Payday loan businesses charge rates to borrow that amount to as high as 1,200 per cent annual interest. (Paul Henderson/ Black Press file)

The high cost of Instant Cash

Preying on the marginalized with ‘loan shark’ rates puts payday outfits under Chilliwack’s microscope

This article originally appeared in the Dec. 3, 2015 edition of the Chilliwack Times

Marty van den Bosch was working a low-pay, entry level job 15 years ago.

Like a lot of young men, he was terrible with his money. He was a bachelor. And he partied hard.

One payday came along and the party went on a little too long, but he hadn’t yet paid his rent in full.

He needed a loan, he didn’t have good credit at any bank, so he went to Money Mart, one of the many payday loan businesses around at the time. He got a loan for $300, and that’s when the trouble started.

As he remembers it, that $300 payable two weeks later came with a $30 charge, a rate that may seem reasonable to the desperate and those who aren’t well-versed in financial matters. But $30 on $300 over that time period is an annual interest rate of 260.7 per cent, which, in the payday loan world, is relatively low.

Some payday loans charge fees that amount to as high as 1,200 per cent interest.

Next pay period van den Bosch rolled the loan over for another $30 fee.

Then again. And again. And again.

“You keep slipping back just a little bit more and that fee starts to compound,” he said. “Then I thought, Money Mart lent me money, maybe Moneytree can lend me some more. The situation got worse and worse and this went on for two years.”

Van den Bosch eventually had to declare bankruptcy.

Criminal lending

Charging a rate of interest higher than 60 per cent is considered criminal in Canada, but payday loan companies were given an exemption by Conservative government in 2006 thanks to Bill C-26.

“Some payday loan companies appear to be charging interest in excess of 1,200 per cent per annum,” according to a report on Bill C-26 prepared by Parliament.

Part of the bill was meant to dump the responsibility for regulation to the provinces, and what it did was legalize what was already happening.

“These are loan shark rates,” said Coun. Sue Attrill, who is chair of the city’s Public Safety Advisory Committee (PSAC).

“It really puts people that are in a situation where they are already low income and marginalized already and it puts them at greater risk…. The reason they are popping up all over the place is because they are a licence to print money.”

While regulating the financial industry is a federal area of responsibility, the ramifications end up at city hall’s door. Municipalities face the daily public safety challenges that come with homelessness, crime and also usurious interest rates.

“Every social issue in the city becomes an issue for us,” Attrill said.

At Tuesday’s meeting, council voted to send a letter to the new federal Minister of Justice Jody Wilson-Raybould to reduce the maximum amount of interest allowed to be charged on loans.

“The pay day loans industry is a very aggressive sector,” the letter signed by Mayor Sharon Gaetz says. “Pay day loan companies are competing for the business of a vulnerable group of Canadians who are desperate for short-term loans but do not have the credit rating necessary to deal with a bank.”

The city also approved a resolution to present at the next Federation of Canadian Municipalities conference.

At the meeting Tuesday, Coun. Jason Lum added an amendment to the motion to send the issue back to PSAC to see what the city could do to help stop “predatory payday loans.”

Long-term problem of short-term loans Local financial advisor Terrence Brown teaches people how to be better with their money. He also believes education at the school level is key.

“It doesn’t surprise me that these loan businesses are flourishing,” Brown said. “Many Canadians are living beyond their means, aren’t saving, have no emergency fund, and are taking out high interest loans as a last resort. It’s a sign of the times.

“Education is the key to fixing this problem. I would love to see the education curriculum revamped to include basic financial literacy. If not, trends show that the problem will keep getting worse.”

There is widespread criticism of the payday loan industry, some comes from ex-employees.

In a discussion on social media, one local individual told the Times she used to work at a payday lender and it isn’t just paycheques people can borrow against, but pension cheques as well.

“Seeing 80-plus-year-olds coming in and knowing that by the time they paid it back they would need it again in a vicious never-ending cycle made me ill,” she said.

“I thankfully got out of it exactly a year ago,” said another person. “Will keep my fingers crossed that I never have to use it again.”

“Good topic! My brother destroyed himself financially by defaulting on ONE payday loan at Christmas time last year,” said yet another.

But others point to other more established financial institutions and arguably unethical lending there, too.

Chilliwack resident Cherie Lynn told the Times she has rented a room to an individual who is receiving $570 a month in social assistance who was given a credit card with a $3,000 limit.

“Payday loan places you kind of expect them to be sharks, but our chartered banks are far worse,” she said.

As for van den Bosch who was nearly destroyed by them, he doesn’t disagree that payday loans are problematic but he sees them as symptoms rather than the real problem.

“I don’t think the interest is the biggest heartache,” he said. “That $300, I borrowed that. That $30 added insult to injury but I shouldn’t have borrowed that. I should have sucked it up.”

As for the city’s move to pressure the government to make changes to the industry, van den Bosch thinks it’s over-reaching.

“How much are we trying to bubble-wrap people’s lives?” he asks. And while no one wishes debt, poor credit let alone bankruptcy on anyone else, his hitting rock bottom was the best thing that happened to him.

He stopped partying, stopped recklessly spending and turned his financial life around.

“My pay and my career level jumped and jumped and jumped, I started earning more and more income, changed my mindset and got to the point where my $40,000 student loan was gone. Then I started dumping into RRSPs and before long I had enough to put a down payment on a house. I’ve now been working in IT for 15 years.”

Canadian Payday Loan Association president Stan Keyes did not respond to an emailed request to comment on the subject.


@PeeJayAitch
paul.henderson@theprogress.com

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