Nova Scotia's Utility and Review Board laid out some new guidelines for the province's payday loan companies on Thursday, putting in place consumer protections that include a maximum limit on what they can charge customers.
In its 105-page report the board says companies can charge no more that $31 on $100 of borrowing - fees and interest included.
The maximum penalty for defaulting on a payday loan should be no more than $40 and the maximum interest rate on any outstanding balance can be no higher than 60 per cent.
Consumer groups have long accused provincial governments of not doing enough to prevent the poor from being trapped by huge debt loads, saying some payday lenders charge rates and hidden user fees that amount to more than 1,000 per cent annually.
However, Jamie Muir, minister of Municipal Relations and Service Nova Scotia, said the government will consider the report - which appears to dispel some criticisms of the industry.
"Certainly there was a lot of dissatisfaction and negative publicity about payday lenders," said Muir.
"The myth was out there that they take advantage of those who could least afford it. But, the report said in general the people who are using these services are typical Nova Scotians."
Industry officials appear satisfied with the outcome of the board's review of consumer protection policies.
"They got it right," said Stan Keyes, president of the Hamilton-based Canadian Payday Loan Association.
"The board followed the evidence and from that determined the announcement that goes to protecting the consumer, and ensures there is a competitive viable industry in Nova Scotia."
The association represents 40 per cent of payday loan outlets in Canada, but only one of the nine companies that operate 30 stores in Nova Scotia.
The board found in its research that a typical cheap payday loan is about $300, with a term not exceeding two weeks.
Keyes said letting the marketplace determine rates would create competition between lenders and lower rates to attract customers.
Still, consumer advocate David Cameron said he's unconvinced that the industry is as competitive as some industry representatives say it is.
"If there is competition it's not uniform throughout the province," said Cameron. "That's quite evident by looking in the phone book and seeing how many operators there are in certain towns or communities."
Cameron said the $31 maximum seems high, and that he hoped there would be more evidence gathered by the board before setting the rate.
"But there's a real problem in a rate not being set, too," said Cameron. "The board was faced with a difficult dilemma. There's no easy solution here, any decision made would be a difficult one."
The board has also recommended the government draft regulations that require lenders to file yearly reports on the number and size of loans provided, as well as the number of defaults.
The board said in its report that it would meet at least once every three years to review the system. They plan to will assess how the system is working in two years.
The rates won't come into effect until changes to the Consumer Protection Act are proclaimed by the provincial government this fall.
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