New regulations limiting payday loan charges and interest rates on high-interest loans came into effect in Canada on January 1, 2025. While aimed at protecting vulnerable borrowers, the changes have sparked debate with the payday loan industry arguing it excludes those who rely on these high-interest options.
New changes to high interest and payday loans in Canada came into effect on January 1, 2025, in a move to crack down on 'predatory lending' practices. The regulations, first introduced by the federal government in 2023 as an update to the 'Criminal Interest Rate Regulations,' were implemented after concerns that predatory lenders were taking advantage of vulnerable people in lower-income communities.
The federal government announced two major changes: setting limits on payday loan charges and capping interest rates that can be charged on loans. These changes aim to help borrowers, but according to the payday loan industry, they mean some customers may no longer qualify for high-interest loans. According to Doug Hoyes of Hoyes, Michalos and Associates, a licensed insolvency trustee, the new federal cap on payday loan fees is set to $14 per $100 borrowed. While this helps some consumers, Hoyes says that payday loans are still a very expensive way to borrow money. 'You're paying $14 and you pay it back in two weeks. That means if you get a loan every two weeks for a year, that's 364 percent interest you're paying,' said Hoyes. The criminal rate of interest that could be charged before January 1 was 47.9 percent. Now, it's capped at 35 percent interest. So, if you have poor credit, the most you can be charged for a loan is 35 percent interest. 'For customers who can be approved, it can be helpful, but the challenge is it disenfranchises most needy segments of the population so they can no longer lend to these people,' Peter Kalen, CEO of Money Mart told CTV News Toronto. Money Mart has 365 locations across Canada and offers payday loans and unsecured personal loans. The company says it's already turning some customers away who are unable to qualify under the new regulations. 'Whereas someone would have got a $5,000 or $10,000 loan before, now they are getting declined outright and they are getting pushed to illegal lenders,' said Kalen. Credit counseling services agree that some clients who may not qualify for a high-interest loan will turn to more expensive options to borrow money. 'That consumer is now forced to go to a payday loan company or a pawn shop or somewhere in the black market,' said Bruce Sellery, CEO of Credit Canada Debt Solutions. Advocates in favor of the changes say the cap on rates could help some borrowers who have been trapped in a cycle of debt. If they can improve their credit rating, they may qualify for lower interest loans and save money. It's also a reminder for everyone to always try and pay your bills on time to keep your credit rating in good standing. Once you have a low credit score, it can be more difficult to be approved for a car loan, mortgage or credit card
PAYDAY LOANS INTEREST RATES PREDATORY LENDING CANADA FINANCIAL REGULATION CONSUMER PROTECTION
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