The Government of Alberta is attacking payday loan companies and their so-called “predatory” practices.
New legislation means Alberta will go from one of the highest interest rates in the country to the lowest.
Currently, payday loan companies in the province can charge $ 23 for every $ 100 loan.
The proposed law to end predatory lending will reduce that fee to $ 15 and customers will have at least 42 days to repay the money before interest begins to accrue.
Service Alberta Minister Stephanie McLean says the law will help low-income Albertans the most.
“Currently, lenders are able to charge very high interest rates to Albertans who are least able to afford it,” McLean told the legislature on Thursday.
“This bill will reduce the high cost of borrowing for payday loans and help ensure that all Albertans have access to other short-term financial assistance and credit options.”
Experts say payday loan clients are often working poor. The annual percentage rate on some of these loans can reach 600 percent.
Officials say the bill could lower that rate to a range of 88 to 130 percent.
Jeff Loomis of Momentum, a group that works with low-income Calgarians, says another proposed change that allows borrowers to repay loans in installments will make a big difference.
“One of the big challenges with payday loans is that someone would have to pay off the entire amount within two weeks, so for someone who borrows that money and has to pay back the full amount, it’s very difficult… if you have limited income, ”Loomis said.
“By switching to installment payments, people are more likely to get out of the debt trap.”
Bill Baker of Cash Money, a US-based payday loan company with 28 branches in Alberta, told CBC News the company was disappointed with the legislation, saying it was going too far.
“The most worrying thing is that this is going to limit the availability of short-term credit for the people of Alberta,” Baker said.
He said this effectively reduced revenue by around 34% and his business may have to shut down some sites.
Lisa Holmes is president of the Alberta Urban Municipalities Association.
She applauds the changes that would require companies to disclose all costs in advance and explain the financial options available to borrowers.
“Alberta’s economy is not the best right now,” said Holmes.
“We are seeing more and more people being made redundant. More and more people will have access to these types of loans and so this is an important way to be able to proactively protect them.”
The rate cut could take effect as early as the summer.