Canada now has cheaper payday loans than Australia
Should we blame Canada or ourselves for their better payday loans?
Oh, Canada. While payday loans are costly forms of credit in every country, Australia could at least be comforted by the fact that we had some of the cheapest payday loans in the world. However, with the recent announcement of a new fee cap for payday lenders in Canada, Australia's position has slipped.
The province of Ontario in Canada has dropped its total cost of borrowing from $21 per $100 borrowed to $18 per $100 borrowed, a relatively small but noticeable difference from Australia's $24 per $100 borrowed.
However, this isn't even the lowest rate in Canada. In August, legislators in Alberta dropped the total cost of borrowing to $15 for every $100 borrowed for a two-week loan, making it the lowest in Canada and one of the lowest in the world. Similar low rates can be found in British Columbia, where a $17 cost cap for a $100 two-week loan is in place.
The cap on payday loans in Australia (20% establishment fee plus 4% monthly fee) was introduced in 2013 to curb the rising cost of loans. The laws have come under review several times, the most recent of which saw the fee cap maintained but also saw other requirements altered or introduced.
In the US, payday loans are regulated at a state level, resulting in wide disparities. For example, the lowest annual percentage rate (APR) cap is 28% in Ohio, while states such as Missouri have a 520% APR cap for a 14-day loan and others have no cap at all.
However, there have been some promising regulations introduced in the US. in June 2016, the Consumer Financial Protection Bureau (CFPB) announced new legislation that would require lenders to verify borrowers have the means to repay the loan they're applying for. This simple income check requirement was a big step forward in improving the US's $USD38.5 billion industry.
In the UK, a payday loan cap came into effect in January 2015 which restricted the maximum interest rate to 0.8% per day, placed a £15 limit on default fees and capped the total cost of a payday loan to 100% of the amount borrowed. This cap was very much in line with Australia, as UK borrowers will now not pay more than £24 per £100 borrowed for a 30-day loan.
Given the history of payday loan laws influencing those introduced in other countries (as outlined above), borrowers will have to wait and see whether Canada's cheapening payday loans bring about cost reductions elsewhere.