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Ontario, Canada: Payday Loan Companies In Focus

It seems that it is not only in the UK and in the US that payday loan companies are catching the attention of the government.  I ran across an article over at LFPress, Ca detailing how the government is planning to place restrictions on payday loan companies.  The article says:

Ontario introduced legislation yesterday to crack down on payday loan companies to protect the province’s “economically vulnerable” and while those in the industry applauded the move they took exception to how the Liberal government categorized their clientele. The proposed law — similar to legislation passed in several provinces — seeks to limit how much payday loan companies can charge Ontario customers and enhance consumer protection by licensing all operators.

If passed, the new law would see a cap placed on the total cost of borrowing and the establishment of an inspection and enforcement regime. It would also ban controversial lending practices such as issuing concurrent and back-to-back loans.

“Those are the so-called roll-over loans where borrowers take a loan on a loan and are saddled with exorbitant interest rates and a damaging cycle of debt horror stories,” Government Services Minister Ted McMeekin said.

Though the thought of the government meddling in such affairs makes me feel a bit iffy, I do seem to have an affinity for the idea presented in the third paragraph – concurrent and back-to-back loans being limited.  Now, I think that it is a good thing to be able to take out concurrent or back-to-back loans – in very dire and special circumstances.  But we have to face the fact that there are many people out there who may not have the financial common sense or the self-discipline to stay away from borrowing practices that could lead to their eventual financial ruin.  If these practices are regulated a bit more strictly, it could very be a good thing for many of us.

I do, however, disagree with the first part of the article, which asserts that payday loan companies prey on the economically vulnerable.  As the Canadian Payday Loan Association says, the majority of their customers cannot really be classified as “poor.”

Research released by the association last November suggests most of its customers have household incomes equal to the general population of Ontario. The telephone poll of 503 payday loan customers found a majority of them were employed full-time, that half had a post-secondary education and two thirds normally borrow less than $300. I take exception with the labelling of payday loan customers as vulnerable and poor,” said Stan Keyes, the president of the association which represents eight payday loan companies in Ontario — some 269 of the 700 storefronts. The CPLA represents 23 companies across the country, or 40 per cent of all payday loan outlets.

“(Our research) demonstrates that customers are well educated, that they’re responsible borrowers, that they have other credit options, that they’re knowledgeable about the product,” he said.

As such, I think that this kind of legislation may have some good points but I fear over meddling by the government.  What do you think?