Posted January 10, 2015
Toronto ACORN member Christina Philipe talks to the Toronto Star about the problem of predatory lending practices; ACORN members are working to regulate predatory lending practices across Canada.
The payday loan shops of Jane and Finch are friendly places.
Tellers chat with customers about their latest health woes, send greetings to clients’ families, and lament the slow holiday work season.
“After Christmas, we’re all broke,” commiserates one.
In a city ever more starkly divided by income, Torontonians are also split by where they can turn for financial help. Experts warn that low-income communities are underserved by formal banks, who rarely offer the kind of small-sum, short-term loans best suited to making meager ends meet. And in the city’s underprivileged areas, payday lenders are filling the void.
Even critics admit such “fringe banks” can be more welcoming to the city’s poorer residents than traditional institutions. But the schism between those within the fold of formal banking and those shut out has financial and even physical consequences.
According to new research by St. Michael’s Hospital, adults who live in Toronto neighbourhoods with a higher density of payday lenders are more likely to die prematurely than those who don’t — even when controlling for other factors that shorten life, such as crime. Dr. Joel Ray, who helped lead the research, calls payday lending institutions part of the “social malaise” structure in the city.
For Ray, the findings show the intersection between health and economic wellbeing — and suggest that addressing Toronto’s financial divide needs greater attention from policy makers.
A Star analysis of where payday lenders are located in the GTA throws harsh relief on that divide, showing that the heaviest pockets of lenders almost precisely line up with the city’s low-income areas. Conversely, research by Jerry Buckland, a professor at Manitoba’s Menno Simons College, shows that formal banks disproportionately fled Toronto’s poor neighbourhoods over the 25-year period from 1981 to 2006.
Stan Keyes, president of the Canadian Payday Lenders Association, says payday loans represent a tiny portion of the debt burden shouldered by financially troubled Canadians. But figures provided to the Star by the Toronto-based financial counselling charity Credit Canada reveal a startling trend: while their overall debt levels show a downward trend, their average payday loan debts have gone up by about 60 percent over the past years. In 2010, the average payday debt load was about $420; in 2014, it was $692.
Such a sum might not seem to daunting to most. For those on the edge, though, it can be enough to derail an already delicate budget.
Christina Philipe, a single mother who lives near strip malls along Finch Ave. studded with payday lenders, has used the service only once. But she says that for many in her community, costly loans are the start of a downward spiral.
“It can get really scary sometimes,” she says. “You’re always in debt, you’re always owing somebody money.”
In Ontario, payday lenders can charge a maximum of $21 for every $100 loaned. Lenders must display that cost on site, but they are not required to express their borrowing costs in terms of annual interest rates — which work out to about 600 per cent. And while a payday business can only lend to a client who has paid off the previous debt, there is nothing stopping companies from doling out cash to clients with outstanding loans at rival joints.
Yet the industry has figured out that low-income people have particular financial needs unmet by the institutions — such as big banks — where they may often feel ostracized.
Laurie Campbell, the CEO of Credit Canada, says she was surprised to learn that many of her clients were comfortable at payday lenders, where “they feel they’re treated with dignity.”
“The great treatment that these people get when they turn to payday loan institutions — it’s sad that they feel that they’re not getting it elsewhere,” she says.
Keyes, a former Liberal MP, says that, far from being predatory operations, registered lending businesses use “sophisticated programs” to make sure borrowers are credit-worthy. He says he doesn’t know of any members lending to people on social assistance, and says many even connect clients to financial counselling services when needed.
But Philipe, a student at Humber College, says a steady job was not a prerequisite at company that loaned her $250 for groceries and gas: she was approved on the basis that she would get a government child-tax-benefit payment at the end of the month.
Payday lenders have been regulated since 2008 in Ontario, but researcher Jerry Buckland says the government could introduce at least two new measures to beef up protections. One would require lenders to express borrowing costs in annual interest rates, to better show how they compare to products offered by banks. The other would require them to provide more data on their lending patterns to see whether clients are entering a debt cycle through repeat borrowing. Such laws already exist in many U.S. jurisdictions.
Some municipalities are also taking aim at the payday lenders that crowd low-income neighborhoods. Calgary, for example, is considering introducing new zoning bylaws that would limit the number of lenders in vulnerable communities.
Keyes, for one, says it’s unfair to single out the payday lending industry for censure. And many agree that formal banks must take responsibility for financial exclusion, too.
But for Maureen Fair, a key part of the answer also lies in empowering the city’s residents to bridge the banking divide themselves. The executive director of West End House, which provides counselling to thousands of low-income Torontonians, says financial literacy should be a “core social service” in the province.
“There’s just so many predatory people out there that it’s really an important thing,” she argues. “We believe actually that it should be supported by government, because it is a poverty reduction strategy.”