Payday lender faces B.C. order

For about five years, Stop ‘N’ Cash stores have been charging clients a death and disability insurance fee, equal to 24 per cent of the amount borrowed, on its paycheque-to-paycheque loans. It's seen by some as a unique way to get around usury laws.

The Toronto Star
August 5, 2004

Payday lender faces B.C. order
Ontario-based firm told to stop offering insurance. Company part of Star series on loan industry.
Jim Rankin and Nicole MacIntyre

British Columbia regulators have ordered an Ontario-based payday lending company to stop providing insurance on its high-cost, short-term loans in that province.

A "cease and desist" order was issued late last month by B.C.'s Financial Institutions Commission against an Abbotsford Stop ‘N’ Cash store and the payday lending chain's headquarters in Kitchener following an investigation that found the company was providing insurance without a licence.

"We found that they were selling insurance to borrowers," Ken Fraser, the commission's executive director of investigations, said in a phone interview. "As far as B.C.'s insurance law goes, you require a business and a licence authorization to do that."

For about five years, Stop ‘N’ Cash stores have been charging clients a death and disability insurance fee, equal to 24 per cent of the amount borrowed, on its paycheque-to-paycheque loans. It's seen by some as a unique way to get around usury laws.

A spokesperson with the Financial Services Commission of Ontario would neither confirm nor deny whether the insurance watchdog is investigating Stop ‘N’ Cash in this province, where about 59 of the company's 60-plus stores are located.

But sources have said the commission has been examining the insurance fees charged on Stop ‘N’ Cash loans for some time.

The Star recently highlighted Stop ‘N’ Cash in a story that was part of a series of articles about Canada's unregulated payday loan industry. There are 1,200 payday stores across the country, and the provinces and Ottawa are looking at ways to rein them in. Critics of the controversial loans say borrowers are often those who can ill afford to use them and can quickly become trapped in a cycle of debt.

It's been alleged in at least eight proposed class-action lawsuits, including one that names Stop ‘N’ Cash as a defendant, that the fees and interest charged by payday lenders exceed the 60-per-cent per-year limit in the Criminal Code.

Under the Criminal Code, legitimate insurance fees are not considered interest. A lawyer representing Stop ‘N’ Cash told the Star in a recent interview that his clients believe their business model operates within the law. The company says it is the store that is being insured, not the person who is borrowing money.

Borrower Peggy Davis, a retired City of Windsor director, alleges in her proposed class-action lawsuit against Stop ‘N’ Cash that the insurance fee is a "sham."

A principal with the company did not respond to a request last week for comment on the B.C. order. But in an e-mail sent to franchisees, the company's CEO wrote that the B.C. regulator "did not make any effort to work with the company to understand our business before issuing its order."

The e-mail, signed by Stephen Padveen, went on to say that company lawyers are working on the case and it's hopeful the order will be rescinded until a full investigation takes place. There is no penalty associated with the order and the company has the option of appealing.

As part of the Star series, a reporter took out loans at a dozen Toronto payday loan stores, and found that the fees and interest charged on the loans — when combined and calculated as annual interest rates — ranged from 390 to 890 per cent on a two-week loan.

Out of 12 stores sampled, Stop ‘N’ Cash was the most expensive. The stores charge clients a one-time set-up fee, plus the 24 per cent death and disability insurance fee. When the Star took out a loan at Stop ‘N’ Cash, a $120 loan for two weeks cost $41: $11 for the set-up fee, 30 cents in interest and $29.70 for the insurance fee.

The form given to the Star indicated that borrowers "have the option of providing (their) own proof of insurance coverage for the loan with Stop ‘N’ Cash … as the named insured."

The loan due date is based on the person's next payday, typically anywhere from one week to a month. The fee is forwarded to a Barbados-registered insurance company, set up by a principal of Stop ‘N’ Cash, and nearly all of the fee, according to company information, is then rebated to individual stores.

If a borrower becomes incapacitated or dies while a loan is outstanding, the insurance company covers the store's loss. No money is paid out to the borrower or the borrower's family in such a case, but the borrower is left with the perception that they are buying insurance and paying an insurance premium, said Ken Fraser of the B.C. commission.

The Abbotsford store, the sole Stop ‘N’ Cash franchise in B.C., has stopped offering insurance but has remained open for business, he said. The store did not return a call from the Star.

It's unclear if practices have been altered chain-wide.

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