Alberta now has the strongest protections for borrowers in Canada.
Payday lenders are now required to provide all loans with instalment plans, with no penalty for early payback. This drastically reduces the interest rate, and helps prevent Albertans from falling into a cycle of borrowing.
New rules also restrict the number of times a lender can make pre-authorized withdrawals, so borrowers don’t incur extra fees. These rules, now in effect, are the next step in implementing An Act to End Predatory Lending legislation that was introduced and passed this spring.
“Albertans told us they want lower interest rates, longer payback periods and better alternatives. We listened and took action. I’m proud to be part of a government that supports families by improving consumer protections.”
The Act also requires government to encourage financial institutions and community groups to offer alternative short-term loans that are fair and accessible.
On Dec. 7, Servus Credit Union launched its Fast Forward Small Loan, a fair, convenient alternative to costly payday loans. It offers cash in less than an hour, with no fees and penalties. It has an annual interest rate of 19 per cent, with a payback period of two months to two years.
“Our new loan offers Albertans credit that is flexible and affordable. We are proud to work with the Alberta government to help Albertans improve their finances by offering a low-cost alternative to payday loans that can serve as a step towards financial fitness.”
“We appreciate the government’s leadership in encouraging fair lending practices so that use of short-term credit does not jeopardize one’s long-term financial stability.”
Instalment payment plans are a requirement at all payday loan companies. Specifically:
- Lenders must allow borrowers to repay the loan over a term of between 42 and 62 days.
- The instalments must be spread over at least three pay periods.
- Instalments must be substantially the same (i.e. within $10 of each other). This will prevent lenders from setting up unbalanced instalment payments that would defeat the purpose of requiring instalment plans.
Pre-authorized debit attempts
- Under the new regulations, lenders cannot repeatedly attempt to withdraw pre-authorized debit amounts when there are insufficient funds, nor can they charge large fees to borrowers when pre-authorized debits repeatedly fail.
- After a pre-authorized debit does not go through, a lender may make one additional attempt to obtain repayment via pre-authorized debit.
- The amount of this additional attempt must be the same as the initial attempt, plus the allowed NSF fee and any interest because of the default.
- The additional attempt must be made within 30 days after the payday lender was notified that the initial attempt was unsuccessful.
Note: This will not prevent a borrower from making additional/alternative attempts where a lender has consent from the borrower for a specific amount on a specific date.
- Alberta has the lowest interest rate for payday loans in Canada. In August, the rate was reduced from $23 for every $100 borrowed, to $15 per $100. All fees must be included in this rate.
- A payday loan is a loan of $1,500 or less that has a term of 62 days or less.
- More than 20 payday loan companies currently operate more than 220 branches in Alberta.
- Payday loans became regulated in Alberta on September 1, 2009.