Payday Loans Around The World

In a previous article we discussed the situation regarding payday loans around the United States. In this article we will branch out a bit to see how these particular types of loans are handled in the various countries around the world.

In Australia, the small loans market was estimated in 2008 to be between $800 million and $1 billion dollars a year. It does seem likely that the true value of this market is higher than this statistic. The growth of this particular market in Australia mirrors the grown in Canada, the United Kingdom, and the United States. As this market grows, governmental authorities are taking a much keener interest in them. New South Wales and Queensland have imposed a maximum loan rate of 48% APR (which includes fees and brokerage amounts).

Canada has taken the regulation of loans one step further. According to the Criminal Code of Canada, any rate of interest that exceeds 60% per year is considered criminal. In 2006 this code was amended to permit Provinces to regulate the payday loan industry.

Let us focus in on the Canadian Province of British Columbia. The maximum charges for short term loans have been capped at 23% of the principal (including both interests and fees). In addition, the borrower can cancel the loan by the end of the following day after signing the agreement without paying any charge. The borrower is only allowed one loan at a time, and the lender is prohibited from lending more than 50% of a borrower’s take-home pay. All lenders are required to register with the government, and they are regulated under Consumer Protection B.C.

In June of 2010 another Canadian Province, Saskatchewan, announced regulations on payday loans similar to those in B.C. They have capped the interest rate on the principal at 23% and the interest rate of a defaulted loan at 30%. The borrower is also only allowed to borrow up to 50% of the net amount of their next pay. Companies offering payday loans must pay a licensing fee of $2,000 per location.

Shifting our focus over the Atlantic Ocean to the United Kingdom, we see that the increase in people taking out payday loans has increased by 241% during the last four years. A typical payday loan could cost £20 for every £100 borrowed. This means a £300 loan would cost £360 if it was repaid in full after one month. Keep in mind that there is no law against rolling over in the UK. So, if the loan was rolled over for six months it could cost as much as £660 to repay the loan in full.

Between August 2007 and June 2008 the number of loans made grew by 130%. Our research seems to show that there does not seem to be a usury limit either. One UK company offers a “typical APR” of 1355% (taking compounding into account). Yet another UK payday loan lender advertises an annual rate of 2,225%. Wow!

Over the years there has been criticism of the short-term loans market in the UK. The general sentiment is that the growing popularity of these kinds of short-term loans highlights the problems resulting from the credit crunch of the past few years and the unsustainable levels of personal debt in the country.

So there you have it, a look at the payday loan industry around the world. We hope that you have found this article informative and enjoyable. We welcome your feedback as always.