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.
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In every country in which a form of payday loans are available, there is controversy surrounding the loans. The UK is no exception. As more and more Britons turn to this type of loan, more detractors express their concern about what that means and to the practices behind the lending.
The Loans
When mortgages were being handed out in the United States without anyone verifying income or other qualifying information, watchdogs cried foul. Today, it is known that such practices, also called predatory lending, helped usher in one of the worst financial crises in recent history. Payday lending in the UK, say detractors, is based on the same principles and leads to similar problems.
Because qualifying for a payday loan involves nothing more than verifying employment and that an active checking account exists, even those with very poor credit can qualify. That means that those borrowers who would be turned down by other lenders can still get a payday loan.
Of course, because there are no credit checks, the risk for non-payment is greater than with traditional loans. That risk is clearly reflected in the amount of interest that is charged. Those who use payday loans in the UK will pay up to 1000% APR, and in some cases, even more.
Repayment is usually made in one lump sum on the borrowers next payday. In some cases, the loan may be split into two payments, but this is the exception rather than the rule. Payment is typically made through automatic debits of the borrower’s account.
Once the loan is paid back, the borrower can then take out another payday loan. The amount one can borrow depends on their gross monthly income and how often they are paid each month. First time borrowers can usually qualify for a smaller amount which will increase after the first loan has been paid back.
The application takes only a few minutes to fill out and, once the borrower’s information is verified, the money is usually deposited directly into the borrower’s bank account within one business day. This makes these loans even more attractive to someone who is struggling financially.
Therein lies the problems, say some.
What it Means
The number of payday loans taken out by Britons has more than doubled in the last few years. The UK has experienced similar issues as other countries when it comes to the average consumer’s ability to obtain more traditional credit options, such as credit cards or personal loans.
The combination of difficult to obtain credit and the rising cost of living expenses make it easy to see why so many more Britons are turning to payday loans, but in most cases it will do more harm than good.
That means that already struggling borrowers now have the added burden of having to quickly pay back a loan with an extremely high interest rate. This leads to very high incidents of re-borrowing, or rolling over the loan, when it is due.
With hundreds of dollars per loan being charged, if a borrower rolls over their loan each payday that can add up to thousands of dollars – just in fees and interest – each year.
There are many who want stricter limits placed on payday lenders. Some ideas include a mandatory cap on the interest rate, a limit to the number of payday loans borrowers can use each year and a required waiting period between loans.
The hope of those advocating such regulations is that it will allow borrowers to take advantage of the payday loans without the loans causing further financial problems.
There are others who want this type of loan banned altogether. If they had their way, payday lending in the UK would become a thing of the past.
While it is quite easy to see the downsides to payday loans, there are some consumers who say the loans have helped them through a difficult month. The key, says payday lenders, is not in further regulating the industry, but in educating borrowers about responsible use of payday loans.
For now, payday lending in the UK is big business. The best way to help consumers is to follow the advice of the lenders and educate them about dangers of using these loans irresponsibly.
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March 2, 2010 – New York, New York — It is true that financial emergencies come up and we need methods to pay off these financial bumps. However, a credit card law was passed and was recently taken into effect which will inhibit banks from using unethical lending practices which make most people climb into a long cycle of debt. This law was put into effect because lenders have charged outrageous interest rates. These companies defend themselves by stating that the reason why they use their particular lending practices is because they lend to high risk borrowers, for this reason high interest rates and fees are charged.
Payday lenders are common resources for quick money as 19 million people used at least one last year. Borrowers basically take out a short term loan between $250 and $2500 which they will pay back on their next paycheck. There is a fee of about $15 to $30 of interest charged for every $100. Some states allow for the loan to roll over to the next month while in other states the payday loan is illegal. With an annualized rate, this small interest rate can reach up to 391 percent.
If you do not have a credit card or a debit card, you can use a prepaid card which can be used to make online purchases. These cards are filled with cash and are rechargeable. There are fees that are also included such as monthly maintenance fees, cash withdrawals from the ATM. Inactivity fees, balance inquiry fees and fees for bill pay.
Subprime credit cards are another line of credit that borrowers can use. These cards normally carry many fees. In the first year of use there is a 25 percent capped rate and the APRs can be set around 79.9 percent with the possibility of a raising rate. Processing fees can also be charged. Therefore, there are many types of credit possibilities for borrowers that are becoming threatened by new passing legislature.
Josh Jackson, Spokesperson for PaydayRate says, “the lending industry is going through a difficult time but borrowers may also be hitting some tough times as well if they have no other options for receiving money through payday loans. ”
About PaydayRate: PaydayRate is the leading online payday industry watchdogs. At PaydayRate, the payday watchdogs have made learning about Payday Loans fast and easy. Nobody makes it simpler, to understand the pros and cons of emergency payday lending. PaydayRate allows visitors to do their research before deciding on a payday loan. In addition, PaydayRate allows Visitors to share their experiences with companies on its educational forum.
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March 02, 2010 -New York, New York — Payday loans can be very beneficial for people who are in need of a short term loan that they can pay back by their next paycheck to save themselves from a small financial crisis. One never knows when an emergency will arise, so having a payday loan option can be very beneficial for many people. However, many people, especially in Wisconsin, have noticed how many people have fallen into a cycle of debt especially among the young and the low income families, due to taking out these short term loans.
In order to fight against the traps of lending companies, a group of legislators are finally speaking up for those who have been taken advantage of. This group is looking to eliminate auto title loans, restrict the loans to $600 and only allowing borrowers to take out one payday loan at a time. One of the amendments that did not make the cut was the interest cap rate of 36 percent which would have helped borrowers to not be taken advantage of. Many people believe that if the interest cap is included and approved, that the entire pay day lending industry would be eliminated along with the valuable option of turning to a payday loan in the case of a financial emergency.
Payday loans are normally taken out for an amount between $250 and $2500 with borrowers being allowed to take out more than one loan at a time. This encouraged a lot of roll overs and enhancing one’s cycle of debt. Large interest rates that reach into the hundreds are charged which make it nearly impossible for people to get out of debt. The payday lending industry may be under attack but it is not without reason. The decision surrounding payday lending will be difficult as these companies will be losing millions of dollars, their existence is threatened and the borrowers who are responsible may not have the option for a loan during their most difficult period.
Josh Jackson, Spokesperson for PaydayRate says, “The choice will be difficult for voting on the future of payday loans. ”
About PaydayRate: PaydayRate is the leading online payday industry watchdogs. At PaydayRate, the payday watchdogs have made learning about Payday Loans fast and easy. Nobody makes it simpler, to understand the pros and cons of emergency payday lending. PaydayRate allows visitors to do their research before deciding on a payday loan. In addition, PaydayRate allows Visitors to share their experiences with companies on its educational forum.
