Payday loan companies take advantage of lower-income people, charge exorbitant interest rates and must be regulated, says Yukon NDP Leader Todd Hardy.

"It's high time the Yukon government followed the example of other Canadian jurisdictions ... and pass consumer protection legislation setting maximum allowable fees," said Hardy in an interview last week.

Without regulation, companies that offer short-term loans are bound by federal law not to charge in excess of 60 per cent interest.

But if a borrower cannot pay back the money, that 60 per cent can balloon to more than 1,000 per cent over the course of one year.

"That means they basically have the ability to charge whatever rate they want," Hardy said. "It is really an exceptionally high amount that these businesses are able to charge people who are often not in a very good financial position, or they wouldn't be going there in the first place."

Stan Keyes, president of the Canadian Payday Loan Association (CPLA), welcomes regulating the industry in a manner similar to Nova Scotia.

In July, that province's utility and review board set a maximum $31 charge per $100 borrowed, and while that may seem expensive, Keyes says the marketplace should keep fees well below that rate.

"What happens now is that payday lenders will compete with each other to provide lower rates, to attract customers," he said. "Every province in the country should be constructing legislation and regulations to do two things: protect the consumer and allow for a viable competitive industry."

The three businesses in Whitehorse that offer payday loans are The Cash Store, Money Mart and Cash Plan.

The Cash Store's rates are 16 cents per day on each $100 borrowed, plus a 20 per cent brokerage fee, making a $500 loan with a two-week pay back period $612. If the customer is late repaying the loan, a $150 service charge is added.

Money Mart is a little cheaper, as the same loan would cost the borrower approximately $583. Its penalty for late repayment is $40.

The Star's attempts to contact Cash Plan were unsuccessful.

Studies on payday loans have produced some conflicting results.

A 2006 federal government paper on payday loans reported that the majority of borrowers were men between the ages of 18 and 34 whose household incomes were less than $30,000 a year.

However, a Pollara survey commissioned by the CPLA reported in 2007 - after canvassing Ontarians who had used a payday loan service - that more women than men took out payday loans and borrowers' average age was 39 years.

Income levels of borrowers from the Pollara report indicated that 42 per cent had incomes of less than $50,000.

According to Keyes, the average amount borrowed is between $300 and $400, and that 90 per cent of those who use the service repay the money on time.

But those who don't are faced with compounding interest charges and often take out another loan to repay the first.

While Keyes does not deny interest charges can compound to 1,000 per cent if the loan remains in arrears for a year, the CPLA does not sanction its members offering rollover loans - a second loan to cover the first.

"That's the single largest problem in the industry and every province must outlaw the rollover and the extension of an outstanding payday loan for a fee," said Keyes.

Despite CPLA's member ethics, "unscrupulous operators" give payday loan companies a poor reputation and critics charge the business exploits low-income people, something Keyes believes is unwarranted.

"Millions of Canadians use the service for a variety of reasons," Keyes said. "They have bank accounts, credit cards, Sears cards ... look at all those forms of credit they have, and payday loan is just another form of credit."

In 2006, it was estimated the industry lent a total of $1 billion to two million Canadians.