Time to ban predatory payday loan operators
They’re everywhere. It’s hard to find a major street corner in an Ontario community that doesn’t have a payday loan outlet. You’ve seen them: flashy, storefront operations offering quick cash in minutes.
Payday loans are time-limited and often come with swift approvals and no credit checks. These loans can appeal to those who fall into a financial emergency and need quick cash to pay a bill or put food on the table.
But when it sounds too good to be true, it often is. Payday loans are a form of predatory economic violence. We see the impact on our communities first hand.
Hard working families are trapped in a cycle of economic violence from which it may take months or years to break free. The industry is a beast: There are more than 800 payday lending outlets in Ontario and every year between $1.1and $1.5 billion in payday loans are issued to 400,000 people in this province.
While payday loans are regulated by the province of Ontario, for more than two decades this industry has operated in a vacuum of lax government oversight while expanding its base and exploiting consumers.
In January, through a regulatory change, the Ontario government lowered the cost of a payday loan from $21 to $18 charged on a $100 loan. While an $18 fee on $100 of borrowed money may seem like a manageable sum, when annualized the interest rates these payday lenders are charging is 469 per cent.
The business model of the payday lending industry is predicated on customers returning time and time again to borrow money. Many borrowers don’t have the financial resources to pay the original loan without taking out another loan to help cover their regular household expenses, such food, rent and other essentials. As a result, many borrowers are quickly caught in the payday loan trap and fall hundreds, even thousands of dollars in debt to lenders before they know what hit them.
Some jurisdictions have taken a tough stance against these types of practices. The province of Quebec limits annual interest rates for all lenders to 35 per cent annually. This has slowed the growth of payday lending locations.
Several governments in the United States, including New York and New Jersey, have put in place tough restrictions to make payday lending unprofitable. In Georgia, they’ve gone further: payday lending is explicitly prohibited and a violation of anti-racketeering laws. Ontario can and should do better. This week, Bill 59, the Putting Consumers First Act, reaches the committee stage at Queen’s Park and offers tweaks to the Payday Loan Act. The proposed changes provide a little more oversight and protection against the worst excesses of the industry, but don’t go far enough to protect consumers.
While we welcome that additional powers will be given to cities to advance licensing and zoning powers to protect residents from payday lenders, Ontario can demonstrate real leadership by banning this predatory industry outright.
Other options, such as postal banking, alternative financial services through credit unions, higher social assistance rates and more affordable housing will have a positive and meaningful impact on residents’ lives.
In the absence of such bold pronouncements, the legislative changes offered under Bill 59 do enable municipal governments to take leadership where senior levels of government have faltered.
Last year, Hamilton city council voted unanimously to create a new licensing category for payday loan outlets in an attempt to respond to the growing crisis of predatory lending.
Hamilton’s new regulations — a first of its kind in Ontario — require payday loan outlets to pay a licensing fee, post the annualized interest rates they are charging (compared to the chartered bank’s rate of interest), and require staff at payday loan outlets to provide city-sanctioned information on credit counselling services.
But the province cannot abdicate leadership and leave it to cities alone to tackle the blight of predatory lending.
Payday lenders excel at using slick marketing campaigns to lure customers through the door and keep them returning. These gimmicks encourage borrowers to take out their first loan for the cost of only one dollar, or offer prizes to every 10th customer. These types of practices must be banned.
Governments need to restrict aggressive payday loan advertising. We need restrictions akin to cigarette warning labels plastered on the front windows of outlets because they are bad for our financial health.
The federal government’s not blameless either. When the authority for payday loans was downloaded to the provinces in 2007, the federal government also enabled payday lenders to circumvent the 60-per-cent maximum rate of interest allowed under Canada’s Criminal Code. The federal government could upload responsibility and force payday lenders to follow the law.
It’s time for all levels of government to stand up against the excesses of the payday loan industry.