Advance View

Macleans: Payday Lenders Winning Customers

noreply@blogger.com (Advance View) — Thu, 12 Feb 2009 04:20:00 +0000

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

noreply@blogger.com (Advance View) — Tue, 10 Feb 2009 18:22:00 +0000

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

noreply@blogger.com (Advance View) — Fri, 06 Feb 2009 20:10:00 +0000

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

noreply@blogger.com (Advance View) — Wed, 04 Feb 2009 18:07:00 +0000

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)

Manitoba Changing Direction on Payday Loan Legislation

noreply@blogger.com (Advance View) — Fri, 16 Jan 2009 21:44:00 +0000

For those of you following along with the payday loan legislation adventure that is unfolding in Manitoba, a recent Vancouver Sun article has a few quotes from Manitoba Finance Minister, Greg Selinger indicating the new direction that the province is heading in:

"When one company, The Cash Store, won the right to appeal the cap — which had been set by Manitoba Public Utilities Board after a thorough examination of the industry — Selinger refused to let the issue be stalled. He promptly made plans to plug the loophole. 'We’re going to legislate the cap,' he told me. 'We’re not going to let it be tied up in the courts for a couple of years. 'As policy-makers we can do things a quasi-judicial body like the Public Utilities Board can’t.'"

It will be interesting to see what rate the 'policy-makers' choose to go with. The Public Utilities Board is being called out by the courts for possibly overstepping its jurisdiction by setting a rate so low that it will drive the majority of lenders out of the market. The Manitoba government, presumably free to set whatever rate they want (subject of course to whatever court challenges may arise) have the opportunity to set a rate that differs from the PUB's competition stifling approach. Borrowers who enjoy the ability to choose will certainly be hoping that they take a new direction.

More on Manitoba Payday Loan Ruling

noreply@blogger.com (Advance View) — Wed, 07 Jan 2009 19:38:00 +0000

BACKGROUND: Manitoba Decision Being Contested, Payday Loan Legislation Could Be Delayed, Judge's Initial Comment on Payday Loan Appeal

Yesterday I posted the first bit of news on the Manitoba Court of Appeal's payday loan ruling. Today the media has served up a bit more information and some comments from the province. I have provided some links above to previous posts on this topic, but the long and the short of it is that The Cash Store Financial Services is challenging the Manitoba Public Utility Board's ruling on maximum allowable rates for payday loans in that province. After several months of deliberation, justice Alan MacInnis has agreed to grant an appeal and a temporary stay of the PUB ruling while the appeal is heard. Unfortunately, this will delay the implementation of payday loan regulations in Manitoba. On the positive side, it will reopen the possibility of a maximum allowable rate that will enable a viable and competitive market to exist (see: problems with the PUB payday loan decision). While the delay is unfortunate, a competitive industry is in the best interest of everyone and should have always been the desired outcome.

Judge Sides with Payday Loan Company in Manitioba

noreply@blogger.com (Advance View) — Wed, 07 Jan 2009 05:18:00 +0000

I have only found one small mention of this in the press so far, but the Manitoba Court of Appeal has sided with The Cash Store and agreed to hear an appeal of the Manitoba Public Utility Board ruling issued early last year.

Here is the brief mention on the CJOB website:

"The Manitoba Court of Appeal has declared payday lenders were unfairly treated by the Public Utilities Board, when it set lending rates. The decision means The Cash Store Financial Services could argue the PUB acted beyond its scope in setting rates.

A decision last year by the Public Utilities Board capped maximum costs of credit at various levels depending on the amount of the loan. It's capped at 17-percent for loans up to 5-hundred dollars.

Loan companies said the lower rates would drive some of them out of business. Justice Allan MacInnes agreed saying in a written decision, a full appeal of the PUB's ruling should be heard. A date has not been set."

More Talk About Payday Loans vs. Overdraft in U.S.

noreply@blogger.com (Advance View) — Mon, 22 Dec 2008 17:54:00 +0000

An article that appeared in the Houston Chronicle over the weekend points out that many Americans don't understand the financial benefits of choosing a payday loan instead of bank overdraft for small amounts of credit:

Debt concepts a challenge for many in U.S.:

"According to a financial literacy survey by the Center for Economic and Entrepreneurial Literacy, which advocates personal finance education, just a quarter of adults knew that overdrawing their checking account (bouncing a check) for a quick $100 was more expensive than a payday loan, credit card advance or emergency wire transfer. More than half said they thought a payday loan would be pricier."

If you are considering between a payday loan, bank overdraft or a cash advance on your credit card, be sure to get the full fee schedule from both your bank and your payday loan provider in order to make an informed decision. It takes a little extra time to find all of the fees, especially at the bank, but it is the only way that you can be sure you are making the most of the credit options that are available.

Here are some other posts about the costs associated with various short-term credit options:
Bank Fees Have Ohioans "longing for a payday loan"
Mainstream Lenders Cranking Up Fees
Will Credit Unions Provide a Payday Loan Alternative?
Bank Fees Make Payday Lenders Look Like a Bargain

Good Read: "Check Cashers, Redeemed"

noreply@blogger.com (Advance View) — Tue, 25 Nov 2008 06:08:00 +0000

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.

Bank Fees Have Ohioans "longing for a payday loan"

noreply@blogger.com (Advance View) — Fri, 21 Nov 2008 19:04:00 +0000

Ohio banks and their ever rising fees have this Cleveland resident longing for the days when payday loans were available in that state: Bank fees will have you longing for a payday loan

Study: Oregon Households Hurt by Payday Ban

noreply@blogger.com (Advance View) — Thu, 20 Nov 2008 01:33:00 +0000

A new study from Prof. Jonathan Zinman of Dartmouth College was released last week that looked at the effect of a payday loan ban on Oregon households. Like the 2007 New York Federal Reserve report, Payday Holiday, this study found that households fair worse in a state that has banned payday lending.

The study claims that, in the absence of payday loans, borrowers are forced to choose "inferior substitutes," and "restricting access (to payday loan credit) caused deterioration in the overall financial condition of the Oregon households."

Mainstream Lenders Cranking Up Fees

noreply@blogger.com (Advance View) — Fri, 14 Nov 2008 20:01:00 +0000

It looks like the big lenders are trying to pass the pain of the credit crunch on to consumers any way they can. There have been several articles lately about Visa's move to increase their rates and the rising cost of bank fees. Here are two:

CityNews: Visa Rates Skyrocket - Just In Time For The Holidays
"Starting next month, Visa is boosting its interest rate for customers who miss two consecutive minimum payments - ensuring those most in debt will be the hardest hit."

Wall Street Journal: Banks Boost Customer Fees to Record Highs
"Banks are responding to the troubled economy by jacking up fees on their checking accounts to record amounts."

PEI Comes on Board

noreply@blogger.com (Advance View) — Fri, 07 Nov 2008 16:59:00 +0000

Over the past 18 months, most Canadian provinces have been engaged in the process of launching payday loan legislation and determining maximum allowable rates. Manitoba, Nova Scotia, Ontario, Alberta, British Columbia, Saskatchewan and New Brunswick have all engaged industry and consumers to determine how best to develop effective regulations. Yesterday, PEI came on board by launching its own consultation initiative. Attorney General Gerard Greenan is seeking input by December 31st. Here is what you need to know:

Article: Province Seeks Opinions on Payday Loans
Consultation Document: here
Draft Legislation: here

ACORN Member Calls Payday Loan Customers "the wrong element"

noreply@blogger.com (Advance View) — Thu, 06 Nov 2008 19:32:00 +0000

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.

Advisory Board Gets Down to Work in Ontario

noreply@blogger.com (Advance View) — Wed, 15 Oct 2008 15:25:00 +0000

Originally, the word was that Ontario would select an advisory board of three members to provide a recommendation to the Minister on the maximum allowable charges for payday loans in that province and they would finish their work by September 30th (original post). According to this Government of Ontario website, the board is now comprised of two members and they will be receiving submissions from the public until October 31st. There is no clear indication of when their work will be completed.

Payday loan users and industry members who are interested in providing the board with their two cents on maximum allowable payday loan rates in Ontario, should do so according to the guidelines laid out here.

Urban Institute Supports Fostering Competition

noreply@blogger.com (Advance View) — Wed, 01 Oct 2008 21:16:00 +0000

Access to Small, Short-Term Loans Critical for Working Families :

"Urban Institute report recommends better disclosures and increased competition to protect consumers. [The report] finds that if payday advances are eliminated they 'could be replaced by alternatives that make families even worse off.'"

This study was released in late July and managed to slip past my radar as I was soaking up the sun during what felt like a very brief summer.

I was not familiar with the Urban Institute until today so for those of you who are in the same boat, here is a bit about them, according to their website:

"The Urban Institute gathers data, conducts research, evaluates programs, offers technical assistance overseas, and educates Americans on social and economic issues — to foster sound public policy and effective government."

When they were founded in 1968, U.S. President Lyndon Johnson had this to say:

"The Urban Institute was founded to... bridge the gulf between the lonely scholar in search of truth and the decision-maker in search of progress."

On the topic of payday loans, the study, titled Enabling Families to Weather Emergencies and Develop, recommends "standard, clear, and timely disclosures of the total loan cost so consumers know their full obligation and can easily compare what various lenders charge for loans," and suggests that "stricter regulation coupled with standard and improved disclosures for consumers will increase competition within the alternative financial sector."

The report goes on to say that "the case for regulating fees or interest rates on small loans is less clear and warrants further research and consideration," and asks "does regulating prices charged make fewer small, short-term loans available? Where will families who need these loans turn if they cannot get them?"

One interesting takeaway from the report, is the relationship that they draw between disclosure and competition. Their stance is that better rate disclosure will make it easier for consumers to compare prices between lenders and, as a result, lead to greater price competition. Makes sense to me.

Nova Scotia Restores Economist's Faith

noreply@blogger.com (Advance View) — Fri, 22 Aug 2008 17:29:00 +0000

BACKGROUND: Nova Scotia Payday Loan Decision; Media Reaction

In making their decision to support a market-based solution to payday loan rate caps, one of the people the Nova Scotia Utility and Review Board relied on quite heavily was Dr. Kevin Clinton, an economist who appeared as an expert witness:

"Based upon its review of the evidence in the present matter, the Board is satisfied that the payday loan marketplace in Nova Scotia is competitive, and it so finds as fact. Further, the Board accepts the evidence of Dr. Clinton to the effect that competition will even increase once regulation takes effect."

"The Board also accepts the evidence of Dr. Clinton respecting the difficulties which would be encountered in the event the Cost Approach was selected to determine the maximum cost of borrowing. In this regard, Dr. Clinton noted the difficulties in developing a standardized format to obtain cost data from different lenders."

"In setting the maximum cost of borrowing, the Board does not accept the Consumer Advocate's argument (an approach applied by the Manitoba Board) that the NSUARB should set a maximum rate such that only the "lowest cost" lenders will remain in the Nova Scotia marketplace, implying that such lenders are the only efficient lenders participating in the market. In the view of the NSUARB, based on the evidence presented at the hearing (especially that of Dr. Clinton), market competition provides a catalyst for efficiency. If there are fewer lenders in the market, there will be little or no incentive for them to be efficient and prices will tend to rise for consumers. Moreover, if rates are capped too low, near or below an amount which permits lenders to recover their costs and earn a reasonable profit, even the most "efficient" lenders will most likely withdraw from the market. The Board concludes that such scenarios would not be in the best interests of consumers and the Board considers it should address this point by setting a rate that will foster a healthy competitive marketplace."

I was interested to get Dr. Clinton's reaction to the Nova Scotia decision given that it was such a strong contrast to Manitoba's (Dr. Clinton was also an expert witness in Manitoba, but needless to say, that board did not share his views on how markets function). Here is what he had to say:

"The Manitoba decision was so empty of reasoned economics & evidence that I stopped following payday lending developments. If these rulings are to be dominated by political factors, it is a waste of time for economists to participate. "

"The [Manitoba] PUB report makes elementary logical errors. For example, it betrays a complete misunderstanding of the concept of elasticity of demand. In buttressing their argument, they attribute to me views which I did not express, and which I believe to be wrong."

After the decision in Nova Scotia, it is fair to say that Dr. Clinton is following payday loan developments again, his faith restored that there is room for reasoned economic debate on how to set a payday loan rate cap.

New Brunswick Urged to Act

noreply@blogger.com (Advance View) — Wed, 06 Aug 2008 23:23:00 +0000

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

noreply@blogger.com (Advance View) — Wed, 06 Aug 2008 22:33:00 +0000

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

Nova Scotia Backs the Market

noreply@blogger.com (Advance View) — Thu, 31 Jul 2008 12:32:00 +0000

I teased yesterday that there would be big news coming down the wire this morning. After months of deliberation and after allowing input from interveners on the decision of the Manitoba Public Utility Board, the Nova Scotia Utility and Review Board issued its order this morning on the maximum allowable rates for a payday loan in that province.

At the crux of the issue around setting a maximum allowable rate for payday loans in any Canadian province is the debate around competition and how it can impact consumers. In Manitoba, the PUB decided that the market is not competitive enough to provide sufficient benefit to consumers. While 310-LOAN and The Cash Store argued hard for an order that would move to improve the level of competition, yielding increased benefits to consumers, the PUB decided to give up on the market by setting a maximum rate that was much lower than the rate that many lenders required in order to remain viable - ultimately reducing competition. In Nova Scotia, the Utility and Review Board saw it differently and has elected to encourage a competitive market. Today they ordered that the maximum allowable rate for a payday loan in Nova Scotia will be $31 per $100.

Here are some snippets from their decision:

The Board concludes that it should adopt a Market Approach to determine the maximum cost of borrowing.

Increased competition, accompanied by improved disclosure to borrowers, will afford proper protection to consumers. Fostering an environment which requires better disclosure, and which provides more regulatory certainty, should allow existing payday lenders to continue to operate in the Province and should encourage new payday lenders to enter the marketplace. The Board received, and accepts, expert evidence given at the hearing which outlined the benefits of increased competition in the marketplace. The Board considers it should set a rate that will foster a healthy and competitive marketplace.

I will follow-up with industry and media reaction as it becomes available throughout the day.

The full board order is available here.

Big News Tomorrow

noreply@blogger.com (Advance View) — Wed, 30 Jul 2008 15:54:00 +0000

I just received word that industry watchers can expect an important announcement tomorrow. Check this space in the morning for the details.

In Defense of the Little Guy

noreply@blogger.com (Advance View) — Wed, 23 Jul 2008 14:49:00 +0000

As provinces establish their applicable rate caps throughout Canada, one of the most vulnerable groups of lenders are the "mom and pop" operators with a small number of stores and often located in Canada's smaller communities. These lenders normally process a lower volume of loans because of the communities they are in and face higher costs for the same reason.

In Manitoba's Public Utility Board hearings last year, Deloitte, one of Canada's largest accounting firms, presented a cost study of 4 small to medium-sized lenders in that province. According to Deloitte, the average of cost for the lenders to issue a $100 loan was $26.87. Despite this evidence, the Manitoba Public Utility Board (PUB) set a maximum allowable rate of $17 per $100 on the first $500 and $15 per hundred on amounts between $500 and $1000.

In defense of their position, the PUB suggested that a business model should meet a certain (undefined) level of efficiency in order to earn the right to survive in Manitoba:

There is no public interest reason supporting inefficient payday lending, anymore than one might expect a pizza restaurant to survive by selling only eight pizzas a day – competition will address pizza market issues, but regulation is required for payday loans (in the absence of a “competitive” market), to ensure that the consumers of payday loans are served by efficient payday lenders.

The Board didn't examine the level of competition in the pizza industry. It didn't compare how many pizza restaurants there were in any given community and elaborate on how that particular number was suitable to call the market competitive. It surely wouldn't suggest that in small communities where there is only one pizza restaurant that regulations are required in lieu of competition.

While those Manitoba communities with only one pizza restaurant will continue to enjoy their pepperoni slices, the custodians of the "public interest" in Winnipeg have ensured that their only access to payday loans will be miles down the highway, in the nearest town that is big enough to attract Money Mart or The Cash Store.

I was prompted to write this piece about the mom and pop lenders who will be the victims of excessively low rate caps after receiving an e-mail today from one of those small lenders. While the inconvenience of having to drive great lengths to get access to emergency credit is one issue that is easy to identify (especially with the rising cost of fuel), it is often more difficult to capture the intangibles that are offered by smaller service providers. The following is an excerpt from the e-mail I received this morning (for privacy reasons I will keep the lender's name confidential):

Last week we ran into a problem, I was out of town and so I could not run to our client's bank to do a direct deposit. Than we had in one day two clients that each borrowed $500.00 so that took up our capacity to do e-mail transfers (we can do up to $1,000 of e-mail transfer in 24 hours, $3000 in 7 days & $7,000 in $30 days). Even if I had been in town, doing direct deposit the only way that I know how is to run to my bank, withdraw cash and than run to our client(s) bank to deposit directly into their account which really takes time and ties me to my office.

Without divulging any of your successful ways of doing business can you point me to a better or more efficient way of doing direct deposits or a method to increase our capacity of e-mail transfers.

So here is a guy who runs a small payday loan location who is willing to drive from bank to bank in order to deposit money for one of his customers who is out of town and can't make it in to a location. I can't think of the last time I received that kind of service from any company I have dealt with. I also haven't spent much time in a small town so maybe that is were I went wrong.

To all of the decision makers in Canadian provinces who feel that there is a public interest in putting these lenders out of business, I encourage you to go visit a few of them. Talk to them. See the type of service they offer first hand. You may feel better about allowing them to stay in business when you see that what they lack in efficiency, they make up for in good old fashioned customer service, something the public may in fact be interested in.

New Data on the Cost of Providing Payday Loans in Canada

noreply@blogger.com (Advance View) — Mon, 21 Jul 2008 17:09:00 +0000

Since the passage of Federal Bill C-26 empowered the Provinces to set payday loan rate caps, politicians, bureaucrats, public utility boards and special advisers have all struggled to determine what an appropriate cap would be. Today, Deloitte, one of Canada's largest and most respected accounting firms, provided more data to assist key decision makers with the release of their BC study, creatively titled "Cost of Providing Payday Loans in British Columbia."

While the firm may not receive any style points for the title of their report, they should be praised for its substance. This report, funded by the Canadian Payday Loan Association (CPLA) and completed with the participation of CPLA members and non-members alike, is the most representative study ever completed on the cost of providing payday loans in a Canadian province. The study includes data from 12 BC payday lenders, representing 57 of the estimated 121 private payday loan locations in the province (the study excluded publicly-traded payday lenders).

The result:

This report estimates the cost of providing a $100 payday loan in British Columbia to be $25.21, which can be further illustrated as follows:

The results of this study are particularly relevant in BC because of the approach the government there has taken in its search for an appropriate rate cap. In a payday loan consultation document circulated earlier this year, the BC government defined its objective for a maximum allowable rate as "the lowest charge possible that still allows a viable payday lending market." Deloitte seems to have provided them with their answer.

Manitoba Judge Weighs in on PUB Decision

noreply@blogger.com (Advance View) — Fri, 18 Jul 2008 22:03:00 +0000

Just as I was considering a post about the dog days of summer, the Manitoba Court of Appeal has provided some fodder for industry watchers. If you are just tuning in, I mentioned in a post on May 2 that The Cash Store was contesting the Manitoba Public Utility Board's ruling on, amongst other things, the maximum allowable rate for payday loans in that province. Here are the relevant details from that post:

Formerly known as Rentcash, The Cash Store Financial Services took things one step further and filed a "Notice of Motion for Leave to Appeal" with the Manitoba Court of Appeal claiming that the Board, among other things, "erred in law and exceeded its jurisdiction by directing itself as being mandated to drive certain payday loan companies out of business and by issuing an order intended to achieve that result..."

After a technical meeting to work out how this process would proceed and who would be involved, the Court of Appeal met on July 16 and 17 to get into the meat of the matter. I am working on getting transcripts from these two days and I will provide more information on what was said and what it all means as soon as I can. In the meantime, one of the people who attended these hearings was kind enough to send his notes and they provide for some interesting reading. The disclaimer on this is that these notes come from a third party who was at the hearings and their accuracy has not been verified with the benefit of transcripts.
[UPDATE: it turns out that transcripts of this meeting are not available]

...the judge hearing the application expressed the very same concerns about the PUB order that we have. In fact it was somewhat therapeutic to hear someone express them so eloquently. He said that anyone reading the report would come away with the impression the payday loan service providers were nothing but scum. He stated that the actual order was to be found in the last 10 pages. Everything previous was more or less rhetoric.

He stated that the federal government and the provincial government had enacted the legislation in order to accommodate the payday loan industry. In doing so they have given (their consent) to the practice. He questioned whether the board had the mandate to institute societal objectives. That is the (purview) of the government. If the government didn’t like the industry they could have simply made it illegal.

He went further and questioned where the analysis of the American rates was that the board said it used in coming to its conclusions. In particular he wanted to see the expenses. In the absence of these figures it was like comparing apples and oranges. Wage rates, rent, taxes, supplies were all likely to be very different to U.S. companies as opposed to Canadian firms. To say that because the rate was $17.00 (per) $100 in Indiana this somehow by itself justifies the same rate in Manitoba is to simply ignore reality.

I couldn't have put it better myself. I guess that is why he's a judge and I am writing blog entries.

The next step is for the judge to issue a decision on whether or not to grant The Cash Store leave to appeal. Obviously the initial sentiment sounds positive from an industry and consumer perspective, but there are still a lot more steps to go before we can have some hope of a more balanced order from the Public Utility Board.

I will try to dig up more commentary and hopefully transcripts from these hearings and pass them on as they become available. At the very least, there should be some interesting commentary that stems from the judge's decision, whenever that comes down.

Alberta Payday Loan Legislation Update

noreply@blogger.com (Advance View) — Wed, 09 Jul 2008 22:44:00 +0000

John Cotter of the Canadian Press provided an update on the timeline in Alberta today:

"(Service Alberta spokesman Eoin Kenny) said the changes to the Fair Trading Act, including details of the interest rate cap, are expected to be made by the spring."