The B.C. government is cracking down on predatory payday lenders, banning businesses from garnishing a borrower’s wages and limiting the fees that can be charged on high-cost loans.
Public Safety Minister Mike Farnworth said changes to the Business Practices and Consumer Protection Act introduced Tuesday aim to better protect people who, in relying on a high-cost loan, can find themselves in an endless cycle of debt, plunging them further into poverty.
If approved, the new rules would set limits on the total cost of borrowing, prohibit certain fees and charges and ban “wage assignment,” in which the lender can take money directly from your paycheque to recoup unpaid loans. High-cost lenders would also be prohibited from imposing penalties for paying back the loan early and from selling insurance alongside loan products.
The NDP government promised to target payday lenders in its throne speech as part of a wider suite of consumer-protection measures.
The proposed changes piggyback on stricter rules for payday lenders introduced by the government in September 2018, which lowered the maximum fee a company can charge for a $100 loan to $15 from $17.
That followed rule changes the year before that brought the maximum fee for a $100 loan to $17 from $23. The new rules also give borrowers more time to cancel a loan without penalty, extending that period to full business days.
The government wants to create a broader licensing and regulatory system for high-cost lenders.
Farnworth said payday lenders that provide loans of $1,500 or less are already regulated by Consumer Protection B.C., but many lenders have introduced high-cost installment loans — paid back over time on a set schedule — in a bid to get around the rules. “We are starting to see payday loan companies developing new and different products that fall outside the regulations,” Farnworth said. “We recognize there’s a place for the industry and we want to make sure it’s well regulated.”
Tayt Winnitoy, executive vice-president of Consumer Protection B.C., said the agency has been regulating the payday-loan industry for 10 years and returned $1 million to the public in unfair fees. British Columbians are taking out an average of $400 million a year in payday loans, Winnitoy said.
The government will also create a consumer-education fund to inform people about high-cost loan products.
Scott Hannah, CEO of Credit Counselling Society of B.C., said many people do not understand the true implications of taking out a high-cost loan until they realize how long it takes to pay back.
“Unfortunately, we’ve become a debtor nation,” said Hannah said, adding the proposed changes could prevent borrowers from being preyed upon.