Suit against payday lender gets a boost

"By deliberately setting more debt traps for low-income families …” Critics say the high fees and interest charged on the paycheque-to-paycheque loans trap already vulnerable borrowers in a cycle of debt.

The Toronto Star
March 6, 2006

Suit against payday lender gets a boost
Top court dismisses firm's bid to derail. ‘Bit of heat on Money Mart,' lawyer says.
Jim Rankin

It was not a good week for National Money Mart, a company that sells itself as a convenient means for real people to get fast cash and has employed the Trailer Park Boys as pitchmen.

First, the chain of 350 Canadian cheque-cashing and payday lending outlets received its second "Loan Shark of the Year" award in a row from a grassroots citizen organization known for its campaigns against predatory lending here and south of the border.

Then, the Supreme Court of Canada dismissed a bid by the company, owned by U.S. parent company Dollar Financial Corp., to derail a proposed class-action suit launched by Windsor pensioner Margaret Smith, who is alleging the fees and interest combined on the company's short-term payday loans exceeds the legal rate of interest set out in the Criminal Code — 60 per cent per annum — many times over. To borrow a well-worn retort from Bubbles, the Trailer Park character with Coke-bottle glasses, Money Mart might well be thinking, "Holy crap."

"It puts a little bit of heat on Money Mart," agreed lawyer Jasminka Kalajdzic, of Sutts, Strosberg, the Windsor law firm representing Smith. "It's a major event in that, had they won, that effectively would have been the end of class-action litigation against Money Mart."

The Supreme Court dismissed Money Mart's bid to appeal lower court decisions that found arbitration and no-claim waivers the company had customers sign did not preclude them from suing the company. The court gave no reasons in dismissing the motion, but recent consumer law in Ontario all but made such waivers moot.

Smith's proposed class action can now move a step closer to certification, in a case that is being closely watched by plaintiffs in other proposed class actions against payday lenders across Canada, and no doubt by provincial and federal lawmakers who have been looking at ways to regulate the business but have yet to lift a finger.

In May, a judge assigned to Smith's case is scheduled to hear arguments over whether the fees and interest charged on the company's payday loans, when combined and calculated as interest, contravene section 347 of the Criminal Code, which sets the maximum at 60 per cent per annum. To date, no payday lender has been charged and successfully prosecuted under the law, which requires the permission of the attorney general to be used.

On Thursday, the Canadian and U.S. chapters of the Association of Community Originations for Reform Now handed out their "Loan Shark of the Year" awards to Money Mart, and demonstrated outside locations in Toronto and Vancouver, and 30 U.S. cities.

"By deliberately setting more debt traps for low-income families across Canada than any other payday lender, Money Mart continues to lead the way in doing the most harm to the largest number of people who find it necessary to use Money Mart's products," ACORN Toronto member Sharol Jason said in a news release.

A call last Friday to Money Mart's Canadian headquarters in Victoria was not returned. The company rarely entertains questions from the media, but it has said its payday loan product is amongst the cheapest in the industry.

Money Mart's business has grown to more than 1,000 stores in less than a decade.

Critics say the high fees and interest charged on the paycheque-to-paycheque loans trap already vulnerable borrowers in a cycle of debt. The industry contends it is supplying a service people need and banks do not supply, and that the unsecured loans come at a cost. Provincial and federal consumer ministers have been examining the largely unregulated industry, which has taken steps to self-regulate.

In Matter of Interest, a 2004 Toronto Star series on the payday industry, the paper sampled loans from a dozen Toronto payday lending businesses, including Money Mart, and found that the fees and interest on a typical two-week loan, when combined and calculated as an annual interest rate, ranged from 390 to 900 per cent. Money Mart's was indeed amongst the cheapest.

"Money Mart abides by the highest professional standards in providing quality financial products and services to Canadians," the company said at the time. "As the class-action suits have yet to go before the courts, we cannot comment on this matter further."

At least eight proposed class actions against different payday lenders are underway across the country — each alleging the fees and interest charged is criminal. In Smith's Money Mart case, the representative claimant is seeking from Money Mart and its U.S. parent company $555 million, on behalf of Canadian borrowers.

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