New Payday Loans Rules as of January 2018

The following article by Matthew J. Munro, CPA, CGA, CIRP, LIT, was published in the December 2017 issue of the District News. in New Brunswick, Canada.

Payday loan shops are everywhere now, including the Internet.  I have to assume that they are highly profitable businesses and that the demand is there for their services.  However, I see the proliferation of these businesses as clear evidence that the number of people experiencing financial difficulties is growing.

The payday loan industry has been substantially unregulated in New Brunswick but that changed on January 1, 2018, with the implementation of the Cost of Credit Disclosure and Payday Loans Act.  The new legislation requires all payday loan or similar businesses to be licensed in the Province.

The new legislation is focused on curbing offensive payday loan practices by:

1. Prohibiting unauthorized withdrawals from a borrower’s account;

2. Prohibiting loan due dates that are prior to the borrower’s next pay cheque;

3. Prohibiting multiple or open-ended agreements that provide access to the borrower’s bank account.

Offensive collection activity is also targeted by the new legislation by:

1. Prohibiting communication or attempted communication with any person other than the borrower for any purpose in relation to the debt, or the borrower;

2. Except with the approval of the borrower, prohibiting communication or attempted communication with the borrower or any other person at the place of employment of the borrower for any purpose in relation to the debt, or the borrower;

3. Making more than one additional attempt to obtain a repayment if a cheque or pre-authorized debit is dishonored.

Even after the new legislation comes into effect, payday loans will still be one of the most costly forms of borrowing.  After January 1, 2018, the maximum total borrowing cost will be $15 per $100 advanced and must include all fees, and interest.  The amount of the advance can also not exceed 30% of the net pay from the borrower’s most recent paystub.

Think about this, even at the new regulated rate:

$300 loan, at $15 per $100, will cost $45 for a 14-day loan.  That is an annual interest rate cost of 391% per year!

If your finances are strained, a payday loan may solve an immediate need, but, their cost will take more money out of an already strained situation and, over time, make your situation worse.

If you are using payday loans, take the time to review your situation and see what changes you can make so that you can avoid helping these businesses profit from your difficult situation.

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