Do you trust your bank?

VIDEO: "Five shiny marketing tactics that banks use to trick you."

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."

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)

Good Read: "Check Cashers, Redeemed"

I just had the pleasure of reading a very interesting and thorough article on the alternative financial services sector in California published in The New York Times Magazine: Check Cashers, Redeemed by Douglas McGray. It chronicles the life of Nix Check Cashing, growing from its humble beginnings as a service offered to customers of Tom Nix's father's delivery business in the early '70s to the largest check casher and payday lender in California, sold last year to Kinecta Federal Credit Union.

There are many interesting aspects to this article and I won't go into all of them, but there are two I would like to highlight. First, the purchase of Nix by Kinecta is a rare foray into alternative financial services by a mainstream bank or credit union. They have taken the novel approach of placing Kinecta kiosks in Nix locations and have continued, with some variation, Nix's check cashing and payday loan services. They have also kept owner Tom Nix on board as an executive.

The second piece that I wanted to pass on was some of the data and commentary on why customers in California, and the broader United States, choose payday loans and the banks' relationship to this product's success:

"In the late 1980s, when a few check cashers started to accept postdated personal checks and advance cash for a fee, Nix thought it was a sleazy scheme. He thought so even after California legalized the practice in 1997. 'I didn’t want to be a loan shark,' he told me. 'But the reality is, customers wanted it.' He told (Kinecta president and CEO, Simone) Lagomarsino why. A bounced check, a fee to reconnect a utility, a late-payment fee on your credit card, or an underground loan, any of those things can cost more than a payday loan. And then there are overdraft charges. 'Banks, credit unions, we’ve been doing payday loans, we just call it something different,' Lagomarsino says."

The article also includes some staggering trends on the direction that bank and credit card fees have been heading recently:

"Bank of America took heat earlier this year for more than doubling the interest rate on some credit-card accounts, even if the cardholder pays every bill on time. Banks, meanwhile, have nearly quadrupled their fee income in the last decade, according to the F.D.I.C., while credit-card late charges and over-limit charges have nearly tripled. Fees imposed on customers for temporarily overdrawing their accounts — by accident or on purpose — have been particularly lucrative; banks made $25.3 billion in 2006 on overdraft-related fees, up 48 percent in two years, according to the Center for Responsible Lending."

While McGray draws a clear connection between the cost of bank fees and credit cards and the rise of check cashing and payday loans, he does not gloss over some of the trouble spots within the alternative financial services sector. He talks about the high cost of over use of check cashing and payday loans and speaks to customers who are well aware that their choice is not a cheap one. In the end, he demonstrates how the banks have failed to serve an entire segment of the population and how companies like Nix have stepped in to fill the void, with unparalleled service, openness and transperency, and a mission to do whatever it takes to say yes to their customers.

With their acquisition of Nix, it seems like Kinecta is making it pretty clear that they get it. They realize that mainstream financial services companies have missed the boat on a segment of the population and they are counting on people like Tom Nix to help them figure out how to win them back.

ACORN Member Calls Payday Loan Customers "the wrong element"

People who use payday loans and the companies who provide them understand that they fill a need for hard working Canadians who are tight on credit and often facing an unexpected financial crunch. The latest study of who uses payday loans and why is a study of Alberta payday loan users by Pollara on behalf of the Canadian Payday Loan Association and is available here.

While people who use the product rate it favourably, what continues to resonate in the media is that people who don't use it take a different view. One example of this is a recent quote from ACORN member and candidate for city council in New Westminster, BC, David Tate, who complained that payday loan locations "bring the wrong element to the city."

ACORN is a community organization that has most recently made the news in the United States for their role in a voter registration scandal. In Canada, they describe themselves as "the nations largest community organization of low- and moderate-income families." They list among their priorities, advocating for regulation of payday lenders, a priority they share with the Canadian Payday Loan Association, the British Columbia Payday Loan Association and a host of other industry and consumer representatives.

While I may be stating the obvious here, I find it somewhat concerning that a member of an organization that claims to be advocating for the people who use payday loans would describe them as "the wrong element."

What is also concerning is that Mr. Tate is pushing for a limit to how many payday loan locations can be in the downtown core, relying on his claim that these locations are attracting the wrong people to the neighbourhood. If there are enough people who live and/or work in the downtown core to support several payday loan locations then whose role is it to say that people should not have access to a variety of providers? And how is that advocacy? I find it hard to believe that there are any payday loan users asking for a reduction in locations.

Businesses open locations where there are enough people to support those locations, if there weren't, they would close. It is pretty basic supply and demand. And in case you are wondering, it is not a 'chicken vs. egg' argument. Think of other industries. Banks don't open a location where there are few bank users. They find locations where their customers work and/or live. They don't put a branch in the middle of nowhere and then hope that customers will make extra time in their day to visit that branch.

The other piece of this topic that is equally troubling is the notion that the public would be served by limiting competition for a product. By restricting the number of locations for any type of business, you are making the businesses who do get a license incredibly more wealthy and far less interested in enhancing their services or efficiency. Why would they? If there is no threat from 'the guy down the street' offering a cheaper product or better service or longer hours?

Consumers love competition and businesses hate it. Ask any business owner and they will tell you that they would much rather have a monopoly than a highly competitive market. Advocates like ACORN need to make better use of this fact if they are to be truly effective in their quest to improve products and services on behalf of the people they represent.

New Brunswick Urged to Act

In light of of Nova Scotia's recent payday loan rate cap decision, New Brunswick is being urged to act by both the Canadian Payday Loan Association and the Consumers' Association of Canada: New Brunswick told to clamp down on payday loan companies

Reaction to Nova Scotia Payday Loan Decision

Reaction has continued to trickle in this week to the July 31st decision of the Nova Scotia Utility and Review Board to back a market-based approach to payday loan rate caps. The following is a summary of the recent media coverage:

The Chronicle Herald: URB sets payday loan limit

• "The Nova Scotia Utility and Review Board has decided to let competition in the marketplace keep the costs of loans in check and on Thursday set the maximum cost of borrowing at $31 per $100 borrowed."
• "'The maximum rate set by the board must be sufficiently high to allow the marketplace to function properly, while also preventing lenders from charging excessive fees and charges,' the board says in a 105-page decision released Thursday."
• "The rate decision, the outcome of a five-day hearing in Halifax in January, contrasts sharply with a recent decision in Manitoba that set a much lower maximum borrowing rate."
  
• "Nova Scotia’s board says 'it places no weight' on Manitoba’s decision, which debates the morality of payday loans."

The Canadian Press: N.S. regulator sets payday loan charge maximum at $31 for every $100 borrowed

• "'Certainly there was a lot of dissatisfaction and negative publicity about payday lenders,' said [Municipal Relations and Service Nova Scotia Minister Jamie] Muir. 'The myth was out there that they take advantage of those who could least afford it. But, the [Utility and Review Board] report said in general the people who are using these services are typical Nova Scotians.'"
• "'They got it right,' said Stan Keyes, president of the Hamilton-based Canadian Payday Loan Association. 'The board followed the evidence and from that determined the announcement that goes to protecting the consumer, and ensures there is a competitive viable industry in Nova Scotia.'"
• "Still, consumer advocate David Cameron said he's unconvinced that the industry is as competitive as some industry representatives say it is. 'If there is competition it's not uniform throughout the province,' said Cameron. 'That's quite evident by looking in the phone book and seeing how many operators there are in certain towns or communities.' Cameron said the $31 maximum seems high, and that he hoped there would be more evidence gathered by the board before setting the rate. 'But there's a real problem in a rate not being set, too,' said Cameron. 'The board was faced with a difficult dilemma. There's no easy solution here, any decision made would be a difficult one.'"
  

CBC: N.S. regulator caps fees on payday loans

• a brief (128 words) summary of the decision taken from the Canadian Press
  

The Globe and Mail: Nova Scotia Limits Payday Loan Charges

• a brief (143 words) summary of the decision taken from the Canadian Press

Old School Comments About Online Credit (or plain old bias?)

Yesterday I commented on Peggy Nash's private members bill that calls for a federal regulatory regime for payday loans (Mixed Messages?). Later in the day I came across this article that included a quote from Bob Whitelaw, recently a consultant for Alterna Savings. He expressed concern that payday loan consumers who borrow online may be exposed to identity theft risks and may get "mixed up with money laundering." These follow his comments to the Standing Committee on General Government in Ontario regarding Bill-48 where he told the committee that there were "1,200 or more existing online payday firms," and "When I mention these Internet groups to the credit unions and banks, they are less than thrilled to know that their customers and clients are providing a tremendous amount of personal information online."

First, to set the record straight, there are currently 31 websites offering payday loans to Canadians. Each of these sites must have an arrangement with a major Canadian bank or credit union in order to use the electronic funds transfer system to move money into a customer's account and collect payment when the loan comes due. These transactions are governed by the rules of the Canadian Payments Association. The banks and credit unions are well aware of what information is required to process online credit applications by all manner of credit providing companies and they have strict rules that govern these transactions.

Second, and more interestingly, Mr. Whitelaw's former employer appears to be more than comfortable asking for personal information online. Alterna, no doubt aware of the fact that 58% of Canadians bank online, offers an online application form for a number of products, including a personal loan. On their online credit application, Alterna asks applicants to provide the following (copied from their site):

1. Loan Information
2. Application Information
3. Address Information
4. Employer Information
5. Spouse or Co-Applicant Information
6. Income
7. Assets
8. Liabilities
9. Mortgage
   

In total, Alterna asks for 91 pieces of information on their online credit application. In comparison, 310-LOAN's online application asks for 33. I checked into the security on each of these sites and Alterna's application form is secured by VeriSign, 310-LOAN's by SecureTrust. Finally, both have privacy policies on their sites and both are bound by the same privacy legislation.

I mean no disrespect to Mr. Whitelaw, I have had the chance to meet him in the past when he was working with the Canadian Payday Loan Association. If I were to bump into him again, I would ask him which of these two credit providers is putting customer data at risk and, if either, how he made that determination? I would also want to know why he felt that applying for credit online puts a customer at risk of being embroiled in money laundering? Should I close my online bank account at TD Canada Trust? Or is it only payday loan companies who we should fear? And again, how did he make that determination?

If I had my druthers, the journalists who are writing about the industry would be asking these questions too.

Mixed Messages?

Both the Winnipeg Free Press and The Toronto Star are carrying a story today about Federal NDP MP Peggy Nash's proposed private members bill on payday loans. According to The Free Press, Ms. Nash is proposing a bill that "calls on Parliament to create a regulatory process, putting one law in place for how payday loan companies operate across the country."

In theory, a single national regulatory regime would make life easier on a lot of people. Lenders who operate in multiple provinces would lower their compliance costs by only having one set of rules to worry about and provinces could save on the public utility board hearings, licensing bodies and other costs associated with industry oversight.

The trouble is, a lot of money has already been spent to get the regulatory environment to where it is today. After as much as a decade of study by Industry Canada and the Consumer Measures Committee, the regulatory regime was built around a province-by-province solution. In May 2007, the federal government passed Bill C-26, empowering the provinces to regulate the payday loans industry. Since that time, British Columbia, Saskatchewan, Manitoba, Ontario, Nova Scotia and New Brunswick have all passed payday loan legislation. Manitoba has completed its rate setting process and the other provinces are in the midst of doing the same. Industry and consumer groups have spent a great deal of time and money working with each of these provinces to help draft effective legislation, regulations and rate caps.

We will have to wait to see the contents of Ms. Nash's bill, but at first glance, the timing seems a bit off. What is more interesting is that it also seems to contradict the NDP's previous position on payday loan legislation. The following are excerpts from the NDP press release regarding the introduction of Bill C-26:

"NDP Finance Critic Judy Wasylycia-Leis hails today’s introduction of a bill that will allow provincial governments to regulate payday loans as a major breakthrough."

"'We’ll be looking for quick passage of this bill to enable provinces like Manitoba to move ahead with their plans for effective consumer protection as soon as possible.'"

I have already commented on what appears to be political grandstanding on the part of the NDP in Ontario. Hopefully this is not more of the same at the federal level.

Ohio payday loan customers cry foul

Payday loan customers in Ohio are trying to come to grips with their State government's decision to effectively ban payday lending in that State. Here are some comments in the Ohio press today:

"'This is a godsend for people trying to get their bills paid, basically make ends meet,' Dan Schardt, 48, said while exiting Cashland, 223 W. Perkins Ave.

The Sandusky electric technician, who uses a payday loan about once a month and said he always pays them back on time, believes people like him are being punished for the actions of those who may not use the loans responsibly."

"'This is the first instance where the government just shuts down a business arbitrarily,' Schardt said. 'They're not considering the people who will be out of work, the property owners who lease to them and the public -- it's a big disappointment.'"

"'It's not fair,' said Lyle Viock, 49, who uses occasional payday loans to pay bills while waiting on the $800 he receives each month in spousal support after the death of his wife. What are people supposed to do?'"

"'This is supposed to be a free country,' Viock said. 'It doesn't feel free when they're telling you what to do with your money'"

Legislation that leads to loss of payday lenders could harm many

Mike Sussman of The Newark Advocate made the argument yesterday that banks and credit unions are unlikely to offer more attractive credit alternatives to payday loan borrowers and that the loss of payday lenders in Ohio could inflict more harm on consumers who are already facing a myriad of financial pressures.

Sussman also mentions who has had the most input in the legislative process in Ohio. While I think many Canadian provinces are doing their best to incorporate a wide range of feedback into their regulatory work, the one voice that we haven't heard enough from up here is the consumer's.

From Mike Sussman of The Newark Advocate:
"Banks, credit unions and small lending divisions of major financial institutions have had the most input. These are the folks with deep pockets that are used for huge donations to our Ohio legislators. Lately, arguments have surfaced that this group of traditional lenders could meet the needs of the payday borrower. Nothing could be further from the truth."

"Payday lending, while expensive, is the last line of defense for the financially overburdened low credit score consumer. Taking this option away will only increase the amount of hardship in a state already overwhelmed by foreclosure. Consumers, unlike Bear Stearns, will have nowhere to turn for immediate financing."

Ban payday loans? Big mistake - Christian Science Monitor

An article in today's Christian Science Monitor provides some commentary on the perils of bans on payday advance loans in some American States and suggests that a paternalistic approach to credit regulations hurts consumers.

From Ban payday loans? Big mistake. | csmonitor.com:

"The injury on top of the insult is that laws against payday lending do serious economic harm to the people likeliest to use such a service, as confirmed by multiple teams of researchers."

"...once the paternalistic rhetoric is switched off, payday lending's usefulness to borrowers in tight spots is fairly easy to understand. The quick cash means that the car gets an urgent repair, a critical check doesn't bounce, or the heating bill gets paid. Used responsibly, payday lending can help a borrower stave off financial calamity."

Jury still out on Money Mart cheque cashing case

Here is a follow-up on the Vancouver Sun journalist who is in court fighting Money Mart over Canada's little-known cheque law: Money Mart usually wins, but jury is out on this case

California acknowledges that 36% APR is not feasible

The California Assembly's banking and Finance Committee yesterday took a stand against a 36% APR rate cap in that State: Bill to limit payday lenders defanged.

In doing so, they acknowledged that a 36% cap equates to a prohibition on payday loans: "'I'm not interested in a prohibition,' said Assemblywoman Lois Wolk (D-Davis). 'At the moment, there is no alternative to the products that meet the same needs that payday lending provides.'"

While lenders need to continually improve their efficiency and bring their costs down in order to remain competitive, a rate of 36% APR is simply not feasible. In their 2004 study, Ernst & Young found that it costs the typical payday lender $20.66 to issue a $100 payday loan in Canada. At 36% APR, the fee on a $100 payday loan for 14 days would be $1.38.

Little-known cheque law

This isn't really in the payday loan realm of topics, but I though it was worth sharing anyway. Money Mart has taken a Vancouver Sun columnist to court using an obscure Bills and Exchange Act violation. Apparently if you place a stop-payment on a cheque that is then subsequently cashed at Money Mart (or any other cheque casher), you, the cheque writter, are liable for the amount of the cheque:
Before you write a cheque, take note of this little-known law

The Americans are Coming...

Joanna Smith of the Toronto Star provided a summary today of the U.S. firms who are looking at Canada now that regulations are starting to be finalized: New Rules Attract U.S. Lenders. She quotes Uriah King of the Center for Responsible Lending as saying that we will see "explosive growth in the industry." It is more likely that we will see large American lenders taking out small to medium-sized Canadian operators and the net number of stores will not change dramatically. If anything, the number of stores will decrease because the large lenders won't be interested in the small, low volume stores that are only financially viable if they are owner operated.

NDP using payday issue to score political points in Ontario

Cheri DiNovo has received some attention in Toronto this week for her stance on Ontario's newly tabled payday loan legislation. She is advocating for a rate cap of 35% per annum (article), following the model that is used in Quebec. It is no secret that companies cannot deliver payday loans for 35% per annum. If they could then there would be no need for Bill C-26. The NDP knows this, or at least they should. Ernst & Young released a study in 2004 documenting what it costs to issue a payday loan in Canada. Deloitte did the same thing with their Manitoba study released this past fall. If Ms. DiNovo needs further evidence then she can take a drive down the 401 to Montreal and she will find that there are no payday loan outlets in that city or anywhere else in Quebec.

If Ms. DiNovo and the NDP want to ban payday loans then they should come out and say it so that Canadians, and specifically payday loan customers, can consider this position on its merits. Unless the NDP really hasn't done the math, their stance on payday loans in Ontario is designed to grab headlines and nothing more. Payday loan consumers deserve better.