Since we’ve already established only a monkey-brained maroon would ever resort to taking out a payday loan, we only have to spend one sentence explaining how bad they are. Hooray for efficiency!

It isn’t just the PF world that thinks these loans are garbage. Governments across Canada are starting no notice and actually do something about the payday loan industry.

In Ontario, the maximum a lender can charge for a payday loan is 21% interest. So if you borrow $300 for a hooker $600 for two hookers (Hey, if you’re going to get a hooker, you might as well get two. It’s double the fun!), the maximum charged will be $126. This includes any extra fees that might be charged by the lender.

In other words, a lender can’t charge you 21% interest and then a $10 leaving town tax. Not that such a tax exists, but hey. You can’t put anything past those evil payday lenders.

Finally, folks doing these kinds of loans in Ontario have to have a license. As part of keeping that license, they have to do things like plainly point out how much the loan will cost and give a borrower two business days to cancel a loan without having to pay a penalty.

Ontario isn’t the only province to make changes. B.C. capped the interest rate at 23% and forbade payday lenders from lending more than 50% of a borrower’s take-home pay.

Alberta recently introduced a bill that would cap the rate allowed to 15%, the lowest in Canada.

Saskatchewan has similar rules as B.C., with each individual location being charged a one-time $2,000 licensing fee.

Manitoba is almost as strict as Alberta, with the rate maxing out at 17%. The province limits borrowers to only borrowing 30% of their monthly net pay. Also, if a borrower extends their payday loan within seven days of getting it, the maximum charged can only be an additional 5%.

And finally, there’s Quebec, where payday loans don’t exist. That’s because the province has set the criminal rate of interest at a mere 30% annually. Compare that to Alberta, which still lets payday lenders charge 15% for two weeks. That works out to 390% annually.

So as you can see, Canada’s payday loan industry has changed drastically over the last few years. Legislation has been put in place to protect consumers at the expense of the payday loan providers.

Depending on who you believe, this is either the worst or greatest thing ever. Industry spokespeople say payday loans provide an important need to dirtbags under banked people. Consumer advocates say just about everything is better than a payday loan–even after all of these changes have been made to better protect the consumer.

The truth about the payday loan industry is probably somewhere in the middle. These changes will affect lenders, who will likely respond by moving more to an online-only model. Avoiding storefronts cuts down costs nicely. Fewer people in the business will mean more loans for the stores that do stick around. These stores will become more profitable.

And it will help borrowers. Dirtbag Jim will still get payday loans. He’ll just pay slightly less for them.

But ultimately, I think it affects the industry in a much bigger way. Here’s how.

Enter the title loan

Traditionally, payday loans have been exempt from usury laws. This limits the interest rate charged to consumers at 60% annually–at least outside of Quebec. And you thought a 24% credit card was bad.

Although the payday loan industry been affected by all sorts of legislation, there has been very little change to more traditional loans.

So what separates a payday loan from a more traditional loan without any collateral. A few things, namely:

  • The amount of time it takes to pay back (longer than two pay periods)
  • The interest rate (cannot exceed 60% annually)
  • Security (can be anything, while payday loans can’t legally lien anything

Let’s look at two real life examples. Say you get a $1,000 payday loan in Alberta, which would cost you 15%. Or, you get a $1,000 loan from Easy Financial which charges 46% (and change!) per year. The payday loan gives you two weeks to pay it back. The Easy Financial loan gives you three months.

You’d get charged $150 from a payday loan shop and (approximately) $100 from Easy Financial. But since the Easy Financial loan takes three months to pay back, it works out to a much lower cost per day the cash is borrowed.

The big reason why payday loans and unsecured loans from Easy Financial charge so much is there’s no collateral. Making loans to people with zero assets is risky. If they weren’t such terrible credit risks, they’d have assets. This relationship is the basis of banking.

99% of the people using payday loan places don’t have houses, securities, or other good sources of collateral. But they do tend to have something that does have value–a car.

Cars aren’t great pieces of collateral. You can literally drive them away. They tend to go down in value over time. And you’re only one bad texting while driving decision away from totaling the thing.

So it’s obvious that struggling borrowers shouldn’t be able to put their car up for collateral and get a loan at 5% annually. But they should be able to do better than 46% a year.

Plus, legislation really doesn’t touch the auto lending business. Sure, there are certain rules you have to follow as a lender, but they’re nowhere nearly as onerous as the ones governing payday loans. The payday loan industry gets all the attention. Nobody cares about title loans.

Title loans are easier for the lender and they give the borrower a lower rate. Us PF nerds scoff at a title loan at between 24% and 30% interest a year, but that’s a full 92% lower than what Alberta charges for a payday loan.

The cost of borrowing for the lowest rungs of society is coming down, and that’s a good thing. Title loans will help that continue to happen. Look for them to replace payday loans more and more in the future. Payday loans will never entirely go away, but look for the payday loan industry to start shifting towards more of a title loan model.

Tell everyone, yo!