Is capping payday loans a good idea?
The Associated Press reports from Toronto that an “independent advisory board” is advising that Ontario’s government should cap the cost of payday loans at $21 for every $100 loaned. If this were to become law, it would join the current consumer protections provided by the Payday Loans Act of 2008. The act was praised by officials like Minister of Government and Consumer Services Ted McMeekin as “yet another important step the government is taking to protect Ontario consumers.” Two years following passage, the limit would be up for review again.
Faxless payday loans do not “gouge”
The independent board acknowledges that faxless payday loans are designed as “small, short-term loans,” and that the cash advance industry that provides them is not earning excessive profits. It is a reputable industry that lends to Ontario customers who are employed and able to repay their debts. They simply feel that the $21 cap would be beneficial to consumers while remaining profitable for lenders.
This runs counter to the critical opinion that no fax payday loan companies “gouge” consumers with high annual percentage rate interest. It should always be mentioned, however, that payday loans are not annual loans. As they are typically repaid in their two-week period, the interest rates bandied about by critics is deceptive and self-serving.
Moreover, the AP story states that “anti-poverty groups and political parties have accused the industry of preying on transients and people who live in low-income neighborhoods.” Since the unemployed cannot take out payday loans, the first assumption is disproven, while ample evidence suggests that payday loan customers aren’t “low income” at all.
Do more research on payday loans, Ontario
Cash Advance Mojo feels that a $21 cap is reasonable for most businesses who give payday loans, but not all. Further research into how well that supports the business model of stores in the region is necessary, as discounting that can easily lead to layoffs and store closures. No city, state, province or country needs to contribute to unemployment in the current world economy.
Related articles
- Media Advisory: Canadian Payday Loan Association Available for Comment on the Government of Ontario’s Advisory Board Report on Payday Loan Rates (newswire.ca)
- `Full steam ahead,’ minister says (thestar.com)
- Payday loan company can settle class-action lawsuit (ctv.ca)
It’s good to see that Ontario is taking a step in the right direction. Obviously, the payday loans industry will create controversy by the virtue of it’s existence, but it’s a legitimate product and service with a legitimate demand for it. A $21 rate cap, though harmful to some locations, makes the market more competitive – which is good for both lender and consumers.
I’m not so sure I like the idea of too much government interference beyond perhaps “keeping lenders honest”.