By Karen Pinchin
Photo by Duncan Kinney
A steady stream of people look over their shoulders before they slip into a granite-lined doorway nestled between an organic spa and a popular Indian-fusion restaurant on a street in Vancouver’s swanky Kitsilano neighbourhood. One man, wearing dark jeans, a button-up black shirt and a flashy silver watch, folds a thick wad of $20 bills into his pocket as he pushes the glass door open and heads back onto the street. During the 10 minutes he spent inside, a controversial transaction took place: he was taking out a payday loan.
The candy-coloured, brightly lit storefronts of pay day loan service centres are found across Canada, flashing neon proclamations of “FAST CASH” and “NO CREDIT CHECKS.” The payday loan industry says these outlets provide safe alternatives to pawn shops or gang-linked pay loan sharks. But there’s a dark side to these promises of easy money, with critics arguing that they prey on financially illiterate people who are desperate for fast cash – regardless of exorbitant interest rates.
Limping slightly, a red-headed man in an expensive-looking skateboarding hoodie enters the Money Mart with a cheque in his hand. It’s his unemployment insurance benefit. Before he broke his ankle on the job, Eddie was a construction worker. (He declined to give his last name.) Since his accident, it’s been hard for him to pay his bills when they come due, particularly because his EI cheque only clears on the sixth of every month. “Would you rather go to a payday loan place or a pawn shop to hawk your stuff?” he says.
Eddie has used Money Mart for the past year and half, and he’s a typical payday pay loan customer. According to a 2005 Ipsos-Reid survey, the average customer is male, between 18 and 34 years old, lives in an urban area and has a household income of less than $30,000 per year. Debt negotiator Bonnie Krisher, who founded the Calgary- and Vancouver-based company K&G Debt & Credit Professionals, says Eddie is also a classic example of someone who has been sucked into the dangerous cycle of what payday loans offer. “It’s almost like an addiction,” Krisher says. (Research has suggested that payday loan customers become habitual users. A February 2009 Leger Marketing survey for the Government of Alberta found, for instance, that 79 per cent of people were repeat customers.) “We have such a low opinion of [pay loan services] because it’s really, really hard to get out of an ugly cycle like that – especially when the costs can be, for example, $50 interest on a $300 pay loan.”
Now ubiquitous, pay day loan shops have only been around since the mid-1990s. That hasn’t stopped their speedy spread across the country. From industry heavyweights Money Mart and the Cash Store to smaller independent stores, Canada has about 1,350 storefronts representing around 300 different pay day loan brands. Every year, the industry doles out a reported $170 million to $1 billion in annual revenue thanks to interest rates that run as high as 60 per cent. (The government report from which these numbers are gleaned acknowledges that more precise estimates of industry revenue are not available.) NEXT PAGE: CRIMINAL LEVELS OF INTEREST
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Category: Money
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I find these loans very useful when I find myself short of cash. Ever pay $35 overdraft for a $4 hamburger? How about that credit card that costs $75/year plus carries all those fees? Seems the author didn’t bother to research the details of the alternatives mentioned in the article.