The annual percentage rate (APR), for payday loans, is calculated by dividing interest paid by amount borrowed by multiplying result by 360, then dividing that number in days by the repayment term and multiplying by 100. For example, $ 15 per $100 borrowed is for a 2-week loan. The APR is = ((15/100(x365)/14) = 391%
Why is it that payday loans have such high interest rate?
While the Criminal Code of Canada prohibits annual rates exceeding 60%, 2007 modifications to the Code exempt payday lenders rules.
Payday loans that are less than $1,000 must be exempt. They must also be for short-term purposes (for example, for less then 62 days) and must be taken in provinces where there is legislation to protect payday loan recipients. A real payday loan for bad credit is another way to borrow money.
Because the Criminal Code amendments allow the provinces to determine the maximum borrowing limit for payday loan loans, borrowers may be subject to very different interest rates depending on their location. Rates for the nine provinces with active payday loan businesses vary from 391% per calendar year in five provinces to 548% annually in Newfoundland Labrador. This is the most recent province that regulates payday lenders.
Quebec has a maximum interest rate of 35% for payday loans, which is lower than the 60% limit in Canada. Quebeckers cannot borrow from payday lenders who do not have physical presence in their area. Quebec Consumer Protection Act mandates that lenders must be licensed to operate within the province. Quebec courts have ruled not to grant licenses if the creditor requests less than 35% annually because the loan is otherwise considered “unreasonable”.
The 2007 amendments to the Criminal Code were made after the Canadian Payday Loans Association, formed in 2004, successfully lobbied for the change.
Prior to the Criminal Code amendments and subsequent regulation by the provincial governments, payday lenders operated within a legal gray zone. Payday lenders do not fit within the traditional “four pillars”, which include banks, trust companies or insurance companies. Payday lenders, who were operating in contravention of the law, feared being subject to regulation or even sued when the industry developed in the 1980s/90s. interest of The Criminal Code. – rate limits.
Payday lenders had to be allowed to continue to exist legally in order to survive. Olena Kubzar, a York University social sciences professor, completed her doctoral thesis regarding payday loans in Canada. That meant that some regulations had to be adopted. The regulations were then passed by the federal government, who was then required to amend the Criminal Code which made payday lending illegal.
Bill C-26, which was introduced to Congress in October 2006 and adopted in May 2007, contained amendments to the Criminal Code. Payday loan amendments were quickly approved without consultation to allow for provinces to use the amendments to the Criminal Code of 1995.