Local leadership critical in payday loan scandal
We would not tolerate gouging during an emergency, so why allow profiteering on poor?
Hamilton has the opportunity to protect thousands of current and future payday loan customers.
“Profiteering” is a derogatory term applied to those in business who make profits through methods which, while not illegal, could certainly be considered unethical.
Business owners could be accused of profiteering if they raised prices on essential goods in an emergency such as a national disaster or during war.
With close to one in seven Canadians experiencing poverty, many consider the country’s growing levels of income inequality to be an emergency situation, too.
For individuals and families who run into financial distress — perhaps f all short on funds to pay the rent or feed the kids, or for those who have poor credit, an industry has emerged to fill a desperate need for emergency cash: the payday loan industry.
The payday loan sector has been growing in Canada for the last 20 years in a vacuum of lax provincial and federal regulations, but these lenders are taking advantage of those with nowhere else to turn.
Payday lenders sure seem to fit the description of profiteers.
A payday loan is a time-limited loan with quick approvals and often no credit check. There are over 800 “licensed” payday lenders in Ontario — 35 or more here in Hamilton. Outlets are often located on the fringes of lower-income neighbourhoods where 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 do not go far enough to protect vulnerable borrowers. A $21 cap on $100 borrowed may seem manageable over a two-week period, but annualized, the interest rate of for the loans is closer to 540 per cent. Customers often get trapped into a cycle of borrowing and repayments and spiral deeper and deeper into debt. It can quickly get out of control.
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 everyday expenses: rent, groceries, utilities, car payments; only 28 per cent 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.
And as though raking in a 540 per cent annualized interest wasn’t enough, predatory lenders have been branching out. They’ve long been in the cheque-cashing business, but in December 2014, Money Mart perhaps the largest of these predatory lenders — began offering a “new service” during the holidays to buy back store gift cards — but only at 50 per cent of their value.
After an uproar on social media and at Queen’s Park, Money Mart backed away from the shameful scheme.
Just this past Christmas, a payday loan competitor, Cash 4 You, tried to outdo Money Mart on the “Grinch-O-Meter”
Posters began appearing in Hamilton and elsewhere urging parents into borrowing money to buy scores of presents “because … their children deserve it.” While the payday loan industry raked in their holiday profits, six weeks later, parents are now feeling the pinch of that overwhelming holiday debt.
The provincial government recently announced new changes to Ontario’s Pay Day Loan Act to tighten up the industry, but the changes hardly go far enough.
Some communities are taking matters into their own hands. Advocacy groups such as ACORN Canada have long advocated for stricter regulations. Calgary, Alta., and Burnaby, B.C.,have looked at municipal bylaws to limit the scope of predatory lending within city-limits.
In Hamilton, city councillors Matthew Green, Sam Merulla and others have proposed using municipal licensing and landuse planning authority to limit the proliferation of predatory lenders. Green calls it a form of “economic violence.”
Today, city council’s planning committee will consider a new licensing category for payday loan outlets.
Leadership is essential. The Canadian Payday Loan Association (the national body that serves as the industry’s trade association) is headquartered in Hamilton just down the street from City Hall. A mandate to licence predatory lenders here would send a powerful message.
But more important than sending a message, Hamilton has the opportunity to protect thousands of current and future payday loan customers. A recent “mystery shopping” trip to a couple of these payday loan outlets in downtown Hamilton revealed that staff working at these establishments actively dissuade potential customers from seeking credit counselling in favour of applying for new loans.
Stronger regulations nationally, provincially and locally are critical, but there are deeper issues at play too.
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 its appeal.
Traditional banks and credit unions have a central role to play by ensuring financial services are available in neighbourhoods and accessible for low-income populations. Some credit unions have begun developing innovative pilots that offer short-term loans at dramatically reduced interest rates. Similar ideas are taking root in Hamilton.
On Feb. 22, community partners will host a community forum at 7 p.m. at Tim Hortons Field Community Room to look at the impact of predatory lending in Hamilton. Residents will be asked for feedback.
It’s time to limit the damage the predatory lending industry has already done.
It’s time to hold these profiteers of despair accountable.