June 3, 2008

Canadians have a love-hate relationship with payday loan
stores.  Judging by the number of stores here, Kamloopsians
have a greater love.  Kamloops has about four times the
national average, calculated on a per capita basis.

Customers like them because they are convenient. They can
get a short-term loan from the local payday loan store
almost as fast as they can buy a liter of milk from the
nearest convenience store.  And with 15 locations throughout
Kamloops, they aren't hard to find.

Customers don't like them because the interest rates are
exorbitant.  They often charge interest rates in excess of
the 60 per cent, which are illegal under the Criminal Code
of Canada. Payday stores can get away with unlawful
interest rates because the federal government won't clamp
down and because provinces won't enact legislation, until
now.

Manitoba was the first to put a cap on interest rates at 17
per cent for loans up to $500.  That makes their rates
comparable to credit cards.

The Manitoba legislation was opposed by payday operators who
like things just as they are.  They make a good living from
lending $1.7 billion to Canadians annually.

Payday stores want to clean up their shady image in which
they are characterized as preying on vulnerable low-income
citizens.

The Canadian Payday Loan Association, which represents about
one-half the stores, has established business guidelines and
a commissioner to monitor and enforce compliance of the
guidelines.  According to their website: "As a condition of
membership, all Members of the CPLA must abide by the
following Code of Best Business Practices and display this
Code prominently in their places of business."

If members obey the rules of the CPLA, they will not allow
rollovers, accept collateral, make loans beyond 31 days, or
fail to disclose all fees. But when the ethics commissioner
is appointed by the CPLA, how much clout can he or she have?
And what about the remainder of Canada's 1350 payday loan
stores that are not members?  Why should members adhere to
ethical practices when others don't?

The practice of rollovers is especially odious.  That's when
unpaid loans are loaned out again.  For example, say you get
a payday loan for $100.  Two weeks later you owe $125 two
weeks but you don't have the money. That debt is rolled over
into a new loan so that two weeks later you owe $153 and son
on. It doesn't take long before debt is spiraling out of
control.

No wonder the perception persists that operators are
unscrupulous and their clients are mislead or gullible. In
order to dispel us of that notion, CPLA has commissioned
surveys in various provinces conducted by the reputable
Pollara research company.

Contrary to perception, borrowers are not uneducated
according to the Pollara survey for B.C. One-half have
post-secondary education. Three-quarters have full-time
jobs. Almost all have a debit card (96%) and a chequing
account (95%). Two-thirds have a savings account and 51%
have a major credit card.

I have no reason to doubt this survey but why would
customers knowingly borrow money at exorbitant rates? If
they well educated, then why not take their credit card to
the nearest bank machine and get a cash advance to be paid
off on their next statement? The ATMs are just as
convenient and the credit card interest rate on the instant
"loan" is less than a payday loan in all provinces but
Manitoba.

The answer is suggested in the same survey. Payday
customers are up to their eyeballs in debt: $22,765 on
average, excluding mortgages. Their credit cards are maxed
out and payday loans are the last resort.

Clients of stores are not stupid or gullible, they are
desperate. The love-hate relationship they have is also
revealed by the survey. One-half of borrowers use the
service because it's "quick and easy." But they would
rather not. According to the survey, they would prefer to
borrow any other way: debit card, overdraft protection on
their bank account, chequing, or even regular credit cards.
In fact, the only thing they dislike more than payday loans
is retail store credit cards

The B.C. government needs to follow the example of Manitoba
and set caps on interest rates. Sure, it would shake out
the less efficient store but the ones remaining will loved a
little more and hated a little less by their customers.

David Charbonneau is the owner of Trio Technical.
He can be reached at dcharbonneau13@shaw.ca

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