Posted March 23, 2021
That’s how Mike Lawson describes what it feels like to be caught in a vicious cycle of debt from taking out multiple loans with quick-fix money lenders.
“It’s like you’re constantly being choked-out; always trying to make up ground and the clock never stops ticking.”
The Hamilton resident fell into the trap about six years ago, when he spent beyond the limits of his low income and hit local “payday” loan storefronts; there were four within a 30-minute walk of his home near downtown.
Easy-money loan deals — what poverty advocates call “predatory” lending — appeal to consumers in dire straits for cash, but who lack credit to receive loans from banks. Exacerbating the situation is the growth of easily accessible online credit deals.
Lawson’s case offers one illustration of why the Ontario government is planning to implement new regulations in the “alternative financial services” (AFS) market.
The province made changes last year to short-term, small-amount payday lending, but a Ministry of Consumer Affairs report suggests rules need changing for AFS deals offering bigger-money, longer-term loan arrangements — some lenders offer $15,000 lines of credit — to protect consumers. (One change could be implementing a “no-fault cooling-off period” after signing for a loan.)
“Most of the time, people who are the most vulnerable, who worry about making rent or buying groceries, are using these loans because they have no choice, as a last resort,” said Jodi Dean, a member of the Hamilton Roundtable for Poverty Reduction.
Dean is cohosting a community Zoom meeting Tuesday at 6 p.m. to gather input on changes the province should make. The event is organized by the roundtable, Social Planning and Research Council, and ACORN Hamilton, which has submitted recommendations on the issue.
The first hour is presentations, followed by public participation in group discussions. To watch or take part, register your attendance. (For more information go to ACORN Hamilton’s Facebook page or call ACORN at 905-393-5734.)
Roundtable chair Tom Cooper says the trend toward storefront loan operations accelerated in the 1990s and early 2000s, when bank branches closed in low-income neighbourhoods
“It created a situation where the only game in town were these high-cost, high-credit lenders,” he said. “It may seem like a good idea at the time when there is an emergency, but it’s a bad long-term decision, because of the hidden fees attached, and high interest rates that drive people deeper into debt and often financial ruin.”
That describes Lawson’s situation, when he plunged thousands of dollars in debt. He feels fortunate he had no spouse or children impacted, and today, at age 36, believes he has found his way, and is once again nearing solid financial ground.
But that came at the price of having to go to his family for help.
“It’s embarrassing, there’s so much shame and stigma involved,” he said. “But eventually I felt I had to tell them after being trapped for years ... And now I see the light at the end of tunnel, I’m grinding toward it, and I’m excited about money for the first time as I’m paying it down, because of the opportunity it provides.”
He hopes his story can serve as a cautionary tale for others to avoid going down the same road.
“I want to help stop it, I don’t want people to fall into that hole, because when you do it seems like there’s no way out.”
Article by Jon Wells for the Hamilton Spectator