Canada targets payday lenders as debt levels soar in oil regions
By Matt Scuffham
TORONTO (Reuters) - Canadian authorities are stepping up scrutiny of payday lenders over fears they are preying on vulnerable customers at a time of record household debt and rising unemployment in oil-producing regions.
Payday lenders have surged in popularity in Canada with more than 1,400 stores now open, according to the Canadian Payday Lending Association (CPLA). It said around 2 million Canadians a year take out loans meant to tide them over until their next paycheck.
The industry had only a handful of stores when it emerged in the mid-1990s, according to the Canadian government.
Payday lenders have grown in popularity because they offer quick access to cash without the extensive checks that banks make and are prepared to lend to borrowers with damaged credit records who may have struggled to pay back loans in the past.
Such access to money, however, comes at a cost. Consumer groups say the interest rates charged by payday lenders- typically as high as 600 percent on an annualized basis - can leave borrowers trapped in crippling cycles of debt.
Those concerns have led Canada's financial consumer watchdog to launch an investigation into the industry, while several provinces are reviewing regulations.
Their action mirrors clamp downs in other countries. Britain introduced new rules two years ago which capped the interest payday lenders could charge. And U.S. authorities are looking to stamp out abusive practices by lenders.
"From my perspective it's always been a concern," said Brigitte Goulard, deputy commissioner of the Financial Consumer Agency of Canada, which will publish the findings from its investigation on payday lending this year and is working with provinces to understand the industry's impact on consumers. Continued...