Firm that charged high interest rates settles lawsuit
A payday loan company at the centre of a class-action lawsuit will repay more than $1 million to thousands of clients who were charged upwards of 60 per cent in interest and fees for some short-term loans.
Instaloans, which has branches in Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, has set aside $1.28 million for clients who took out loans over the past eight years.
The B.C. branches were not involved in the lawsuit. About 6,000 claimants could expect to receive several hundred dollars each in the settlement. Interest, fees topped 1,000 per cent"There were application fees and administration fees and interest fees, and when you added up all of these fees, quite often they were in excess of 1,000 per cent, particularly if people paid them back within a two- or three-week period," says Jamie Cuming, one of the lawyers involved in the case.
Frank Dippolito is among thousands of Canadians who may be eligible to receive some money back through the lawsuit, believed to be the first of its kind in Canada.
Dippolito became involved with several payday loan companies to feed a gambling problem, taking out many short-term loans over a period of several years.
"I'd lose that money and go borrow more money. And the next two weeks, I would not pay them back, and then I'd let it slip and go on and on, and the next place would be the next hit. It's just like robbing a bank."
Don Slough, director of special prosecutions and appeals at the Manitoba Department of Justice, says payday loan companies "provide a service to people who are unable to get credit services from banks or credit unions."
"There has to be consideration of whether or not the service that they provide justifies the interest rate they provide."
Interest rates over 60% illegal
The Criminal Code forbids charging interest rates over 60 per cent per year. Even though higher rates are illegal, cases like this are usually settled in civil court, because they are difficult to prosecute criminally and the industry is not yet regulated by any level of government.
In 2003, 40 payday loan companies formed an association to offer customer protection and developed a code of business practices for members to follow â but it's not mandatory.
The current owners of the Instaloans brand are not involved in the settlement, as they bought the real estate in April 2004. The settlement funds were set aside by Instaloans' former owners.
Lawyers involved in the class action say they have already heard from 6,000 people who qualify for a settlement.