Nova Scotia Advocate: Banks push poor people towards predatory loan sharks, report suggests

Posted December 6, 2016

Poor people use financial services such as payday loans because banks don’t work for them, a report suggests.
However, the sky high interest loans (up to 500 percent annually) that these predatory institutions offer may provide temporary release, using them often spells financial disaster in the longer term.
The report, by the Ontario office of the Canadian Centre for Policy Alternatives (CCPA), is based on a survey of 268 ACORN Canada members across Canada. ACORN Canada is a nation-wide anti-poverty group with chapters in Halifax, Dartmouth and Spryfield.
People know payday loans aren’t the way to go, but what if you don’t have a choice, observes Jonethan Brigley, Chair of the Dartmouth ACORN chapter.
“It’s mostly people who have an emergency coming up. Things like a family member or even a pet has to go for emergency surgery or something, and most don’t have emergency money kicking around,” says Brigley.
But banks will decline you, or it will take forever to process your request, Brigley says, so no wonder people go after payday loans, where the turnaround is quick and you are seldom refused.
The report suggests that slightly over 50 percent of respondents has borrowed a high-interest payday loan.  Most people reported that not having overdraft protection, a credit card or a line of credit left them no choice.
And they do so to buy food (30 percent), housing (17 percent), pay bills (16 percent), or to alleviate poverty generally (10 percent).
Brigley mentions that he used the high interest services when his cat was very sick.
“My cat needed surgery, he had stones and it was very hurtful. But when I called my bank, it was going to take a week before I could even meet with somebody to talk about getting a line of credit, let alone get the money,” Brigley says.
“I needed $200, so I went for a payday loan, and I got it right away.”
Cashing cheques through a bank can also be a real headache, says Brigley. Their charges for cashing a cheque are generally much higher than what a payday loan company will charge.
This is not just about payday loans. The report includes other companies that offer predatory loans. It mentions rent-to-own purchases (used by 20 percent of respondents), car title loans (12.5 percent), and installment loans (12 percent).
And the delays that occur if banks are not familiar with the company that issues the cheque makes it not a viable option for many people who can’t afford to wait that long.
People clearly wish there was a better way.
Almost two-thirds of respondents told ACORN they believe it is “very important” for banks to offer “overdraft protection, small loans, no fee accounts, and lines of credit to low- and moderate-income earners.”
And, if such services were offered by a bank or credit union, close to 75 per cent of survey respondents told ACORN they would switch where they do their banking.
The Canadian Union of Postal Workers is campaigning for a postal bank, not driven by shareholders and the wish to make money, in order to counteract the destructive monopolies of payday lenders.
Article by Robert Devet for the Nova Scotia Advocate