Payday lenders' lines of credit questioned in Manitoba

Short-term loan companies that face tough laws in Manitoba have started offering lines of credit, in what some critics say is a way to get around the rules.

The province's payday loan legislation, which took effect in 2010, imposed a limit on high-cost payday loans by setting a maximum 17 per cent in interest and fees that lenders can charge over the course of the loan.

The Cash Store and sister company Instaloans stopped offering payday loans in its Manitoba locations this past October.

But CBC News has learned that both companies, which are operated by CS Financial, have since started offering lines of credit, which experts say appear to fall outside the province's payday loan rules.

With the lines of credit, customers can borrow 60 per cent of their paycheque, with 90 per cent of that amount due back by their next payday. The customers are charged 24.5 per cent in brokerage and assessment fees.

In Winnipeg, retired farmer Gordon Repula said he took out a line of credit from The Cash Store in October to help make ends meet.

"It's the worst company to ever loan from," he said.

Repula said he borrowed $100 for 13 days. After interest and fees, he had to pay back $133.18.

Under the legislation, Repula would have paid a maximum of $117 if he had obtained a standard payday loan.

According to the provincial rules, customers can borrow up to $1,500 for a maximum borrowing period of 62 days.

For those who want to borrow another payday loan afterwards, lenders cannot charge full interest or fees for a new loan within seven days of a previous loan being paid.

The Cash Store's website says with its lines of credit, customers can borrow up to $2,000 and only have to pay back 90 per cent of the loaned amount by the maturity date.

But, unlike payday loans, those who have lines of credit can borrow money again without having to wait.

Repula said after his experience with his line of credit, he has filed a complaint with the province.

"They're a big ripoff. The company should be shut down," he said.

Review all payday lending, says expert

Government officials told CBC News they are aware of the new lines of credit and are monitoring the situation closely.

"We've been in communication with the federal government to express our concerns and we will continue to discuss this issue with them," said Beatrice Dyce of the Consumer Protection Office of Manitoba.

Jerry Buckland, an international development professor at Menno Simons College and an expert on fringe lending, said the province should do something about these lines of credit, which he worries may be a way to get around the payday loan legislation.

"Clearly these products will continue to proliferate, so let's look at them comprehensively and systematically, rather than one at a time," he said.

Buckland was shown Repula's contract with The Cash Store, and he said it appeared to contain all the negative aspects of a payday loan, but it's more complex and harder to understand.

Representatives with CS Financial have not returned calls from CBC News seeking comment.

Earlier this month, payday loan companies started offering lines of credit in Ontario.

The Cash Store and Instaloans are facing a proposed class-action lawsuit that claims customers were overcharged even after Manitoba introduced its payday loan laws.