Ottawa joins other provinces to hunt for payday loan alternatives

Ottawa has joined other provinces to look for cheaper alternatives to controversial "payday" loans, for millions of low-income Canadians whose financial needs are ignored by mainstream financial institutions.

An Industry Canada panel has begun work on examining ways that borrowers who rely on small, short-term loans from payday loan firms can get the same protection as Canadians who use traditional credit such as bank loans.

The work of the six-province group, co-chaired by Industry Canada with British Columbia, is a follow-up to a review begun in 2000 that sought ways to regulate the payday loan industry in Canada, which eventually led to Bill C-26, a Criminal Code amendment implemented in May 2007 that finally empowered the provinces to create regulations to limit the activities of payday lenders.

Payday lenders in Canada typically provide 10-day loans of up $1500, on proof of a regular paycheque. The next paycheque is signed over to the firm, with fees, interest and insurance costs deducted. One of the attractions of this type of loan is that it provides access to quick cash. The application process can take as little as 15 minutes to complete and payment is made in cash with is strings attached.

One of the alternatives this current panel may consider is encouraging traditional banks and credit unions to provide comparable and competing services to payday loans. Quebec has been cited as model for other provinces. In Quebec, credit unions are known to provide short-term cash loans similar to payday loans.

A spokesman for the industry group representing the largest players in the payday loan industry in Canada said his members welcome any competition from traditional lenders.

"The more credit choices there are for consumers, the better," Stan Keyes, president of the Canadian Payday Loan Association, said from Hamilton. "Competition? Our members say 'Bring it on'."