By Tom Cooper
Many consider this to be the ‘Season of Giving’, but for the payday loan industry in Ontario, it seems to be their favorite season for taking.
At a time of year when many Ontarians are struggling to cover basic costs, payday loan outlets have found news ways to try to reel in vulnerable consumers.
A payday loan is a time-limited loan with quick approvals and often no credit check. There's over 800 'licensed' payday lenders in Ontario – outlets that are often located on the fringes of lower income neighbourhoods. The industry has targeted areas where traditional financial institutions, such as banks, have closed up shop.
While loans are licensed by the province under the Payday Loan Act, many consumer advocates have argued that regulations are too lax. A $21 cap on $100 borrowed may seem manageable over two weeks, but annualized, the interest rate of for the loans is closer to 540% and often results in vulnerable customers spiraling deeper and deeper into debt.
The working poor are the main clients of payday loan outlets. According to research undertaken by the Momentum Community Economic Development Society in Calgary, the vast majority of loans are borrowed to cover ordinary every day expenses; only 28% are used for unexpected emergencies. In fact, the business model of the payday loan industry is predicated on customers returning time and time again to take out more loans to cover the costs of paying off the previous one.
These predatory lenders often use slick marketing campaigns and morally questionable tactics to appeal to consumers who are in financial distress.
Last December, Money Mart began offering a ‘new service’ during the holidays to buy-back store gift cards – but only at 50% of their value. After an uproar on social media and at Queen's Park, Money Mart backed away from the shameful scheme.
This year, a payday loan competitor, Cash 4 You is trying to outdo Money Mart’s effort on the Scrooge-O-Meter. Posters have begun appearing in communities 'guilting' parents into buying scores of presents (and falling deeper into debt) “because… their children… deserve it”.
Last week, the provincial government announced new regulations to tighten up the industry, but these changes hardly go far enough – and don’t address the outrageous levels of interest the industry can charge.
Some communities are taking matters into their own hands. Groups such as ACORN Canada has long advocated for stricter regulations.
In Hamilton, City Councillor Matthew Green has proposed using municipal bylaws and municipal land-use planning authority to limit the proliferation of predatory lenders – which he calls a form of “economic violence”. Similar steps have been taken in Calgary, Alberta and Burnaby, British Columbia.
While stronger regulations are critical, there are deeper issues at play. The payday loan industry exists as a result of deep economic inequities in our society. Living wages, affordable housing and affordable public transportation would help eliminate the appeal of these predatory lenders.
Traditional banks and credit unions also have a central role to play by ensuring financial services are available in neighbourhoods and accessible for low income populations. Some credit unions, such as VanCity in British Columbia, have begun developing innovative pilots that offer short-term loans at dramatically reduced interest rates.
It’s an example of how financial institutions don’t have to be naughty — they can play nice, too.
Tom Cooper is the coordinator of the Ontario Living Wage Network, a project supported by the Atkinson Foundation. The CCPA-Ontario is a proud partner in this project.