Consumer groups rejoice. Canada recently enacted some of the toughest payday legislation of any country where such loans are offered. While the payday lending industry in Canada is less than thrilled, those who have worked to protect consumers from the practices of payday lenders are surely very happy with the new laws that took effect in November of 2009.

Below is a description of some key points of the new rules, called the Payday Loans Regulations, as well as how each point can help to protect consumers.

Limit on Interest

While some locations charge interest rates as high as 1300% on payday loans, Canada has put a strict cap of 23% on the loans in their country. While some other places have similar rules, they often exclude the fees. This exclusion allows lenders to tack on hundreds of dollars of fees, making the effective interest being charged well over the stated allowed maximum.

This is not the case in Canada. Canada’s 23% maximum includes all fees. This came on the heels of a case in which a Canadian court ruled against a payday lender whose fees, said the court, needed to be included when figuring out the interest rate.

A consumer is now able to get a payday loan with an actual interest rate of only 23%, making it a decent choice when trying to meet short term financial emergencies.

Limit on the Number of Loans

Another way that many Canadian payday loan borrowers got into trouble was by taking out several payday loans at one time. While each lender was verifying income information, because borrowers were using more than one lender, they often wound up owing more than they made.

This, of course, made it impossible for the borrower to be able to pay back the loans and resulted in a never ending cycle of borrowing and rolling over their payday loans.

With the new legislation, borrowers may have only one payday loan at a time.

Limit on the Amount Lent

Another key point of the Payday Loans Regulations is that lenders are only allowed to lend 50% of the borrower’s take home pay. This is tight, even among other countries that place a limit on the amount that can be lent.

In the past, lenders would allow up to 80% of a borrowers take home pay to be borrowed. There was no regulation by Canada, so each lender could set limits. For many borrowers, this meant that when payday came around, they were handing over their entire check to the payday lending business.

Limit to Direct Bank Account Access

Another important part of the Payday Loans Regulations is that payday lenders are now very limited on having direct access to a borrowers bank accounts. In the past, a borrower would often have to sign something giving permission for the lender to debit their account. In many situations, this resulted in further financial hardship for the borrower.

Now, lenders are not allowed to demand such full access as part of the loan process providing additional protection for the borrowers.

Loan Cancellation Option

The option to cancel the loan allows borrowers to change their mind about the loan within 24 hours. If they return the money within that time, they do not have to pay any fees or interest.

Limit Access to Employers

In the past, if a borrower was late paying back a payday loan, some lenders would directly contact the borrower’s employer. In some cases, they would call every day until the loan was paid back, resulting in an uncomfortable situation at the borrower’s place of employment.

Under the Payday Loans Regulations, lenders are not allowed to directly contact the employer except as a measure of last resort.

These new regulations were designed with the protection of the consumer in mind. Many think that the industry should not be so tightly regulated and that is should be up to borrowers to read the fine print and to only take out loans that they can afford to pay back.

Of course, the payday lending industry would agree with those sentiments, but Canada lawmakers have decided to place the protection of consumers at a higher place that the profits of the Canada payday lending industry.

Related Links:

• Arizona Bill May Decide Fate of Payday Lending in the State
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• The Downfall of the Payday Loan in Colorado says PaydayRate