I hate payday loans. I think they are a burden to society because they prey on the poor and the uninformed. The Globe and Mail has an excellent but lengthy article on payday loans in Canada. The link is provided after my summary. Also there is a link to a video from John Oliver who gave a comedic rant about payday loans in the US. It is quite insightful.
The article is saying that more and more people are using payday loans. A major credit-counselling agency is seeing more clients walking through the door with payday loans needing help. This is especially true for seniors. 45% of their clients over the age of 60 are holding payday loans in 2014. It was 20 per cent in 2010!
There are now more payday loan stores in Canada then Royal Bank branches or McDonald’s restaurants! The storefronts are often located in low income and poverty stricken areas. These are areas where people with the least ability to pay their hefty fees live. The article starts off with an example of someone who took out a $200 payday loan to buy a Christmas gift for his daughter. Quickly it became a $400 loan with a $100 fee after a couple of loan cycles.
In BC, Alberta and Saskatchewan, the maximum rate a payday loan company can charge is an annual interest rate of 600 per cent! How is this possible when there is a Federal Law that prohibits the lending of money at greater than 60 per cent? Well, back in 2006 legislation was introduced to allow the provinces to give exemptions to payday loan companies. Why? The article does not cover this, but John Oliver’s video might shed some light on the politics behind the scene.
As a result, each province has a different limit. Ontario has a maximum of 546%, while Newfoundland has kept the limit at 60%. Quebec is the only province that reduced the limit to 35% making it unprofitable for payday companies to set up there.
As payday loans become more of a problem, there are more and more people looking to restrict this business. Industry representatives are saying if you regulate them out of business, people will just borrow online from some company out of the country.
In the US, 14 states are trying a new solution. They have a centralized payday loan registry that can track all the payday loans in the state. This data provides the capacity to control the frequency a person can take out a payday loan. Ideally this can reduce people’s dependency on payday loans but does not disrupt the service for real one-off emergencies. I hope someone in the Canadian government is tracking the progress so our legislators can learn from their experience.
Original Article:
John Oliver’s comedic rant on payday loans in the US. In the last half of the video it reveals some shocking experiences regarding trying to legislate payday loans in Texas, Illinois, Arizona and Ohio which might foreshadow what can happen in Canada. Be warned. There is some very offensive language.
https://www.youtube.com/watch?v=PDylgzybWAw
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