The Saskatchewan government is touting its new rules for the payday loans industry, saying they will make the loans more transparent and potentially reduce costs for consumers.
The Payday Loans Act took effect on Jan. 1, said Roger Sobotkiewicz, director of the payday-loans division of the Saskatchewan Financial Services Commission. It is the first time the province has had legislation specific to the payday-loan industry.
“It’s part of a cross-Canada trend,” Sobotkiewicz said Tuesday. “Several other provinces have just put in similar legislation or are putting in similar legislation. I think the industry jumped onto the radar screen across Canada at the same time and all the provinces have sort of worked together to move legislation ahead.”
Alberta, B.C., Manitoba, Nova Scotia, and Ontario have rules in place governing the industry.
Payday loans are short-term advances that generally have to be paid back before the customer’s next paycheque and are usually accompanied by high interest rates and service fees. Some regulations previously applied to them under the Trust and Loans Corporation Act, but the new legislation is more direct and comprehensive.
One of the first changes borrowers are likely to notice is that lenders are now required to display “very large signs,” visible upon entering the premises, which list all of the fees for payday loans. That is to “allow borrowers to shop around,” Sobotkiewicz said.
Also noteworthy is a new cap on loan fees. They must not amount to more than 23 per cent of the principal borrowed; that is, $23 on every $100, Sobotkiewicz said. Under the old system, depending on which fees were taken into account, some lenders “definitely would have been over” the 23 per cent cap that is now in place, he said.
The new laws also set out that lenders and borrowers must enter into a written agreement, which must include certain items. For example, written disclosure, prominently indicating the loan is a high-cost one, must be provided prior to agreements being finalized, Sobotkiewicz said.
The lenders also have to provide notice of the right for a borrower to cancel the loan within one business day of entering into it, only repaying the principal amount in the process. Also significant among the new rules are restrictions on how many times lenders can try to make a pre-authorized debit, and prohibitions on rollover loans and concurrent loans.
Operating a payday-loans business might become more costly. Under new licensing rules, lenders must pay an annual fee of $2,000 for each location they operate; previously, a licensing fee did not need to be paid for each individual business site, such as in the case of a chain of lenders.
The government’s intention to make the changes was announced last summer. Since then, it had been waiting for a federal government exemption from a Criminal Code provision about interest rates, which was necessary for the province to regulate the industry and set caps.
What is perhaps most important for borrowers to know is that they should do their research on the numerous changes and become informed of their rights prior to obtaining a loan, Sobotkiewicz said, noting there are enforcement actions the government can take if the laws aren’t followed.
“What we encourage is for borrowers to go to our website, sfsc.gov.sk.ca, because we have information about things borrowers should consider before entering into payday loans,” he said. “If they feel their rights weren’t respected, by all means contact us. We would like to know about it.”