Earlier this month, the government of Manitoba announced new consumer protection rules that aim to protect citizens from costly payday loans. The latest round of regulations came into effect this month, and lenders were provided with 48 hours to revise their products.
The Justice Ministry decided to rein in the short-term, high-interest loan industry after numerous complaints of confusing terms, a growing number of people entering into endless cycles of debt and plenty of concerns from municipalities.
Under the new rules, businesses that provide consumers with high-cost credit products will be required to be licensed under the province’s Consumer Protection Office. Payday loan stores like Landmark Cash will also be mandated to provide potential borrowers with a detailed information disclosure document that outlines all of the costs, fees and other charges related to the financial product. Also, payday loan companies must display clear signage that explain related cost and fees.
One of the biggest changes that will affect the entire industry is the rule that allows borrowers to cancel and repay their loans within 48 hours without any penalties.
“High-cost credit products, or ‘payday loan-like’ products, can be confusing for some consumers and lead people into a cycle of borrowing that’s hard to get out of,” said Justice Minister Heather Stefanson, in a statement. “This new legislation ensures there is transparency in the process and helps consumers make more informed decisions.”
The legislation further entails that payday loan firms will support the Manitoba Borrowers’ Financial Literacy Fund. They will put money into this program through their licensing fees. The initiative is aimed at educating borrowers and potential borrowers about payday loans and the industry overall.
The New Democratic Party (NDP) government was the first to introduce such legislation in 2013. Ron Lemieux, the minister who was in charge of consumer protection at the time, wanted to amend the Consumer Protection Act and assist consumers in getting credit and avoiding payday loans.
Many jurisdictions across Canada are either proposing or implementing new payday loan regulations. The province of British Columbia recently changed the maximum allowable charge on payday loans from $23 to $17, which makes it the second-lowest in Canada. Meanwhile, the Alberta government also altered the maximum allowable charge to $15, which is now the lowest amount in the Great White North.
This initiative to restrict payday loans is also taking place south of the border.
At all three levels of government, public officials and consumer advocacy groups have been pushing hard to either limit or even prohibit the payday loan industry from operating. The Consumer Financial Protection Bureau (CFPB) released a proposal this past summer that would install a regulatory framework at the federal level for the very first time in the nation’s history.
Proponents of payday loans say it offers impoverished consumers access to credit, especially when financial institutions turn down these same customers for conventional credit products. Opponents say that payday loans do more harm than good because it sends the most vulnerable into endless cycles of debt in which they are unable to pay back.