It’s time for Ontario to ban predatory payday loan operators: Opinion
They are everywhere. It’s hard to find a major street corner in an Ontario community that doesn’t have a payday loan service. You’ve seen them: flashy storefront deals delivering quick cash in minutes.
Payday loans are time limited and often come with quick approvals and no credit checks. These loans can appeal to those who fall into a financial emergency and need quick cash to pay a bill or put food on the table.
But when it sounds too good to be true, it often is. Payday loans are a form of predatory economic violence. We see firsthand the impact on our communities.
Hard-working families are trapped in a cycle of economic violence that can take months or years to break free. The industry is a beast: there are over 800 payday lending points in Ontario and each year between $ 1.1 billion and $ 1.5 billion in payday loans are made to 400,000 people in this province.
While payday loans are regulated by the province of Ontario, for more than two decades the industry has operated in a vacuum of lax government oversight while expanding its base and exploiting consumers.
In January, through a regulatory change, the Ontario government reduced the cost of a payday loan from $ 21 to $ 18 on a $ 100 loan. While a fee of $ 18 on $ 100 of borrowed money may seem like a manageable sum, once annualized, the interest rates these payday lenders charge are 469%.
The business model of the payday loan industry is based on the relentless return of customers to borrow money. Many borrowers do not have the financial resources to pay off the initial loan without taking out another loan to cover basic household expenses, such as food, rent, and other essentials. As a result, many borrowers quickly get caught up in the payday loan trap and run into debt hundreds or even thousands of dollars with lenders before they know what hits them.
Some jurisdictions have taken a strong stand against this type of practice. The province of Quebec limits annual interest rates for all lenders to 35 percent per year. This has slowed the growth of payday lending establishments.
Several governments in the United States, including those in New York and New Jersey, have put in place strict restrictions to make payday loans unprofitable. In Georgia, they went further: payday loans are explicitly prohibited and violate anti-racketeering laws.
Ontario can and must do better.
This week, Bill 59, the Consumer First Act, reaches committee stage at Queen’s Park and proposes adjustments to the Payday Loans Act. The proposed changes offer a bit more oversight and protection against the worst excesses in the industry, but do not go far enough to protect consumers.
While we know that additional powers are being given to cities to advance permitting and zoning powers to protect residents from payday lenders, Ontario can show real leadership by outright prohibiting and just this predatory industry.
Other options, such as postal banking, alternative financial services through credit unions, higher social assistance rates and more affordable housing will have a positive and significant impact on the lives of residents.
In the absence of such bold statements, the legislative changes proposed under Bill 59 allow municipal governments to assume leadership where senior levels of government have faltered.
Hamilton City Council last year voted unanimously to create a new license category for payday loan outlets to address the growing predatory lending crisis.
Hamilton’s new regulations – the first of its kind in Ontario – require payday lending institutions to pay license fees, post the annualized interest rates they charge (relative to the chartered bank) and requiring staff at payday lending institutions to provide city-approved information on credit counseling services.
But the province cannot abdicate the leadership and leave it to the cities alone to fight the scourge of predatory lending.
Payday lenders excel at using clever marketing campaigns to attract customers and retain them. These gadgets encourage borrowers to take out their first loan for just one dollar, or to offer prizes to every 10th customer. These types of practices should be prohibited.
Governments must restrict aggressive advertising for payday loans. We need restrictions similar to cigarette warning labels stuck on point of sale windows because they are bad for our financial health.
The federal government is not blameless either. When the authority over payday loans was transferred to the provinces in 2007, the federal government also allowed payday lenders to bypass the maximum 60% interest rate allowed under the Criminal Code of Canada. The federal government could offload the blame and force payday lenders to follow the law.
It is time for all levels of government to stand up against the excesses of the payday lending industry.
Matthew Green is the City Councilor for Ward 3 in Hamilton. Tom cooper is director of the Hamilton Round Table on Poverty Reduction.