Ontario Debates Payday Loan Bill - Part 3 (Politicizing the Debate)
Part 1 | Part 2 | Part 3
The Standing Committee on General Government met twice last week to hear public testimony regarding Ontario Bill 48. I have gathered a few comments from day 1 that I will post shortly and I am still waiting for transcripts from day 2. In the meantime, I would like to comment on what appears to be an effort by Ontario's third political party to politicize the debate and score points on the backs of payday loan consumers.
My position on payday loan legislation in Ontario and throughout Canada is that consumers deserve legislation that provides consistent disclosure on rates and terms so that they can understand the payday loan product and make effective financial decisions between it and other products that are available to them. They also need a reasonable cap on payday loan rates that prevents unscrupulous lenders from exploiting vulnerable individuals with rates that are exceedingly above the costs associated with issuing these loans.
Payday loans are not financially viable at 35% APR or even 60% APR. Unfortunately, this does not make for attractive headlines. Doing right by the payday loan consumer requires the understanding that they are choosing between a $40 NSF fee at CIBC and a $24 fee for a payday loan, not a 35% APR or a 350% APR. The media and voters who do not use payday loans have demonstrated that they do not understand this distinction. For example, Robyn Doolittle’s May 29 article in the Toronto Star commenting on the first two days of public testimony before this committee and titled 60% cap on interest urged for payday loans, states:
"Many of the speakers recommended the committee follow a model laid out in Manitoba in April in which a cap was set on a graduated scale. In some cases, the annual rate could still exceed 60 per cent, but for the most part the rates would be capped below that."
The truth is, the Manitoba Public Utility Board set rates that they themselves admit will drive many lenders out of business; nonetheless, the Board’s maximum rates equate to 443% APR on the first $500 issued and 391% on amounts from $501 to $1000.
Committee members from the Liberal and Progressive Conservative parties seem to understand this, but members from the NDP are sending very mixed messages that can only be intended to make the passage of effective payday loan legislation politically expensive. Committee member Ms. Cheri DiNovo is, on one hand, grabbing headlines by calling for rates to be capped at 35% APR and, on the other hand, extremely supportive of Dr. Chris Robinson’s testimony that recommends a rate that includes fees of 16% of the loan value up to the first $500 issued, the equivalent of a 417% APR on a 14 day loan. The latter, of course, going unreported because neither she nor Dr. Robinson make mention of the APR.
While this may be a shrewd political tactic that exploits the media’s minimal understanding of payday loans, it will be wholly unfair to payday loan consumers if it leads to rates so low that the product is no longer available to them. As I have said before, payday loan consumers deserve better.
Labels: Canadian_Legislation
posted by Advance View @ 4:23 PM
3 Comments
3 Comments:
"it will be wholly unfair to payday loan consumers if it leads to rates so low that the product is no longer available to them. "
Disagree. Loansharking is here to stay. Personally, I'd rather deal with the mafia. There's honesty and principle there.
This is not simply an issue about viability, and of course not every user of payday loans is poor. This is clearly not an issue of consumer choice, for many users haven't much of a choice at all but to fall prey to these predators. But this is an issue of predation and protection for many who can't protect themselves.
Payday loan companies are nothing but tarted up thinly veiled attempts to legitimate criminal usury. For if the province remains the sole regulator of these companies and sets caps greater than those considered criminal usury under the Criminal Code, then in effect we will have legitimated usury in this province.
Derrida: thank you for your comment. For the benefit of other readers, could you elaborate on your experience with payday loans? You say that you would "rather deal with the mafia," is this because you have used payday loans before and had a bad experience? Or have you had a good experience dealing with the mafia to obtain credit?
A government study in the UK revealed that borrowers in that country paid an average of £26 to borrow £100 from the UK's equivalent of a payday lender and £200 to borrow £100 from an illegal lender. This is compelling data so I would be interested to hear more about why you would wish this on Ontario payday loan customers.
I would like to respond to a couple of things Derrida commented on. I have worked in the payday loan business for 5 years and manage a store in Ontario. The 60% usury cap was created long before payday lenders even existed, and was not meant to apply to small 2 week loans for a couple of hundred dollars. 60% a year may sound like a lot, but if we lend out $100 dollars for 2 weeks at 60% a year, we would only make $2.30 on that loan. That is not nearly enough to cover our rent, employee salaries, computer costs, internet costs, heat and hydro, postage, government tax payments, advertising, etc. Plus, many customers (probably about 10 to 15%) will simply take out the $100 and never repay it. If we were unable to collect on only 1 loan for $100, we would have to do 43 good loans at 60% a year just to break even!
I am also troubled by statements like "Payday loan companies are predators preying on the poor people". That is ridiculous. We provide a service that the public clearly needs, and 98% of our customers love us. They know exactly how much they have to pay back, and there are no hidden fees whatsoever. If anything, I think it is more accurate to say that the poor people prey on us. A significant number of our customers take out loans and then don't repay a cent, essentially stealing our money.
We are not making money hand over fist off these people --- we are legitimate businesses who want to make enough to cover our operating costs and hopefully make a bit of a profit at the end of the day....thats all
Post a Comment
<< Home