Even though the United States is one of the largest markets for payday lending, there are many companies in Canada that operate in a similar manner. The Cash Store is the name of one payday lender that operates out of Manitoba and has been singled out by the government for some redistribution of fees collected on 61 individuals in the region. This incident seems to be a microcosm for what is going on in the country as a whole; lenders are charging more than the states have deemed appropriate.
Manitoba and Fees Returned
Returning the fees to the 61 Manitobans was not easy for the Cash Store, but did not hurt their profits too much. These payday loan companies have a large store of cash and make plenty of profit so it was no problem to refund 61 people. Either way, it is a showing from the state government that they will no longer accept rates of interest that are excessively high. Unlike many states in the US, it seems that the Manitoban government has imposed a limit of $17 per $100 borrowed, which is only a 17% interest rate.
For most banks this is high, but compared to the charges from other payday lenders in the 2-400% range, it is a crippling blow for the industry in the state of Canada. Many people are overjoyed that the government is finally standing up to these large companies, but there are some who need the quick money and will not have access to it anymore.
Was the Manitoban Government Right?
A large question for many advocates of free trade is whether or not the Manitoban government had the right to impose such restrictions. One farmer, named Gordon Repula, noted that he had to pay fees around 33%, which is almost double what is legally allowed in the state. Compared with other states, however, the 33% seems like not much at all. The people who are in need of quick money might not be able to find an adequate lender because they cannot take on as much risk anymore.
This is a huge question that is hotly debated wherever payday loans are allowed. Most people who are working in the industry are fearful of the day when payday loans are outlawed completely and people start to run out of money to even survive.
Whether or not the Manitoban government was right in this instance is irrelevant. It is a clear indicator that the Canadian state governments (and perhaps the federal government as well) is going to restrict the ability for lenders to make exorbitant profits from people who are in need. This might be helpful for some, but it negates the business cycle aspect that will assuredly hurt others. Either way, it is an interesting prospect to watch as the legal rate for payday lending goes all the way down to 17%. There are plenty of states where it might change into something along those lines as well.
