Payday gougers must be curbed

If a Toronto loan shark were caught charging 300 per cent interest, he might well go to jail. So how is it that our lawmakers allow the storefront ""payday loan"" industry — in effect, poor people's banks — to charge 400 per cent, or 600 per cent, or more?

The Toronto Star
June 22, 2004

Payday gougers must be curbed
Editorial

If a Toronto loan shark were caught charging 300 per cent interest, he might well go to jail. So how is it that our lawmakers allow the storefront "payday loan" industry — in effect, poor people's banks — to charge 400 per cent, or 600 per cent, or more?

It's almost as if no one really cares. How else to explain that Canada has laws and strict regulations to protect wealthy people from being gouged by banks and stockbrokers, but no protection for those who need to borrow $300 to keep going from payday to payday?

The burgeoning payday loan industry — Canada now has 1,200 storefront operations — says it is filling a market niche to meet needs that would otherwise go unmet. While that's true, the clientele consists of vulnerable people who are unable to make ends meet for even a week or two if they are hit by the slightest setback. A minor injury that keeps them out of work for a few days, an unexpected bill, or even a pair of shattered glasses is enough to throw them into financial distress.

As Star writers Nicole MacIntyre and Jim Rankin have reported over the past few days in a special series of articles, the payday loan industry drives many clients from short-term financial stresses into long-term struggles. They must pay exorbitant costs over and over again until they can retire their debts. They are forced to turn to these services because the major banks don't offer the loans they need.

With no savings or resources to settle these week- or two-week-long loans when they come due, many borrowers have no real choice but to keep renewing them, paying fees time and again. Those fees can push up the effective carrying charges to annual rates that run from 390 per cent to almost 900 per cent. Over 18 months, the Star found, a borrower can pay as much as $5,070 in fees and charges on a $520 loan.

Although these effective rates far exceed the 60 per cent usury limit set out in the Criminal Code, payday loan companies have not been charged or prosecuted. They're not even regulated in Ontario. They make money by imposing set-up fees, brokerage fees, per item fees and other costs, which aren't regulated. They should be.

Moreover. Ottawa should consider requiring the major banks to offer small-loan services, on commercial terms of course, with repayment schedules that are long enough not to impose hardship.

Government officials told MacIntyre and Rankin that the issue is complicated. The industry told them that its customers don't complain.

But there is wrong and there is right. It's wrong for our policy-makers to permit lenders to gouge borrowers, whether for $100 or $100 million. It's time to curb the loan gougers.


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