Canada payday loan
Governments have historically tried to criminalize usury, which is charging of high interest rates. In Canada, it is a criminal offence to charge more than 60 percent interest per annum. But the recent payday loan industry in Canada has focused attention on the industry and its practice of charging a relatively high rate of interest. Proponents have pointed out the growth of payday loan companies as evidence that the industry is fulfilling an unmet need for short-term credit. The policy makers are always there to define the best interests of the public, and to evaluate the effectiveness of the current approach to the payday loan industry in protecting that public interest.
Canadian payday loan industry
The payday loan industry first emerged in Canada in the early to mid-1990?s in response to a demand for small-sum, short term credit. By 2004 there were around 1200 payday loan stores in Canada. Although the payday loan industry is increasing rapidly in Canada but there is no easy or official means of tallying the participants. Moreover, it can be said that no authoritative information is available on the industry revenues and profits.
The payday lenders in Canada follow three business models: the traditional model, the broker model and the insurance model. Payday lenders, who use the traditional model, incur all of the operating costs, provide loans from their own capital and collect all interest and other charges. Under the broker model, payday lenders incur all of the operating costs, but the loan capital is provided by a third party financial institution. In this case, usually the company collects a brokering fee, whiles the third party lender, collects the interest and assumes the risk of loan defaults. With the insurance model, companies again incur all the operating costs and charge the customers a fixed fee and insurance type premium on each loan transaction. The premium, which covers the cost of designing the loan funds as well as the risk of loan default, is assumed by an insurance company that is owned by the payday lender.
In addition to loans, payday loan companies in Canada also offer other devices such as cheque cashing, advances on tax refunds, money transfers, foreign currency exchange, bill payment and money orders. Some payday loan companies offer debit cards that carry a balance of the amount of the loan and it also can be used at any automated teller machine (ATM) in Canada.
What is a payday loan
A payday loan is generally a short term loan for a small sum of money that is provided by a non-traditional lender. Statistics from the Canadian payday loan industry has shown that the average payday loan is valued at $280 and is extended for a period of 10 days. In order to qualify for a payday loan in Canada, the borrower needs to have identification, a personal chequing account, and a pay slip or an alternative proof of a regular income. Payday lenders extend credit based on a percentage of the borrower?s net pay until his or her next payday. The borrower usually provides the payday lender with a post dated cheque, or authorizes a direct withdrawal, for the value of the loan plus any interest or fees charged.
Some payday lenders cash the borrower?s post dated cheque or process the direct withdrawal on the due date of the loan. Others ask the borrower to repay the loan in cash on or before the due date, and charges an additional fee if the loan is not repaid. If there is insufficient funds in the borrower?s a account, the borrower also has to pay a return fee to the payday lender and a non sufficient fund fee to his or her bank or credit union. The borrower also has another option of ?rolling over? the loan. In such an instance, he can take another payday loan, to pay off the original loan, of course for an additional fee.
People using paydayloans
It has been found that payday loans in Canada are used mostly by men, those between the ages of 18 and 34 years, urban residents, residents of British Columbia, Alberta, Saskatchewan and Manitoba, those with household incomes less than $30,000 per year; and those with some post-secondary education.
The key industry players
The National Money Mart Company is the Canadian industry leader with its Money Mart Payday loan stores. Rentcash Inc. is another Payday Loan Company in Canada which has always been a tough competitor of National Money Mart Company. Cash Money Inc is another industry player and is known to be a Canadian owned company that had opened its first stores in Toronto.
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