product are still going to need it — and if we’re not there to provide it for them, where will they go?”

Irwin said the industry is concerned that with the rate change, some payday lenders may not be able to provide the same number of loans, or provide loans the same way they had in the past. 

“Ultimately that’s going to affect borrowers who may not be able to access credit like they did before, and certainly I think government should be concerned about what happens to those people,” he said.

Afolayan recalled what it was like struggling to repay his payday loan and stay on top of his other costs. Many times, he found himself wishing he could win the lottery. He also thought about starting his own loan business, and charging just $5 for people like him, stuck in a situation where they needed short-term help.

“Sometimes I think of what I could have done with $2,400 — and that’s just the interest,” he said. 

“It was kind of emotional, but I’m in a better place now, and there are alternatives.”

ycole@postmedia.com

twitter.com/yolandecole

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