Proliferation of lending stores a signal people are poorer: Report

Lack of choice and the "desperation of poverty" are forcing some to turn to payday loans and other costly fringe financial products they can ill afford to use, according to the United Way's report on poverty in Toronto.

The Toronto Star
November 26, 2007

Proliferation of lending stores a signal people are poorer: Report
United Way is calling on Ontario government to regulate cash-advance industry, impose a cap
Jim Rankin

A sign at a store that offers payday advances. A United Way audit this year found 317 such outlets in the city.
JIM RANKIN/TORONTO STAR FILE PHOTO
20071126 Proliferation of

Lack of choice and the "desperation of poverty" are forcing some to turn to payday loans and other costly fringe financial products they can ill afford to use, according to the United Way's report on poverty in Toronto.

The report cites the growing number of payday loan stores – which offer short-term, unsecured loans at annual interest rates ranging from 300 to 1,000 per cent – as one of the key warning signs many in the city are becoming poorer and urges the Ontario government to regulate the industry and set an interest rate cap and limits on fees.

While the report relies on findings of past studies on fringe financing, such as pawn shops and the payday loan industry, the United Way conducted a drive-by audit of Toronto payday lenders and cheque-cashing outlets this year.

They counted 317, up from 39 locations identified in a search of 1995 Yellow Pages ads.

"Our purpose here is not to vilify the fringe lending sector. Clearly, these businesses have found a market niche that fills a need for convenient, quick and easy credit, the demand for which, at least in terms of payday loans and cheque cashing, may well extend to a broader cross-section of the population," states the report.

"Our concern is that the desperation of poverty and the lack of choice is driving people to these businesses, costing them more than what better-off families have to spend to get credit. And when families are trapped in a cycle of debt, they are less able to provide the kinds of opportunities for their children that will help them get a good start in life."

In Matter of Interest, a 2004 Star series on the burgeoning payday lending industry, the newspaper highlighted the plight of borrowers who were living paycheque-to-paycheque and had turned to the high-cost loans to make ends meet. Most took out serial loans – paying hefty fees and interest each payday – because they could not afford to pay down the entire amount of the original loan plus fees and interest.

Ottawa late last year passed legislation that gives provinces the right to regulate the industry.

While several provinces have taken steps to enact legislation to regulate the industry and set caps, Ontario this past summer enacted consumer protections requiring lenders to clearly show the cost of borrowing. But the provincial Legislature has not passed any law to regulate the industry. The United Way is urging the province to take that next step.

The industry says it offers a service the banks don't, and that the loans come at a cost that should not be thought of in terms of annual interest rates.

The Canadian Payday Loan Association – a lobby group representing 23 companies, including Money Mart, and a little more than a third of an estimated 1,350 payday lending stores nationwide – commissioned a recent poll of its members' Ontario clients.

It found nearly all had a relationship with a bank or credit union, with three in five having a savings account. Half had a major credit card, and one in five had a home mortgage. One in seven indicated they use payday loans because they have no alternative.

The Pollara poll – based on a survey of 503 customers, with a margin of error of plus or minus 4.4 per cent, 19 times out of 20 – also found that one third of clients were using the loans to pay for necessities. It was cited as the main reason for taking out a loan. One in five reported they could not pay back at least one loan on time.


Brought to you by WikidFranchise.org

Risks: Usury, Regulatory capture breeds its own incompetence, Canada, 20071126 Proliferation of

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License