* Federal consumer agency investigating industry
* Alberta vows to end "predatory lending"
* Debt counsellors say oil workers turning to payday loans
* Industry says unregulated alternatives are worse
By Matt Scuffham
TORONTO, April 25 (Reuters) - Canadian authorities are
stepping up scrutiny of payday lenders over fears they are
preying on vulnerable customers at a time of record household
debt and rising unemployment in oil-producing regions.
Payday lenders have surged in popularity in Canada with more
than 1,400 stores now open, according to the Canadian Payday
Lending Association (CPLA). It said around 2 million Canadians a
year take out loans meant to tide them over until their next
paycheck.
The industry had only a handful of stores when it emerged in
the mid-1990s, according to the Canadian government.
Payday lenders have grown in popularity because they offer
quick access to cash without the extensive checks that banks
make and are prepared to lend to borrowers with damaged credit
records who may have struggled to pay back loans in the past.
Such access to money, however, comes at a cost. Consumer
groups say the interest rates charged by payday lenders-
typically as high as 600 percent on an annualized basis - can
leave borrowers trapped in crippling cycles of debt.
Those concerns have led Canada's financial consumer watchdog
to launch an investigation into the industry, while several
provinces are reviewing regulations.
Their action mirrors clamp downs in other countries. Britain
introduced new rules two years ago which capped the interest
payday lenders could charge. And U.S. authorities are looking to
stamp out abusive practices by lenders.
"From my perspective it's always been a concern," said
Brigitte Goulard, deputy commissioner of the Financial Consumer
Agency of Canada, which will publish the findings from its
investigation on payday lending this year and is working with
provinces to understand the industry's impact on consumers.
Alberta's left-leaning NDP government has proposed
legislation to end what it termed "predatory" lending. Cabinet
minister Stephanie McLean said she worries the tough economy is
causing more hard-pressed Albertans to resort to payday loans.
Oil-rich Alberta suffered 19,600 job losses last year and
also saw a sharp hike in consumers defaulting on bank loans as
the severe drop in crude prices pushed the province's economy
into recession.
"There is a unique vulnerability at the moment given the
economic environment and predators take advantage of such
vulnerability, so I do have significant concerns about an
increase in the uptake of these loan products," McLean said in
an interview.
A typical consumer loan from a bank would charge a
single-digit rate of interest, with the best rates at about 2
percentage points above the base lending rate. Most personal
loans would be in the 3 percent to 5 percent annual interest
range if the customer has a good credit record. Credit cards
have much higher rates at around 20 percent.
Although payday loans are often taken out by people with
lower incomes, credit counsellors in Alberta say they are
increasingly dealing with oil industry workers who got into
trouble because their income dropped and they are "maxed out" on
credit cards and bank loans.
Nadia Graham, who works for the Credit Counselling Society
in Calgary, said one recent client had a well-paid job with one
of the world's largest oil companies, but got into trouble after
his bonus was slashed.
"We're seeing people who are professionals, who are aware of
the interest rates and are not naive, and they're going to
payday lenders anyway out of sheer desperation," she said.
McLean said Alberta is considering cutting the current
maximum permitted cost-of-borrowing rate and looking at ways to
restructure loans to allow customers to pay back in instalments.
Lenders can now charge as much as C$23 per C$100 borrowed.
Nova Scotia last year cut the maximum interest that could be
charged. New Brunswick and Ontario are reviewing regulations.
Parts of British Columbia have either banned new payday lenders
or placed severe restrictions on store openings.
Tony Irwin, chair of the Canadian Payday Loan Association,
said lawmakers should be careful not to impose regulation upon
the industry that is so onerous it forces lenders to shut down,
warning that the alternatives could be worse.
"If they can't got to a licensed, regulated payday lender
they will find credit some other way. And the evidence is that
void is filled by unlicensed, unregulated Internet lenders,"
said Irwin, adding that unregulated operators charge even higher
rates.
(Editing by Alan Crosby)