Payday Loan Regulations Tighten In British Columbia

The path to building good credit can be difficult - but never impossible. Some predatory lenders will make quick high-interest loans the easy way out in the short term. While it may be easy to get a payday loan, it is never a recommended strategy. The predatory nature of lenders working in the payday loan industry tend to make consumers targets. In an effort to protect consumer rights, the Government in British Columbia clamped down on the regulations.

Payday Loan Regulations Tighten In British Columbia

These new payday loan rules will come into effect in British Columbia on January 1st, 2017. These rules aimed at making the payday loan industry less predatory – protecting consumers from the never-ending cycle they often find themselves in once they take that first leap into a short-term loan.

Previously, in British Columbia, the cost to borrow $100 could not exceed $23. But starting in 2017, that lowered to $17. On top of that, payday lenders are required to disclose how much interest they charge on their loans in the form of an annual percentage rate or APR. Most payday loans are short-term, spanning just a couple of weeks. To get the APR, you have to presume the loan is for a year. As an example, a payday loan that charges $15 per $100 would have an APR of 391.07% – you can calculate other APRs by using this calculator: Consumer Protection BC.

The formulae for calculating annual percentage rate is by multiplying the total cost of borrowing (C) by 100, and dividing that by the length of the loan term (T), multiplied by the average outstanding principal over the term of the loan (P).

To put it simply,
APR = (100 x C) / (T x P)

Payday lenders are expected to have their APR on full display, including references to it in loan agreements, their own licensing paperwork, and signage throughout their storefronts.

New Rules, Same Predatory Lenders

Despite these changes making payday loans easier to pay back in British Columbia, payday loans are still run in a predatory way. When you find you can’t pay their large fees for borrowing, your desperation is taken advantage of. You will be urged to take out another loan to pay off the first, and with no other viable option, most people give in. Soon, they find themselves in an inescapable cycle of debt, each loan with enormous fees.

Payday lenders prey on people who live below the poverty line already, and the cycle of debt they suck their customers into only leaves them worse off than when they began. It is important to understand the risks that come with payday loans, especially if you’ve found yourself at a financial disadvantage. John Oliver paints the picture pretty clearly in one of his episodes of Last Week Tonight.

John Oliver On Predatory Lending

The Best Consumer Protection

Consumer Protection BC is the regulatory body that issues licenses to payday lenders. They have issued these new rules as a way to protect British Columbian consumers. There are many consumer protection agencies working in your local areas.

While it’s nice to know there are people looking out for our best interests, we cannot solely depend on government agencies to intervene all the time. The best way to protect yourself from such predatory lending practices is by simply saying no to payday loans. At the end of the day, the best person to protect yourself and better your financial person is you.

Google Says No To Payday Loans and So Should You

If you’ve ever been up watching tv at 3am, you’ve heard their commercials. It’s quick. It’s easy. No credit checks. It’s money when you most need it. When you’re struggling, these can be exactly the words you want to hear. This isn’t an accident. Payday loan companies know just how to catch you when you’re down.

Because of this, Google recently said they will no longer allow payday loan companies to advertise with them. Good Guy Google is standing up for the little guy and refusing to help companies take advantage of those in need.

There are three things everyone should understand about payday loans:

1. The cost in most cases is sky high. On a loan of $100 for two weeks, you can pay a fee of $20 or more. For someone who needed to borrow $100 in the first place, $20 extra isn’t easy to find. When you come back to pay off the loan, those fees are more than you can afford, so you’re encouraged to take out a second loan to pay back the first.
2. These loans are designed to trap you. This cycle of taking out a new loan to pay the fees on the last one is what they intend to have you fall into. Some people end up paying thousands of dollar in fees for loans that began as small as $100.
3. These companies are set up to take money out of the pockets of the poorest, and make huge profits for themselves while they do it.

You can see why Google wanted no part of this. You can hardly blame them, can you?

When you need money for something important sooner rather than later, payday loans can seem like the perfect solution. You and I both know, though, that if it sounds too good to be true and it looks too good to be true, it’s probably is. There is no such thing as quick, legal money.

And you don't need to just take our word on this, there are so many stories out there about the damage done by these companies, like here:

Chequed Out: Inside the Payday Loan Cycle

and here:

"They like having people in debt": Your Payday Loan Stories

Millennials Are Drawn To Payday Loans

Millennials tend to have poorer credit than the generations that have come before them, with only 2% of millennials having excellent credit scores, according to some sources. We’ve talked about the fact that this generation doesn’t seem all that interested in obtaining credit, with the amount of credit card debt held by 35-year-olds or younger at it’s lowest since the eighties. There are side effects to this phenomenon though, and not the least of these is the increased usage of payday loans by millennials.

Because millennials don’t seem interested in credit cards, many of them have little to no credit history from which to judge their habits. Scores cannot be calculated for people with no credit history. This leaves many millennials with no credit, effectively squeezing them out of the market for lower cost borrowing.

Whether millennials like the idea of credit or not, eventually most people reach a point in their lives where they need to borrow. With poor credit scores and an inability to obtain credit from traditional lenders, that means millennials are turning to payday loans at a rate much higher than previous generations.

The Guardian recently published an article about a study done on payday loans, and found that millennials were,

twice as likely to have taken out high-cost payday loans than those from the baby-boomer generation, and on average had used them twice as often.

This trend will only serve to worsen the problems millennials face with credit, as payday loans suck borrowers into a vicious cycle of borrowing and debt that will only serve to drive down their credit scores if they're not able to make payments. As their credit gets worse, so will their borrowing options, and the cycle keeps going and going and going.

If this trend continues, millennials will continue to struggle with approval for mortgages, low-rate credit cards, and all forms of affordable lending.

Several things need to happen to change this trend:

1. Education

Millennials and all the generations that follow them, need to be better informed about credit and how credit works. If you’re a millennial, and you’re here on our blog, you’ve taken the first step.

2. Options

There is a need for more affordable options to be made available to millennials, which they can use to build up their credit history. Secured lines of credit, low-limit credit cards, and credit building programs like Refresh Financial’s are all low-risk and will help to build your credit score.

3. Support

More support by government agencies and employers is needed to help guide millennials to financial security.

To find yourself in a position of financial security and rockin’ an awesome credit score, you need to work. You need patience and commitment and the sort of help that sees you financially stable and independent. And yes, we’ll use this opportunity to toot our own horn: that sort of help is available here at Refresh Financial. Click away from the payday loan site! Let us help you rebuild your financial future before you get stuck in the short-term loan cycle.