Payday loan companies come under scrutiny
Anti-poverty activists call them ‘predatory’
THERE ARE MORE payday lenders in Ontario than there are McDonalds restaurants.
In Hamilton, too, cash stores outnumber the golden arches that dot the landscape.
Before he was elected as Hamilton’s Ward 3 councillor last f all, Matthew Green would watch, week after week, as people lined up for loans from the lender across the street from his campaign office at King and Emerald streets.
He saw the “predatory” lenders as an embarrassment to the city — and he wants them out.
“This is a cause and not an effect of poverty,” said Green.
The councillor recently put forward a notice of motion to have the city assess the feasibility of regulating the industry at the municipal level.
It’s a move other communities across Canada have made, and comes as the province aims to put forward stricter legislation to keep lenders on a tighter leash.
Stan Keyes disagrees with Green. The former Liberal MP for Hamilton-West, who is now president of the Hamilton-based Canadian Payday Loan Association, says the industry is unfairly “vilified” and is simply meeting the need for shortterm loans unavailable through traditional banks and credit unions.
Keyes also disputes the claim that they target poor people by setting up shop in low-income neighbourhoods.
A map of the 34 licensed payday lenders in Hamilton shows that 18 of them are in the lower city. Two more are listed separately in Stoney Creek.
Another cluster is on busy Upper James Street, on the border of Rolston — the only neighbourhood on the Mountain identified as a “priority” by the city’s Neighbourhood Action Strategy.
Keyes says the industry is targeting high-traffic — not low-income — areas.
“There are going to be times when it’s the smartest option for the consumer,” he says, giving the example of someone needing to cover an emergency expense until payday.
But the Strategic Counsel Survey, which consulted 500 Ontario payday loan users in 2015, found more than half of the borrowers said they are using the service for recurring expenses — not crisis situations.
Only 8 per cent are borrowing to make a single, special purchase.
Without a limit on the number of loans a person can take out — or a database to tell lenders whether customers have loans through other stores — there’s a simple way to avoid defaulting. You just take out another loan to pay off the last one.
It’s a dangerous cycle that worries poverty activists, including Tom Cooper, director of Hamilton’s Roundtable for Poverty Reduction.
In f act, 18 per cent of borrowers surveyed said they took out more than 10 loans in a year and 27 per cent reported making less than $30,000 a year.
The maximum cost of a two-week loan in Ontario is $21 on $100 — which sounds reasonable as a onetime thing, but works out to 546 per cent annually, for those who get caught in that cycle.
After taking out her first payday loan four years ago, Sarah (who asked to use a pseudonym because of the social stigma around the use of payday loans) has spent “tens of thousands of dollars” trying to get out of that very cycle — which she now sees from both sides as a lender employee.
The 35-year-old took out her first loan because it was easy. She’d seen the commercials and, as a student, wanted some extra money in her pocket.
“It’s so easy because it’s there. It’s like, oh I’m bored, maybe I want to go out tonight or maybe there’s a dress I want to buy, or a pair of shoes … I have this cheque so let’s just go grab $100, (the loan costs) only $20, no big deal …”
But after a while, she found herself juggling loans from multiple lenders and asked her mom to take out a bank loan to get them under control.
Today, she has a spreadsheet to keep track of her payments — which she can rhyme off from memory:
The first payday loan is for $350, with a payback total of $423.50.
Two more are for $200 — so that’s $242, times two. Another is $300, which is $363. She has never defaulted on a loan, and is hoping to drop one of them down to $150 this next payday as she slowly chips away.
On top of that, she’s paying back a bank loan — and bills.
“I’m behind on bills because I’m paying these and, ugh, it’s just aw- ful,” she says. “I guess I learned the hard way.”
And once you’re out, the lenders make it hard to stay away.
She says one lender sent her a letter in the mail after she’d been inactive for a while, offering her a $100 loan for $1 if she came back.
Many lenders have business strategies like these.
Cash Money, for example, rewards clients for referring new customers, with either $20 in cash or $20 off their next loan. And you can get a loan from Money Mart and other online lenders without even leaving the house. Others have in-store contests. Cooper calls these tactics “absolutely predatory.”
“This industry will stop at nothing to try to lure people in,” he says.
It is a huge industry. In the 20122013 fiscal year, Ontario payday lenders doled out $180 million in loans — with an average of $1.5 million per store, according to a Deloitte survey of six lender companies (representing 111 of Ontario’s 773 cash stores).
According to that survey, a $100 loan (paid properly with no bad debts) costs lenders $15.56.
While there is no regulation around what constitutes an income, some lenders provide loans against social assistance cheques while others do not.
Asked about the ethics or morality of “luring” customers, Keyes gives an example of a single mother struggling to pay the electricity bill to keep the lights on in her apartment.
“And the bank says ‘we’d like to help you out, but we’re too big.’ So instead she walks across the street to Money Mart and pays $240 for a $200 loan. And the lights stay on. Now who’s being immoral?”
Green and Cooper say they’d like to see banks and credit unions fill that service gap for individuals in a financial pinch.
“I think our mainstream banks should be required to offer instruments accessible to everybody,” Green said.
Keyes also argues that payday loans represent only “a small fraction of overall debt” among people filing for bankruptcy, according to the Deloitte survey.
Pat Mohan has been in the busi-
ness about seven years and today owns 10 Money Direct stores across the country — one of which is downtown at King and Catharine streets.
His company is 100 per cent Canadian owned and operated, a fact Mohan feels sets him apart from many of the larger U.S.-based chains. For one, the profits stay in the country.
Mohan acknowledges that payday loans are expensive. But there is a need, he says, and charging high interest rates allow the industry to deliver the service.
“We’re here to help when you need it. That’s the message. We don’t want you to use us all the time, but we want you to use us as opposed to the other guys. If the banks say no, we’ll say yes,” Mohan says — adding that, for moral reasons, they don’t want their customers to become habitual borrowers and end up defaulting.
The Payday Loan Act requires lenders to display a poster outlining the terms and cost of a loan.
But the survey suggests Ontario borrowers are unclear about how a payday loan compares to other credit products.
For example, 7 per cent of borrowers were aware that the annualized interest rate on such a loan exceeds 500 per cent.
Keyes agrees there’s a clear need for better financial education in Ontario — starting in schools.
“From 30,000 feet it’s an issue of the working poor,” Keyes says — one thing that both sides can agree on.
“It speaks to the need for a living wage, for higher social assistance rates,” Cooper says. “This is a much bigger problem than just the payday lending industry.”