Ban on New Payday Loan Outlets?

From somos.presente.org

Councillor Frances Nunziata is attempting (with council colleagues) to freeze the number of payday loan companies in Toronto through a Council by-law that would stop licensing new ones.

Payday loan outlets have expanded exponentially and have tended to cluster in lower income areas. Weston has more than its fair share of them.

Payday loan / check cashing companies began in the U.S. in the 1990s thanks to repeal of usury laws there. It was the Harper Conservatives who opened the door to payday loan companies across Canada. The maximum interest rate under the Criminal Code was (and still is) 60% annually before the Tories opened a Pandora’s Box loophole in 2007. Provinces were allowed to regulate their own rates after that. The Wynne Liberals tightened the rules slightly (nothing the industry couldn’t drive a truck through) and lowered the rates to the current astronomical level.

Why do payday loan companies exist? Especially when they charge loan-shark levels of interest. Without customers, PLCs would have gone out of business long ago. The chart below illustrates some of the reasons offered by customers.

Reasons for using a PLC. Financial Consumer Agency of Canada.

There are three reasons for PLCs’ continued existence:

One reason is the failure of Canada’s banking quintopoly™ to make their more affordable services known and widely available to low-income Canadians. Also by closing branches, they have been allowed to shirk their moral obligation to provide banking and financial education to the poor. Many people don’t realize how much a payday loan costs – $15 interest per $100 borrowed over two weeks is an annual interest rate of 391%.

Relative costs of borrowing $300 for 14 days. . Financial Consumer Agency of Canada.

The second reason PLCs exist is a systemic poverty that prevents people from getting ahead. Ontario’s minimum wage is $14.00 an hour or about $29,000 annually. This is about $2000 lower than it should have been thanks to Premier Ford cancelling the planned January 1 minimum wage increase to $15.00. Ford (and others including the Ontario Chamber of Commerce) claimed that a higher minimum wage would kill jobs, lower profits and trigger inflation. When the min-wage was increased from $11.60 to $14.00, none of the dire predictions came true. Ford was dead wrong. Yes, For The People indeed.

Lastly, our living costs are astronomical. An income of over $100,000 is needed to afford the payments on a one-bedroom condo apartment in Toronto. Rental units are rising too. Toronto’s public housing has a 7 to 10-year waiting list and is in a state of chronic disrepair and neglect. Gangs, cockroaches and bedbugs are allowed to operate relatively unfettered inside their confines.

Thanks once again go to dear leader, Premier Ford who dismantled Ontario’s successful Cap and Trade program that was set to provide billions towards public housing, school repairs and upgrades. All together now: For the People.

Although banking is a federal matter, York South-Weston MP Ahmed Hussen has been silent on the banking industry despite being prodded to make some remarks on the topic. He represents one of the poorest ridings in the country (not that he actually lives here) yet fails to be moved by the plight of people victimized by the failure of our current banking system.

There are alternatives to PLCs. Anyone in Canada can open a low cost bank account that can charge a maximum of, $4.00 in monthly fees. Account holders are allowed up to 12 debit transactions a month and other features. Account holders can gain access to financial advice.

Even better, Luminus Credit Union has a branch at 2011 Lawrence Ave W unit 11 ( 416-243-0686). They have a zero-fee, zero minimum-balance checking account.

Of course we can (and should) stop new PLCs in Toronto but that’s not going to fix the predation caused by existing ones, idiotic legislation, low wages and costly housing.

This is a lucrative  industry with well-placed and well-financed lobbyists. Let’s see if Councillor Nunziata and Toronto City Council can begin the process of eliminating the scourge of payday lenders from Weston and the rest of the city. If they can do that, then they can move on to bigger actions.

From Richmond Times Dispatch.

Learn more about payday loan companies here.

2 thoughts on “Ban on New Payday Loan Outlets?”

  1. Your comment on the Harper Conservatives enabling pay-day loans is misleading (and your link isn’t strictly pertinent).

    s. 347 of the Criminal Code, which limits interest rates to 60%, was not enforced for decades before the 2007 amendment. The reasons for this are complex. In part, the pay-day loan outfits were widely seen as a necessary evil. However, there was a division of powers problem because banking regulation is handled at the federal level while ordinary criminal code prosecutions are handled by provincial prosecutors. This Walrus Article cites a 149% expansion of the industry in Toronto between 1999-2005.

    The 2007 amendment put regulation in the hands of the provinces. The provinces could, if they wished, put the industry out of business, as has happened in Quebec. Most provinces have declined to do this.

    So you might say that the Harper Conservatives should have simply enforced the ban on usury (and I would agree with you), but this was a failure by successive governments – Liberal and Conservative. In fact, the Pay-Day loan industry really took off during the Chretien/Martin years.

  2. Eric, thanks for your thoughtful comment. I maintain that while the Conservative legislation may not have begun the industry, they had an opportunity to see where things were heading and nip the industry in the bud. There was no shortage of sob stories coming from the U.S. at the time.
    I agree that successive governments could have gone down the path Quebec followed and simply banned PLCs entirely and that’s on the provincial Liberals.

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