Lower borrowing rates on payday loans now in effect in Alberta

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Timothy Afolayan was making $ 12 an hour when he ran out of $ 600 to help his mother pay for her medical bills in Nigeria.

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The father-of-two had $ 600 in savings, but turned to a payday lender to cover all of the $ 1,200 he needed to send overseas.

With $ 850 on each paycheck and regular bills to cover, there wasn’t much wiggle room in his budget. Afolayan said he found himself stuck in a “vicious cycle” unable to repay the loan for 10 months.

During that period of almost a year, he ended up paying off $ 2,400 in interest.

“I couldn’t just cough up $ 600,” he said. “I either had to pay the rent this month, or do the grocery shopping, or pay bills with the next paycheck. “

Afolayan spoke as provincial legislation regulating the payday lending industry came into effect.

At a press conference, Service Alberta Minister Stephanie McLean said Alberta now has the lowest maximum borrowing rate in the country. The fees were lowered from $ 23 to $ 15 per $ 100 borrowed.

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“We ended the 600% interest rate, which is the predatory interest rate on payday loans,” McLean said.

“Rates that prevent Alberta families from meeting their basic needs; rates that make it difficult to repay the loan; rates that require you to take out a loan to repay the first loan.

As of August 1, payday lenders are also prohibited from charging a fee to cash a payday loan check, soliciting customers directly by email or phone, or offering a loan when customers already have one. one overdue with the business. The legislation also requires the government to encourage financial institutions and community groups to offer short-term alternative loans.

This month, First Calgary Financial and Chinook Financial will be the first to launch an alternative microcredit program in Alberta, with an annual interest rate of 19% and a repayment period of six to 18 months.

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Shelley Vandenberg, president of First Calgary Financial, said that each year the credit union sees hundreds of its members making money transfers to payday lenders in the thousands of dollars.

Its new Cash Crunch loan program, which stems from a one-year pilot program, aims to help people facing unforeseen expenses or budget challenges. Cash Crunch Loans will be available for amounts from $ 500 to $ 1,500, with an interest rate of 19% and a repayment period of up to 18 months.

“Our ultimate goal in developing this loan is to provide options for people in southern Alberta who need a short-term bridge in their finances,” she said.

Jeff Loomis, executive director of Momentum, said his organization knows single mothers, seniors on full benefits and new Canadians struggling to get by with payday loan debt.

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“We fundamentally believe that those who can least afford credit shouldn’t have to pay the most to actually be able to borrow money,” he said.

When Afolayan found himself in need of a loan a second time, to help cover the cost of a new van for his family, he secured a short term Cash Crunch loan through First Calgary Financial. and Momentum – an experience he described as “night and day” of dealing with the payday lender. The total he paid in interest on a $ 1,500 one-year loan was about $ 68.

“Life happens – sometimes you find yourself in a difficult situation,” he said. “Industry[…]was taking advantage of a bad situation. So, I believe things will get better from here.

Tony Irwin, president of the Canadian Payday Loans Association, said 220,000 Albertans used payday loans last year.

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“The demand is not going to go away,” he said in a telephone interview. “The people who depend on this product will always need it – and if we’re not there to provide it, where will they go? “

Irwin said the industry was concerned that with the rate change some payday lenders might not be able to provide the same number of loans, or provide loans the same way they did in the past.

“Ultimately, this will affect borrowers who might not be able to access credit like they used to, and I certainly think the government should be concerned about what happens to these people,” he said. -he declares.

Afolayan recalled what it was like to struggle to pay off his payday loan and keep other costs under control. Many times he found himself wishing he could win the lottery. He also thought about starting his own loan business and charging just $ 5 for people like him stuck in a situation where they needed short-term help.

“Sometimes I think about what I could have done with $ 2,400 – and that’s just the interest,” he said.

“It was a little emotional, but I’m in a better place now, and there are alternatives.”

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