Manitoba’s Public Utilities Board (PUB) this week issued a report containing a series of recommendations to the Government of Manitoba on Manitoba’s payday loan regulations and the payday loan industry.
The report is the result of a public review and consultation process undertaken pursuant to the authority given the Board under s. 164 of The Consumer Protection Act and The Public Utilities Board Act.
Payday loans are extremely costly to borrowers. According to the accompanying news release:
A $17 fee on a two-week, $100 loan is equivalent to paying 442% annually as the cost of borrowing.
This seems particularly outrageous given that many of these borrowers are, according to the report:
…likely to have lower incomes, lower education and disproportionate responsibility for children. They are younger and likely less financially literate than non-users. Finally, frequent payday loan users tend to have lower family incomes than less frequent users.
…[T]he common denominator of the majority of payday loan customers is their financial vulnerability. They have insufficient savings, insufficient cash flow and, more than likely, exhausted regular low cost consumer credit options (assuming they qualify for consumer credit options through main line institutions). They have, to cite MPL’s representative, “credit scars”. Therefore, they go to payday lenders to get cash.
The Board’s mandate was to examine and report on:
(a) The meaning of “cost of credit” for the purposes of the relevant part of the statute;
(b) the maximum cost of credit – or any rate, tariff or formula for determining the maximum cost of credit – that may be charged, required or accepted in respect of a payday loan; and
(c) the maximum amounts, or the rates, tariffs or formulas for determining the maximum amounts, that may be charged, required or accepted:
(i) in respect of any component of the cost of credit for a payday loan;
(ii) in respect of the extension or renewal of a payday loan;
(iii) in respect of a replacement loan, or
(iv) in respect of a default by the borrower under a payday loan.
Upon completing their review and considering the submissions and information received, the recommendations of the PUB were that:
- The definition of cost of credit remains as formulated. The single rate should continue to include all of the component costs for a payday loan.
- The total cost of credit for a payday loan remain at 17% of the principal amount of a payday loan.
- The limit on the rate for replacement, extension or renewal loans remain at 5% of the principal amount of the payday loan.
- The limit on the rate at 5% remain for loans provided within seven days to the same borrower.
- The limit on borrowing remain at 30% of net pay based on the definition in the existing regulation.
- Upon default the current interest rate remain at 2.5% per month, non-compounding.
- The full expense of a dishonoured cheque or debit transaction incurred by a lender be recoverable, subject to proof of the actual cost incurred and disclosure by the lender to the borrower.
- The licensing fee and the financial education levy remain in place and at the rates currently set. Education funds should be used for direct consumer education. A targeted approach to distinguish between licensed and unlicensed lenders is required now.
- The Minister investigate and consider what action can be taken regarding the regulation of payday loan-like products.
- Further research be completed respecting unlicensed internet payday lending in Manitoba and that the Manitoba Government work with other governments to consider what may be done to control unlicensed offerings, or to reduce the risks to Manitoba consumers from these unregulated businesses. Licensing requirements should include proof that the lender has a registered office in Manitoba.
- A cumulative borrowing disclosure notice, to appear on every new payday loan transaction statement between a lender and a borrower and disclosing the cumulative loan amount and the cumulative actual dollar cost for all loans for that borrower within a calendar year, be adopted by regulation.
- The Consumer Protection Office require lenders to provide statistics annually including: total number of loans issued, total number of borrowers, number of loans per borrower, number of full time and part time employees including owner and managers. The Manitoba Government should also consider the statistical reporting requirements in other Canadian jurisdictions to determine the most useful data that is both available for confidential filing by lenders for aggregation and public disclosure and that will serve the interests of regulators including any future review by The Board or government.
These recommendations are mostly consistent with the position taken by the intervenor Consumers’ Coalition, made up of Winnipeg Harvest, Community Financial Counselling Services and Consumers’ Association of Canada (Manitoba Branch), although the Consumers Coalition was unsuccessful in seeking a reduction in the total cost of credit from 17% to 15%.