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June 16, 2010

Provincial Government Will Not Regulate Payday Loan Companies

After significant research and careful consideration, the Provincial Government has decided not to regulate payday loan companies operating in Newfoundland and Labrador. Rather, it will uphold the maximum interest rate set out in section 347 of the Criminal Code of Canada, which is 60 per cent per annum, as the maximum rate to be charged by payday loan companies.

"As a government, we could not in good conscience implement regulations that potentially could result in annual interest rates equating to nearly 550 per cent being charged to consumers in our province," said the Honourable Kevin O'Brien, Minister of Government Services. "By putting in place provincial regulations for payday loan companies that permit annual interest charges above 60 per cent, we would not be protecting consumers' best interests. We do not want individuals being gouged or putting themselves more in debt and having a hard time catching up because of high interest rates for these types of short-term loans. We have reviewed the terms and conditions relating to maximum interest rates outlined in the Criminal Code of Canada, as well as regulations of other provinces and territories for payday lenders, and have decided that payday loan companies in this province will continue to be subject to section 347 of the Criminal Code of Canada."

Section 347 of the Criminal Code of Canada makes it a criminal offence to charge more than 60 per cent interest per year which would work out to payday lenders not being able to charge more than $2.30 per $100 for a 14-day loan. If all charges including interest and any fees charged as a condition of the loan exceed this limit, the payday loan companies will be in contravention of the Criminal Code of Canada. The lowest cost of borrowing currently allowed by provinces which regulate payday loan companies is $21 per $100 borrowed for a 14-day loan. This represents an annual interest rate of 547.5 per cent. For provinces and territories that wish to regulate payday lenders, amendments were made to the Criminal Code in 2007 to allow payday lenders to operate legally under a number of conditions. One of these conditions is a province's willingness to enact regulations.

"This government has made significant strides over the last several years to reduce poverty in our province," said Minister O'Brien. "Our Poverty Reduction Strategy was put in place with the goal of Newfoundland and Labrador becoming the province with the lowest poverty rates in the country within 10 years from the launch of the strategy. Developing a set of regulations that would permit an annual interest rate greater than 60 per cent would be counter-productive to the great work being carried out under this strategy."

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Media contact:
Vanessa Colman-Sadd
Director of Communications
Department of Government Services
709-729-4860
vanessacolmansadd@gov.nl.ca 

2010 06 16                                                    3:00 p.m.
 


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