The legislation that took effect in August 2016 makes the interest rates of payday loans in Alberta the lowest in the country. Under the Act to End Predatory Lending, payday loan companies in Alberta charge a maximum of $15 per $100 borrowed. Before the act came into effect, most companies were able to lend $100 with a $23 charge. According to Alberta’s new law, no lender is allowed to offer a loan when another is already outstanding. Most financial institutions were encouraged to offer short-term loans as an alternative to payday loans. With fair rules protecting consumers, the new law has put an end to 600 percent predatory interest rates and callous debt cycle.
Other Laws of Interest
- Loans must now have a term between 42 – 62 days
- Loans must be split up across at least 3 pay periods, or 2 if the borrower is paid monthly
- Increased default rates
The Role of Momentum in the Alberta Payday Changes
Momentum played an important role in the Alberta payday changes. From their perspective, for low earners in Alberta, payday loans are a financial trap. As a result of this menace, a new program was conceived by Momentum to theoretically benefit disadvantaged people who have become ensnared in a debt cycle. The idea they conceived has substantially affected how Albertans access payday loans, but whether it has been a net benefit is unclear. Interest rates have decreased, but so has access to credit for the underbanked.
Cash Store Fined and Delicensed for Breaking the Rules
Cash Store, a defunct payday lender was fined and delicensed as a result of disclosure violations and failing to file proper financial statements. Its business operated differently from what is described in its disclosure. However, in its 2011 and 2012 interim financial statements, it failed to disclose obligations it owed to certain lenders. False statements were made by saying that certain loans cannot be ascertained. The Alberta Securities Commission also accused Cash Store of not disclosing the right value for loans it purchased from these lenders in the interim financial report of 2012. They were delisted from the TSX and NYSE and subsequently closed after a major stock plummet.
Rates need to be updated. Currently $15 per $100 effective August 2016.