Consumers who resort to the most expensive way to borrow money — the payday loan — will be better protected under regulations going into effect next year, the province announced Friday.
Following in the steps of other provinces, the New Brunswick government said it wants to protect vulnerable people from being exploited by lenders.
With a payday loan, a consumer gets a small amount of money for a short term, at a very high interest rate. The money is supposed to be paid back by the borrower's next payday, and the penalties can be punishing if the payment date is missed.
"We know that people who take out a payday loan often do not have a choice," Finance Minister Cathy Rogers said when the coming changes were announced in Moncton. "It is a last resort."
Starting in January, people who offer or make payday loans must be licensed by the Financial and Consumer Services Commission.
Lenders will have to provide consumers a rundown of all the costs of the loans they take out, and can charge no more than the maximum interest rates and fees set by the regulators.
Consumers will have a 48-hour grace period if they choose to cancel.
"By implementing these new rules around payday loans we will help to ensure that New Brunswick families are not taken advantage of," said Rogers,
The province also wants to make sure the payday loan industry is a viable one, the government said.
The changes will allow the commission to crack down on offenders and investigate lenders who are not complying with the new rules.
The government said it wanted to let the payday loan industry in New Brunswick know the regulations were coming, but details on the maximum fees and other parts of the plan were not available.
Currently, the maximum amount someone can borrow is $1,500, at a maximum rate of $15 for every $100 borrowed, according to the Financial and Consumer Services Commission. Lenders can't force borrowers to sign over their cars or houses for payment, have wages garnisheed when payment is late or contact a borrower's employer.
Rogers said she hoped the new regulatory steps will help consumers become more informed about the implications of taking out loans.
Rick Hancox, chief executive officer of the commission, said payday loans are the only way many New Brunswickers can live paycheque to paycheque. The majority of consumers who take out the loans are on low incomes.
"The new rules will not only lower the rates but also require payday lenders to outline to consumers all of cost involved in this kind of transaction," he said.
Consumers need to understand fully what they are agreeing to when they take out the loans to "that they don't end up in a cycle of debt."
Good step, but not enough
Maxime Dubé of the Common Front for Social Justice said the new rules will be a step forward, but that the government should be focusing on pay equity and raising the minimum wage to $15 an hour.
He said those changes would help consumers avoid having to get payday loans in the first place.
"Right now they're surviving, they're not living," he said.
"When you are surviving you can't do much for your community, you are just trying to get your life together, and that's why they need to go get these loans because they don't have the salary to support their lives."
He also said there's still a risk of consumer bankruptcy.
"It will protect them more, but not enough."
Hancox said the public will be informed if any lenders are caught violating the new rules.