Payday lenders will receive a smaller portion of checks from Nova Scotians later this year.
In a decision released Tuesday, the province’s Utility and Review Board (UARB) lowered the maximum interest these lenders can charge from $19 on a $100 loan to $17 starting September 1 . From January 1, 2024, this number will drop back to $15.
Currently, Nova Scotia’s maximum is the second highest in Canada, with Newfoundland and Labrador capping interest at $21 on a $100 loan. Saskatchewan and Manitoba allow $17 per $100. At $15, Nova Scotia would rival British Columbia, Alberta, Ontario, Prince Edward Island and New Brunswick.
The change to $15 per $100 brings the annual interest rate Low to approx. 390% (with a two-week term). If that phrase sounds criminal, that’s because it is, but payday lenders in Canada are exempt from the Criminal Code provision that caps interest at 60% annually.
Nova Scotia was the first province to regulate payday loans, and the UARB first held a public hearing on the loans in 2008 and opted to set the interest rate at $31 per $100 (about 800% annually). Since then, the regulations have been regularly revised and interest rates have been reduced each time. Most recently, she held a hearing in 2018 and lowered interest rates to currently $19 per $100.
In its decision, a three-person panel of the board — vice chairman Roland Deveau and members Richard Melanson and Jennifer Nicholson — summed up a hearing that took place in March 2022 when the board heard from members of the public, consumer advocates and payday loan industry representatives.
These proponents argued lower interest rates would wipe out the payday loan business. Canadian Consumer Finance Association (CCFA, formerly known as the Canadian Payday Loan Association) attorney Patty Ko argued that the pandemic was already having a significant impact on the industry.
“Given the significant negative impact of the COVID-19 pandemic, she cautioned that it was not the time to make any significant changes and urged that the maximum borrowing cost of $19 per $100 be maintained,” the board wrote .
Patrick Mohan, president of the Independent Payday Loan Association of Canada, argued that rates should rise.
“Mr. Mohan suggested that instead of lowering or maintaining the current maximum borrowing costs, they should be increased to allow smaller operators to offer their product,” the board wrote.
“While his presentation provided anecdotal evidence, there was no verifiable data or expert opinion to support the suggestion that the cap should be increased. The board rejects this proposal.”
The pandemic has led to a decline in payday loan origination and repeat customers, but the board noted that the default percentage has increased.
“The data shows a decline of about 8% in the number of loans from 2015 to 2019 for the pre-COVID period, although the decrease in the total value of loans was only about 3%,” the board wrote. “The data also shows that the number of diverse businesses offering payday loans in Nova Scotia and the number of retail stores have remained stable from 2017 to 2021, despite a reduction in maximum borrowing costs and a pandemic.”
The board decided that there was no reason why lenders in Nova Scotia couldn’t make a living at the same interest rates as the rest of the country.
“The CCFA has not provided any evidence or satisfactory explanation as to why this would not be the case,” the board wrote. “While there are undoubtedly regional differences in overall population, demographics, income and other financial measures, given the nature of the product, the profile of the product’s consumers should be relatively similar across the country. The industry as a whole should be able to serve this demographic on a relatively equal footing with the rest of the country.”
Although it did not side with the industry, the board wrote that it had taken into account the pandemic-related impact on the business.
“Except for the impact of the COVID-19 pandemic, the board would have been inclined to move immediately to the maximum borrowing cost of $15 per $100,” the board wrote. “The Board believes that a phased approach to lowering the maximum cost of borrowing is appropriate to reach a level where consumers in Nova Scotia receive the same interest protection as is available in most of the rest of the country under the circumstances.” “
The Board also lowered the maximum default interest rate from 60% to 30% and left the default penalty at $40, the highest in the country.
The board noted that many members of the public were asking for payday loans to be abolished altogether or for similar regulations to be adopted as in Quebec, where a 35% cap on annual interest has effectively ended the practice.
The board accepted the provincial government’s position on the issue, arguing, “The elimination of the regulated payday loan industry in Nova Scotia would reduce the short-term borrowing options available to consumers.
“It would also increase the presence of unscrupulous and unregulated lenders, particularly unlicensed online lenders, potentially leading to the unfortunate consequences of innocent borrowers accessing such unregulated loans via the internet,” the board wrote.
The board will next review payday loan rates in three years unless “a critical issue is brought to the attention of the board in the meantime.”
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