More Action Needed To Curb Payday Loan Stores
Many of us have seen the stories of the “Pandemic Profiteers”: that guy who loaded cases of disinfectant wipes at Costco to resell for profit online; stores that raise the prices of toilet paper, hand sanitizers and surgical masks.
There is another industry that works more subtly, but just as perilous for the public good: payday loan companies. These alternative lending institutions go by names like Money Mart, Cash4You, CashMoney and many more and can exploit our fears that we will not be able to pay rent or buy enough groceries.
According to some of the biggest payday loan websites, they have recently been inundated with loan applications in response to the COVID-19 emergency. Payday lender Cash4You posted on its website: “Our online loan processing centers are over capacity. We ask you to be patient as we are experiencing an unprecedented volume of online loan applications. We are reviewing them as quickly as possible. “
For those unfamiliar with this type of loan, payday loans are time-limited advances and often come with quick approvals and no credit checks. These loans can be especially appealing to part-time and precarious workers who fall into a financial emergency and need quick cash to pay a bill or put food on the table. That description represents roughly millions of Canadians this month thanks to the coronavirus shutdowns.
For workers who fear that a paycheck will come back in the near future and that EI benefits are in a few weeks, a payday loan may seem like a desperate, but necessary, option for grocery shopping or shopping. pay the rent.
But payday loans are a very bad idea, especially at this time.
Many consumer advocates compare payday lenders to legalized loan sharks.
While the previous provincial government reduced the amount that payday lenders can charge from $ 21 in $ 100 to $ 15 in $ 100, this still equates to an annual interest rate of 391%. For comparison, the Criminal Code of Canada lists the criminal interest rates that lenders are allowed to charge at 60%. Since payday loans are time-limited, two weeks at a time, provincial governments across Canada allow the industry to charge rates higher than what would otherwise be considered usury.
In the past, many borrowers got heavily into debt by borrowing from payday loan companies. According to Doug Hoyes, an insolvency trustee at Hoyes-Michalos, even before our current health crisis, a growing number of personal insolvencies could be attributed to payday loans.
Often, customers fall into the trap of payday loans and end up owing thousands, if not tens of thousands, to these fringe financial institutions. When money is not available to pay off the initial loan, high interest, and basic needs, clients invariably feel pressured to borrow more money. It becomes a cycle of dependency on these loans.
Hoyes noted, “It’s a very stressful time for everyone. If rent is due, before committing to a super high interest loan, talk to your landlord and make a plan. Getting a payday loan for two weeks if you don’t have more money in two weeks is not the solution. “
Unfortunately, neighborhood payday loan stores as well as online payday loan operations will continue to function during our current state of emergency. They are classified as an essential service because they lend money.
If the Ontario government does not want to shut them down, the province must act immediately to lower the interest rates that the predatory payday lending industry is allowed to charge desperate and possibly receptive customers to borrow a loan. payday to pay essential bills.
The provincial government could start by drastically reducing the amount of interest these predatory lenders are allowed to charge during this state of emergency. Aligning payday loan interest rates to the current 60% criminal interest rate, Hoyes said, would mean borrowers would pay $ 2.30 out of $ 100 instead of the current $ 15 out of $ 100.
The business model of the payday loan industry is based on the exploitation of desperate people. It is an unacceptable practice – now more than ever. Now is the time for us to unite and protect our collective interests, including the financial security of our neighbors.
Tom Cooper is director of the Hamilton Roundtable for Poverty Reduction and tweets @tomcoopster