Alarm about what critics say are criminal levels of interest has led to calls in both Canada and the U.S. for tighter regulations. Since March, British Columbia, Ontario, Manitoba and Alberta have all enacted tighter rules to cap interest rates and pay loan conditions imposed by lenders, while Quebec has never allowed interest rates of more than 35 per cent per year. (New Brunswick and Saskatchewan have tabled, but not yet passed, similar legislation.)
Photo by Mathew Spolin, via automatt.com
“Before regulation, you still had lenders who were responsible, like Money Mart. But many companies were completely unscrupulous. There were lenders out there charging $50 to borrow $100,” says Stan Keyes, president of the Canadian Payday Loan Association (CPLA) and former federal MP. “It wasn’t right.” (Money Mart is a founding member of the CPLA.)
Despite tighter regulations, the industry is booming. In September 2009, the Cash Store, one of the industry’s big players, bought eight pay day loan centres in Ontario and two in Edmonton from Affordable PayDay Loans. “The acquisition… is part of our strategy to aggressively expand our national footprint,” said Gordon Reykdal, CEO of the publicly traded company, in a press release. Affordable Payday Pay loans plans to open between 70 and 80 Cash Store branches in what Reykdal calls “underserved communities” across Canada.
This booming growth is partially due to consumer demand for convenience, but is also a reflection of a society in which more and more people are living paycheque to paycheque, according to Vancouver beautician Jeremy, who declined to give his last name. He has used the Cash Store for advances on his salary for the past three years. Interest rates and fees charged by payday loan lenders might be outrageous, but as employers avoid paying their workers a truly livable salary, he says demand for the service is inevitable.
Payday loan services are an important source of financing for people who hit hard times, says Stan Laiken, a professor at the University of Waterloo School of Accounting & Finance. But because of the convenience, he says pay loans come with a proportionately high cost. “Think of your neighbourhood so-called convenience store. Their prices are always higher than the supermarket,” Laiken says. “You can walk right in and get what you need, but you’re going to pay for that.”
Laiken suspects the stores are targeted at people who think the service could solve their financial problems. Krisher, who once saw a collection agent threaten to steal the cat of one blind client, is harsher. “These are walking victims. They’re struggling, and they don’t qualify for lines of credit or overdraft or credit cards,” she says, adding that she tries to educate her clients about this dangerous pay loan cycle. “I try to show them how much money they’re giving those cash stores. A lot of people aren’t aware of the consequences, and they need a reality check.” U
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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.