BELLEVILLE – Paul Carr was driving along North Front Street in Belleville about a year and a half ago when he was troubled by the proliferation of payday loan stores.
“They seemed to show up pretty quickly. ‘There is another one. There is another one. I started to notice that they were almost a block from each other, and I was like, it’s amazing how quickly they are coming into our community, ”says Carr, a city councilor from Beautiful city. It has 10 payday loan stores in this town of about 50,000 people. “We have a high poverty rate in our area… so it worried me that all of these high interest lenders were showing up in our community. How much do we really need?
If he has what he wants, the number will stay where it is.
Last month, Belleville council passed Carr’s resolution ask city staff to consider limiting the spread of payday lenders by limiting their presence to just three areas of the city.
Belleville joins a growing list of cities – including Hamilton, Kingston, Ottawa and Toronto – who benefit from the Putting consumers first, which went into effect in January and gives municipalities more control over where businesses can operate. (There is a grandfather clause that allows existing payday lenders to stay put.)
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The law also lowered the fees that payday lenders can charge; Carr says despite a new maximum fee of $ 15 per $ 100 borrowed, it can still work effectively 309 percent annual interest rate.
Payday lenders offer short-term, high-interest loans that people typically use when other, cheaper sources of credit are not available. In theory, borrowers repay the money with their next paycheck. Failure to repay the loan within a certain time may result in additional fees and increasing interest charges.
Christine Durant, director of the Belleville Poverty Roundtable, says high interest rates and short repayment cycles can make payday loans a trap. For low-income people who use the services, “payday lenders become your source of emergency. [of money], “she says.” So if you have a fixed income, or if you don’t earn enough from your job, and something’s going on that you need to cover – whether it’s medical, dental, or health expenses. fix your car or whatever – then you don’t have access to credit, so the payday loan becomes your access to credit.
The debt spiral
Robbie McCall of Ottawa knows well how dangerous payday loans can be. Nine years ago he was laid off for health reasons and forced to rely on employment insurance. He was not prepared for what he describes as a “drastic” pay cut. When Christmas arrived, McCall, a single dad, wanted to buy his daughter a pair of jeans but didn’t have the money available to do so.
“So I borrowed $ 200,” McCall says. “And the caption said, ‘Borrow $ 200 for $ 20, first time,'” he recalls.
He bought the jeans. And when he returned the following week, being on the limited income that he was, he felt compelled to take out another loan. It was only $ 20 more, I thought. I couldn’t get this from the bank.
A month later, he says, he was hit with the charges. And that’s when things started to escalate for McCall. His bank account was closed, removing his overdraft protection and his line of credit. Soon he was cashing his alimony checks with the payday lender, along with all the associated fees.
“For almost a year, I thought I was paying back the principal on these loans, but it turns out that at the end of the year, I hadn’t even touched the principal. I only paid the interest, ”McCall says. “It was a turnaround situation that I was totally unaware of. Eventually, I went to several payday lenders to pay off several payday lenders.
McCall says it took about nine years to finally lift himself off the weight of his debts. He calculated that the interest on his loans – which started with $ 200 to buy his daughter a Christmas present – was $ 31,752 at the time he paid them.
“That’s enough to buy a new car,” McCall says.
He paid off the loan with the help of a CBC auditor who heard his story and offered him an interest-free loan, along with a friend who offered him a basement apartment.
The generosity of others inspired McCall to get involved in GLAND of Ottawa (Association of Community Organizations for Reform Now), which led an “anti-predation lending” campaign against payday lenders in Ottawa. Today, it is one of the cities in Ontario that review a new set of rules for payday lenders.
Ottawa Mayor Jim Watson said payday lenders “prey on the poor and vulnerable”. The city has approved a motion that will ask staff to study the cap on the number of payday loan points, as well as the possibility of setting a minimum distance between them. Staff will also review a licensing model for payday lenders, which would make it more expensive to operate in the city. It is a model that Toronto is also exploring.
“Good people in a bad place”
Tony Irwin, President of the Canadian Consumer Finance Association (formerly the Canadian Payday Loans Association), represents the majority of payday lenders in the country. He says limiting the number of payday lenders could force people to find more shady sources of credit.
“People who access payday loans do so because our members will provide them with credit when no one else will,” says Irwin. “This is what this industry does daily for people who are good people, but they are in a bad spot.”
Irwin says the payday loan industry is already heavily regulated by the province, as it should be. He is, however, skeptical of some of the proposals to change the industry and the types of alternatives offered that are in fact “scalable and real”.
“At the end of the day, [these municipal politicians] can actually hurt the people they say they help because they force them to opt for less attractive options. In other words, go online and access an illegal, unlicensed lender, ”says Irwin. “Are you really helping them or are you just making it difficult for the people who need to use this service?” “
Reform payday loans
Brian Dijkema is director of the Work and Economics program at Cardus, a Hamilton-based Christian think tank (which was Ontario’s first city to limit number of payday loan stores when the new rules came into effect).
In a column for the Citizen of Ottawa, Dijkema argued that banning payday loan stores “is not a solution”. He agrees with Irwin that cities need to be aware that payday lenders often fill a gap when other more reputable options are not available to consumers. “There’s data to suggest that when these things go away, that usurious loan goes up,” he says.
“What we should be doing and asking ourselves is how the city can use the limited assets and time it has to help build a better market for consumers. So it helps them have more choices and helps them move up the economic ladder. “
Dijkema underlines the Causeway Community Fund in Ottawa as an example of an alternative to traditional payday lenders. With the help of local credit unions, the Causeway Fund offers low cost loans combined with financial literacy for consumers.
He thinks Ontario is moving in the right direction overall, but cautions that the lending industry is a fragile market and should be reformed slowly. “There is a proliferation of new lending agencies, which is a good thing. I think this is the type of competition you want, ”says Dijkema. “The decimation of the loan market is probably bad for the consumer in the end.”
In July, the province introduced another round of changes for payday lenders this will make it more difficult for them to do business in Ontario. In addition to limiting the amount that can be borrowed to a maximum of 50% of a person’s net income per loan, lenders will also need to be more direct with borrowers about the annual percentage rate charged.
“Rather than banning those things that are not acceptable,” says Dijkema, “An ideal market is one where there are many alternatives that can help consumers achieve their goals and ends. And that is what is really missing. The real challenge has been the lack of choice in the market.
“An ideal market [for credit] doesn’t just help people survive, ”says Dijkema. “It helps them flourish. “
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