News Article

New Payday loan bill should remove discrimination against social assistance recipients

3/27/2009 12:00:00 AM

Social welfare advocates have supported more balanced rules in other provinces; Cash Store Financial recommends new cap, based on Canadian average

EDMONTON, March 27 /CNW/ - Manitoba will introduce legislation this spring to regulate payday loan rates. The new rules will replace legislation that previously gave that authority to the Public Utilities Board (PUB). According to the Winnipeg Free Press, Minister of Finance, Greg Selinger, made statements to this effect following a ruling in January by Justice MacInnes of the Manitoba Court of Appeal.

Justice MacInnes ordered a Stay onthe PUB's rate caps pending a full appeal, on grounds that payday loan companies in the province would suffer "irreparable harm" and consumers would lose access to necessary credit because of the restrictive caps."There is political consensus that payday lenders offer needed consumer credit and that operators must survive and compete for market share. All provinces that have regulated rates have set caps far above those of the Manitoba PUB. All remaining provinces are expected to do the same. Manitoba is an outlier," said Gordon J. Reykdal, Chairman and CEO of Cash Store Financial.

Added Mr. Reykdal: "No other province has discriminated against social assistance recipients through a differentiated rate scheme with rates rangingfrom 6 to 17 percent. No payday loan operator in Canada will advance credit at 6 percent because they will lose money. Social welfare advocates have recognized the value of payday loans and have supported balanced rules in other provinces. For the good of consumers the province should use newlegislation to facilitate a more balanced approach."

The facts

•  Justice MacInnes found that both consumers and payday lenders would suffer if the PUB's low rates are implemented; consumers would loseaccess to credit, operators would lose money.
• All other provinces seeking to regulate want a competitive industry, as does the federal government
• To date, three provinces have set rate caps, all of which are substantially higher than those of Manitoba's PUB
• No other province has denied social assistance recipients access topayday loan credit
• The PUB's highest rates are 25% lower than Ontario, 35% lower than British Columbia, and 82% lower than Nova Scotia

Cash Store Financial's recommended approach

Manitoba can use this new law to bring rates in line with the rest of the country.

For ease of administration, we recommend an average of rate caps existing in other provinces. This would meet the Minister's previously stated objective of setting a rate that would protect consumers but allow businesses to compete for market share.

The PUB recommended a differentiated rate scheme of between $6 and $17 per hundred, which is detrimental for all stakeholders.

Other provinces' caps and the average thereof, are as follows

Nova Scotia: $31

Ontario:     $21

British Columbia:  $23

Average: $25

About Cash Store Financial

Cash Store Financial is the only payday advance broker in Canada publiclytraded on the Toronto Stock Exchange (TSX:CSF). Cash Store Financial operatesmore than 420 branches across Canada under the banners: The Cash Store and Instaloans.

The Cash Store and Instaloans act as brokers to facilitate payday advanceservices to income-earning consumers who may not be able to obtain small-sumshort-term loans from traditional banks. Cash Store Financial provides aprivate-label debit card, the Freedom card and a prepaid credit card, theFreedom MasterCard and other ancillary products.

Cash Store Financial employs more than 1,600 associates and is headquartered in Edmonton, Alberta.

This News Release contains "forward-looking information" within themeaning of applicable Canadian and United States securities legislation.Forward-looking information includes, but is not limited to, information withrespect to our objectives, strategies, operations and financial results,competition as well initiatives to grow revenue or reduce retention payments.Generally, forward-looking information can be identified by the use offorward-looking terminology such as "plans", "expects", or "does not expect","is expected", "budget", "scheduled", "estimates", "forecasts", "intends","anticipates", or "does not anticipate", or "believes" or variations of suchwords and phrases or state that certain actions, events or results "may","could", "would", "might", or "will be taken", "occur", or "be achieved". Inparticular this News Release contains forward-looking statements in connectionwith the Cash Store Financials goals and strategic priorities, introduction ofproducts, share repurchase initiatives and branch openings. Forward-lookinginformation is subject to known and unknown risks, uncertainties and otherfactors that may cause the actual results, level of activity, performance orachievements of Cash Store Financial, to be materially different from thoseexpressed or implied by such forward-looking information, including, but notlimited to, changes in economic and political conditions, legislative orregulatory developments, technological developments, third-party arrangements,competition, litigation, risks associated with but not limited to, marketconditions, and other factors described in our Annual Information Form ("AIF")dated August 28, 2008 under the heading "Risk Factors". All materialassumptions used in making forward-looking statements are based onmanagement's knowledge of current business conditions and expectations offuture business conditions and trends, including our knowledge of the currentcredit, interest rate and liquidity conditions affecting us and the Canadianeconomy. Although we believes the assumptions used to make such statements arereasonable at this time and have attempted to identify in our continuousdisclosure documents important factors that could cause actual results todiffer materially from those contained in forward-looking statements, theremay be other factors that cause results not to be as anticipated, estimated orintended. Certain material factors or assumptions are applied by us in makingforward-looking statements, include without limitation, factors andassumptions regarding our continued ability to fund our payday loan business,rates of customer defaults, relationships with, and payments to, third partylenders, demand for our products, as well as our operating cost structure andcurrent consumer protection regulations. There can be no assurance that suchinformation will prove to be accurate, as actual results and future eventscould differ materially from those anticipated in such information.Accordingly, readers should not place undue reliance on forward-lookinginformation. We do not undertake to update any forward-looking information,except in accordance with applicable securities laws.

Backgrounder

There is a Canadian consensus about rate caps for payday loans

According to that consensus payday lenders offer a legitimate service andrate caps should be appropriate to allow for competition.

Here's what Canada's decision-makers have said ...The Honourable Vic Toews, then Minister of Justice and Member of Parliament for Provencher -- when introducing federal Bill C-26, he said:

"Some may argue that the payday lending industry has no place in Canadian society. They may argue that the payday lending industry exploits thesituation of already vulnerable Canadians and that facilitating the regulation of this industry will only exacerbate the situation of vulnerable Canadians.

The fact remains, however, that the payday lending industry is a part of our society, and a growing one at that, and we must take the necessary steps to bring it within the purview of regulation. Doing so will ensure that Canadian consumers have more effective protection against questionable business practices."

Manitoba's Minister of Finance Greg Selinger, in his letter dated February 22, 2007, to the Standing Senate Committee on Banking, Trade and Commerce. Writing in support of federal Bill C-26, he said:

"Setting maximum rates will allow lenders to fairly and freely compete and will have a leveling effect in the industry by prohibiting extreme rates.

"The Standing Senate Committee on Banking, Trade and Commerce, in a March9, 2007 press release articulating the policy intent of federal Bill C-26,said:

"Bill C-26, An Act to amend the Criminal Code (criminal interest rate),must protect consumers using-short term, small-sum consumer loans from payday lenders while maintaining a competitive lending environment."

The Honourable Heather Klimchuk, Minister of Service Alberta, speaking inthe legislature, November 23, 2009, on an opposition motion to regulate payday loan rates. Alberta is expected to regulate rates in spring 2009.

"As the minister responsible for consumer protection I take my mandate very seriously. There is also an important role for government to play in ensuring that consumer protection laws are in place. Yes, these laws protect Alberta consumers, but they also support the business community by putting in place fair and consistent rules that level the playing field for good, honest businesses against the minority of businesses who may try to take advantage of people.

"The Honourable John van Dongen, Solicitor General of British Columbia, on March 9, 2009, speaking about new regulated rate caps for payday loans. BC set the rate at 23% of loan principle.

"In putting all of these regulations together, I wanted effective rules that better protect consumers while allowing the continuation of a competitive payday lenders market.

"The Honourable Harinder Takhar, Minister of Small Business and Consumer Services, Ontario - commenting on new industry regulations that capped payday loan rates at 21% of loan principle. Ontario's specific objective in setting this rate was to set an upper limit that is fair to consumers while preserving a competitive payday lending industry to meet the needs of Ontario borrowers."

Ontario is taking a balanced approach to payday lending. Social advocacy groups have stated that Ontario's payday lending industry serves an important need for people who need immediate financial assistance. We are making sure those who need access to credit have options and protections available to them."

Two tribunals have found Manitoba's PUB to be in error

Two tribunals have found that the PUB's rates would be damaging to both business and consumers by forcing operators to close, thus restricting access to credit for consumers

.Justice J.A. MacInnes, of the Manitoba Court of Appeal, on his reasons forissuing a Stay in respect of the PUB's rates, pending a full appeal (January2, 2009).

107 "... there was clear evidence before the PUB that many people withother acceptable alternatives choose to use payday lenders at the unregulatedrates, and both Canada and Manitoba, in creating the legislative scheme inquestion, have recognized that there is a societal need for the payday lendingindustry for a variety of reasons, not the least of which is that for thosewho use the industry as their best or only alternative (the very people thecoalition, the Attorney General and the PUB are most concerned about), theinability to do so would result in their exposure to loan sharks and thecriminal world for access to short-term money.

108 While the balance of inconvenience would impact some in thecommunity who would be able to access payday loans at lower rates than nowcharged, it is my view that the prospect of putting some, if not many, paydaylenders out of business by reason of the rates fixed under the Order, and thusputting the viability of the industry at risk, would affect many others in theimmediate term and even more so in the longer term, if that expectation of thePUB is correct.

109 In short, I am satisfied that there is a serious question to betried, namely, those questions upon which I have granted leave, that there is a real likelihood of the applicant, and others in the payday loan industry,suffering irreparable harm if the Order is not stayed...

"The Nova Scotia Utility and Review Board (UARB) -- providing rationale in support of its decision to place "no weight" on the findings of the Manitoba Public Utilities Board in respect of payday loan rates. The UARB set a cap of$31.

(256) The Manitoba decision discusses arguments for and against banning the payday industry entirely - a matter upon which, as the NSUARB has just noted, Parliament and the provincial Legislature have already made thegoverning decision. More than once, the Manitoba decision returns to discussions of whether payday loans are "morally acceptable", "morally right",etc.

(257) It is the opinion of the NSUARB that it is not its task, under the legislation which empowers it, to place its own view of the morality of an industry above that of the elected federal and provincial legislatures - particularly where (as here) there is no suggestion of infringement of the Charter of Rights and Freedoms.

(260) On a final note, the Board observes that the maximum rate established by the Manitoba Public Utilities Board (i.e., $17 per $100 forl oans up to $500, $15 per $100 for loans between $500 to $1,000 and $6 per $100 for loans from $1000 to $1,500), is in most, if not all, cases, below the cost for providing such services as outlined in the 2004 Ernst & Young report, a national study that was placed in evidence in both the Manitoba and NovaScotia proceedings

> For further information: on Cash Store Financial, please contact: Gordon J.Reykdal, Chairman and Chief Executive Officer, (780) 408-5118; or MichaelJ.L. Thompson, Senior Vice President & Corporate Secretary, (780) 408-5595,Cell: (780) 934-4729