The committee charged with reviewing Ontario's Payday Loans Act has been asked to uphold the Criminal Code's usury cap of 60 per cent.

During a meeting at Queen's Park yesterday, a representative from the paralegal firm Justice Matters recommended the committee adopt a cap of 60 per cent, with no other fees or charges allowed.

A 2004 Toronto Star investigation revealed payday loans carried annualized interest rates ranging from 390 to 891 per cent.

"Sixty per cent has been the maximum rate in this country for some time," argued Charles Foster. "Our concern is if the government goes beyond 60 per cent, then what we're talking about is the decriminalization of usury in the province of Ontario and I submit that would create a whole host of other problems (including) hardships for borrowers (and) upward pressure on consumer interest rates."

There have been several lawsuits in which individuals have successfully defended themselves against lenders on the Code's usury grounds, he said. If the proposed Payday Loans Act passes as is, without a hard cap for interest rates, it would trump the Criminal Code, Foster said.

Companies would then be free to charge any rate they wish. Other groups that gave depositions, including the Toronto & York Region Labour Council, recommended a rate between 40 per cent and 60 per cent. Parkdale Community Legal Services would like to see a number closer to rates on lines of credit, in the low 20 per cent range.

Norman Bishop, who spoke on behalf of the Canadian Payday Loans Association, said interest rates that low would essentially destroy the industry. Two-week loans have unique financial implications for a lender. To offset staffing costs, company rental costs and other administrative fees, a higher rate is needed.

Many of the speakers recommended the committee follow a model laid out in Manitoba in April in which a cap was set on a graduated scale. In some cases, the annual rate could still exceed 60 per cent, but for the most part the rates would be capped below that.

Source:http://www.thestar.com/