Big Changes Coming to Payday Loans in Mississauga and Beyond
It’s no secret that the cost of living in Mississauga is hard to keep up with, and it seems like there’s a payday loan shop around every corner. If you borrow money from alternative financial services like payday loans, or you’re concerned wih how vulnerable consumers are often taken advantage of, there are some changes coming to the system that you’ll want to know about.
Basically, the province is lowering how much it costs to borrow money from payday loans.
Starting on January 1, 2018, the cap on the cost of borrowing for payday loans will be lowered to $15 per $100 borrowed. Right now, the cap is at $18 per $100 borrowed. In 2016, the cap was at $21 per $100 borrowed.
Though it seems like payday loan shops are multiplying — and fast — municipalities will also be able to control the area where payday loan shops open and how many can operate in any given area starting in the new year.
A few more changes are on the horizon, which will come into effect halfway through 2018 on July 1.
Those include that the fee for cashing a government-issued cheque will be capped at $2 plus 1 per cent of the face value of the cheque, or $10, based on whatever is left.
Did you know that, currently, there is no cap on that fee?
In addition, changes are coming to how much lenders can lend — they’ll only be able to lend up to 50 per cent of a borrower’s net pay.
If a borrower takes out three or more loans in a 63-day period, borrowers will also have the option of an extended payment plan.
This is all well and good, but there’s no doubt that these borrowers are some of our city’s most financially vulnerable.
"We're trying to better educate people so they don't actually need these very high-cost services,” said Gerald Cossette, president of the board of directors, EBO Financial Education Centre, in a recent statement. “But for those who still need them, there's no question that the government's changes will help."
If you were curious, payday loan and cheque cashing shops maintain higher fees than mainstream banks and credit unions, and offer services outside of them.
“For example, the cost of borrowing on a $300 payday loan is currently capped at $54 over a two week period,” says the province. “By comparison, a typical credit card with a 23 per cent annual interest rate and $3.50 service fee would cost $6.15 over the same period.”
Borrowers typically must repay their payday loans two weeks after borrowing money.
While payday lenders are already required to post information in-store comparing the total cost of borrowing payday loans to lines of credit and credit cards, hopefully, these new rules will increase transparency further and better protect anyone who needs to turn to payday loan and chqeue cashing services.
For more information on payday loans, click here.