Macleans: Payday Lenders Winning Customers

A blog post on Macleans' website today notes that payday loan companies are "winning customers who need emergency loans, as well as those frustrated by tightening credit at the big banks," stating that "as the banks clamp down, the payday lenders are filling the void."

Repost: Banks quietly finding ways to charge more

Here is another article about the banks' approach to customer service in these difficult economic times:

From the Vancouver Sun: Banks quietly finding ways to charge more

If you think the global tightening of credit hasn't impacted you in any direct way, you might want to check your credit-card statements. Mine has quietly gone from a 26-day grace period to 21 days.

The interest rate on outstanding balances and cash advances is one per cent higher than last year (despite a significantly lower prime rate); there's now a $2 fee for cash advances; and the balances from current and previous statements must be paid in full by the due date to avoid interest charges.

-----

TD Canada Trust, for example, advised customers it would begin charging a $35 "inactivity fee" as of April 30 on those who hadn't accessed their unsecured lines of credit in the previous year.

The interest rate on lines of credit also was going up.

In other words, you paid more whether you borrowed or not.

Ontario Advisory Board Recommends $21 per $100

The Ontario Payday Loan Advisory Board issued its recommendations today and is calling for a rate cap of $21 per $100 in that province. The basis for its decision appears to be the result of an Ernst & Young study on the cost of providing payday loans in Ontario. The study concluded that the average weighted cost to provide a payday loan in Ontario was $21.50 per $100.

The E&Y study uses data from 9 of the more than 100 companies that provide payday loans in Ontario. To put this in perspective, the most representative cost study conducted to date was done by Deloitte in 2008. Deloitte looked at the cost of providing payday loans in British Columbia and surveyed 12 of the roughly 60 payday loan companies in that province. They found that the average cost of providing a payday loan in B.C. was $25.21 per $100.

The risk of using a cost study to determine the maximum allowable rate for a product in an industry with many participants is that if you settle on the average cost then you are still putting half of the industry out of business. Some have argued that lenders need only tighten their belts and all will be fine. Unfortunately it is not that simple.

First, business owners are likely our society's most efficient at tightening their belts. Those who have owned a business do not need to be told this, but for those who have not, you need only consider that every dollar an owner can save in efficiency improvement goes straight into his/her pocket. You will not meet a more motivated group when it comes to wanting to keep expenses at a minimum. I would argue that their belts are already tight.

Second, assuming that there are few notches left to tighten, where then does a payday lender cut costs? They could move to a cheaper location, shorten their hours, hire less skilled and lower paid staff. Each step leading to fewer customers and a less viable business, unless of course customers prefer poor locations, short hours and inexperienced staff. Not likely.

Finally, payday lenders could tighten their lending criteria and attempt to reduce their bad debt costs by being more picky about who they lend to. In E&Y's first payday loan study, The Cost of Providing Payday Loans in Canada, they identified a correlation between payday loan rates and bad debt risk, illustrating that the less a lender could charge the less risk they could assume.

In practical terms, a maximum allowable rate for payday loans that is based on the average cost to provide the product means that those companies who cannot tighten their belts enough (likely because they are already tight) will be out of business and those who can tighten will do so by restricting who they lend to. If consumer protection is the goal of this legislation then you have to look at where those consumers go and how protected they will be when their already limited credit options are restricted even further.

To steal from a previous post:

As the Policis study illustrates, some newly excluded borrowers may pay up to ten times the amount that they currently pay in order to borrow $100 from an illegal source of credit. Some will temporarily relinquish their personal assets in order to obtain a pawn loan and others will do without. Of the borrowers who do without, those who knew how to weigh the difference between the cost of a payday loan and the cost of bouncing a cheque will be worse off.

The best consumer protection is education and empowerment. Require consistent rate disclosure between all lenders so that consumers can easily identify the best option for them and their circumstances. Giving consumers fewer credit options in an already tight credit market does not get them any further ahead and I doubt it is what any of them are asking for.

The Ontario government has the final say on what the maximum allowable rate for a payday loan will be. I would encourage them to set a higher rate that will leave fewer people out of business and fewer borrowers out of options.

Banks Still Learning How to Treat a Loyal Customer

We already know that the current credit crunch has lead banks to become incredibly tight with their money, refusing to lend when our recovery from this mess depends upon it. An article in today's Toronto Star shows that not only are they not lending new money, but they are also putting the screws to longtime customers. The article chronicles the experience of Marvin Zuker, a provincial judge in Ontario for the past 30 years and a BMO customer for the same length of time. Despite his history with the bank, he recently had his account frozen and started receiving calls from an outside collections agency because he chose to use his overdraft for 6 months.

In good times and in bad, there is never an excuse for poor customer service and for not recognizing the value of longtime customers. One way that 310-LOAN has maintained its standing as one of Canada's leading payday loan providers is by making sure its customers don't feel like they are dealing with a bank. To get an idea of how 310-LOAN customers feel about the company's level of service, here are a few of the comments from customers, provided through 310-LOAN's Facebook page:

i have had nothing but the greatest of service from 310-Loan. Thank you for making it easy to get and to pay for a payday loan
-Troy S. (Calgary)

great service , good communication, and cool payment method and speedy!!
-Roberta B. (Winnipeg)

310 is the best out their!! thank you 310 loan
-Nicole M. (Saint John)

yes its nice and kewl to have a company like 310 i'm very grateful to u guys thx so much for making everything so easy
-Ricardo D. (Vancouver)

Yes, good & fast service, without the hassle of dealing with the bank, thanks 310-loan!
-Diane G.

I am happy with your service. Your customer reps are very friendly. When I have a problem with my account, they contacted me and discuss options with me. They deal with problem professionally and with respect. Thank you 310-loan.
-Daisy L.

I am very happy with your service; 310-loan is efficient, fast and effective, and meets all my needs. Thank you for being great professionals!
-Lorraine P. (Toronto)