SOMBA K'E/YELLOWKNIFE - Legislation is coming that will force 'payday loan' companies to fully disclose their interest rates.

Four such companies are in Yellowknife - offering short term, high interest loans.

"There is the cost of credit disclosure that is going to be introduced and that would compel the lending companies to fully disclose the interest rates that they are charging on loans," said Robert C. McLeod, minister responsible for consumer protection, in response to questioning from Weledeh MLA Bob Bromley last week.

Bromley sought curbs on the interest rates which these loan companies are allowed to charge, but McLeod could only guarantee legislation forcing full disclosure of interest rates.

"People living paycheque to paycheque and people gripped by substance abuse are among the clients of these firms," Bromley told the legislative assembly on Oct. 15. "Usually small amounts are borrowed for brief terms, but as borrowers learn, added costs are anything but small."

Federal legislation limits the maximum interest rate on any loan to 60 per cent annually, but some provinces have brought that bar even lower. British Columbia limits interest (fees included) to 23 per cent of the principal on short term loans.

"Laying out very clear interest rates is a start," said Lydia Bardak, executive director of the John Howard Society. "Folks relying on temporary employment or seasonal work often are the ones seeking these loans and often they don't have much education. Anything that would better inform the consumer would be a help."

In 2009, Judge Robert Gorin in NWT Court ruled three loans made by Yellowknife's Diamond Placement and Financial Services were illegal, as the interest charged was too high.

In all three loans, the plaintiff claimed an interest rate on a monthly basis that worked out to 60 per cent annually (and therefore legal). However, added fees meant the borrower was charged the equivalent of as high as 1,054 per cent interest.

"The plaintiff also claimed, $337.50 for 'disbursements, admin fees' and a further 'NSF/Holding' fee of $100," reads Gorin's decision. "The promissory note states that 'All costs, expenses and expenditures including NSF charges ... will be added to the principal ...' However, no real explanation of the costs and expenditures claimed in its statement of claim has been provided by the plaintiff."

Gorin therefore refused to enforce collection of the loans, calling them illegal.

McLeod expects to table legislation by the end of the 16th Assembly next year.

We welcome your opinions. Click here to e-mail a letter to the editor.