WINNIPEG - Provincial governments should butt out of the payday loan industry and not try to limit annual interest rates that can exceed 700 per cent, the head of one lending firm told public hearings Monday.
"Why are they regulating us? Are they telling Wal-Mart what to charge? Are they telling anybody else what to charge? It's a free market," said Leo Sorensen, owner of Sorensen's Loans 'Til Payday Inc., which operates 30 outlets in Western Canada.
Sorensen told Manitoba's Public Utilities Board his interest rates work out to 720 per cent a year. While it may sound like a lot of money, it only works out to a few dozen dollars for a small, short-term loan, he said, and is barely enough to cover costs.
Manitoba is near the front of the pack in efforts to set rules for payday loan companies, which are frequently accused of gouging poverty-stricken customers who do not qualify for loans from a bank or credit union.
The federal government granted provinces the right to set maximum interest rates earlier this year. Manitoba's NDP government jumped at the chance, and has asked the utilities board to set maximum interest rates that would be fair to consumers and also allow businesses to make a profit.
Ontario, Saskatchewan and other provinces have also looked at setting limits.
Sorensen portrayed payday lenders as helpers of poor families who need emergency cash.
"If we're not there, what's going to happen? The power is going to be cut off. The kids are not going to eat," he told the board.
Critics scoffed at the idea, saying payday loans can often trap low income-earners in a cycle of poverty.
"They're trading off essential things, like buying medication or paying their rent, for trying to eventually pay off their loans," said Gloria Desorcy, head of the Manitoba branch of the Consumers Association of Canada.
"How do you ever catch up?"
It's a familiar story for people who take out payday loans. They can pay $100 or more in interest to borrow $500 for a couple of weeks. When the time comes to pay back the loan, they have to borrow more.
"Once you're in, you're in," said Deb Yackabowski, a single mother who has occasionally fallen behind on her payday loans.
"If you borrow a loan for $500 and you have to pay back $593, but your paycheque is $600, you have $7 left. So what, does your family eat? Do you pay your rent?"
Yackabowski said she expects to pay some interest on her loans but has found that rates vary greatly from one store to another. The overall cost of borrowing can also be hard to figure out, because some lenders apply transaction fees, insurance fees and other costs on top of the interest.
Ontario and Manitoba recently set rules requiring payday lenders to post large signs in their shops that outline all the interest rates and fees that apply to loans.
The utilities board will continue public hearings on interest rates through next week.
