Payday lending in canada in a global context a mature industry with chronic challenges

PAYDAY LENDING IN CANADA IN A GLOBAL CONTEXT A Mature Industry with Chronic Challenges EDITED BY JERRY BUCKLAND, CHRIS ROBINSON, & BRENDA SPOTTON VISANO Payday Lending in Canada in a Global Context Jerry Buckland  •  Chris Robinson Brenda Spotton Visano Editors Payday Lending in Canada in a Global Context A Mature Industry with Chronic Challenges Editors Jerry Buckland Menno Simons College Canadian Mennonite University Affiliated with the University of Winnipeg Winnipeg, MB, Canada Chris Robinson Faculty of Liberal Arts and Professional Studies School of Administrative Studies York University Toronto, ON, Canada Brenda Spotton Visano Faculty of Liberal Arts and Professional Studies Department of Economics School of Public Policy and Administration York University Toronto, ON, Canada ISBN 978-3-319-71212-3    ISBN 978-3-319-71213-0 (eBook) https://doi.org/10.1007/978-3-319-71213-0 Library of Congress Control Number: 2018932909 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover illustration: © sorbetto / Getty Images Cover design by Henry Petrides Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Dedicated to Financially Challenged Consumers Who Use Payday Lending but Deserve Better Options Foreword Few things have been debated as passionately or for as long as has the question of what constitutes usury The Merriam-Webster Dictionary (website) defines usury as an unconscionable or exorbitant rate or amount of interest, or interest in excess of a legal rate charged to a borrower for the use of money The usury question is at the heart of this timely and important book, where it is explored unlike ever before, and with a focus on a recent phenomenon: the rise of high-cost credit providers, with payday lending being the most well known The writers in this book have been shining a light on this important issue long before most wanted to, knew we needed to, or knew how to This book provides new evidence, context, and analysis regarding an issue that is relatively new in the Canadian context, and growing in reach and concern across the country I work for Momentum, Calgary, Canada, a non-profit community economic development organization that offers financial empowerment programs, including financial literacy workshops and asset-building programs, for people living on a low income We have been doing our work for more than 25 years, yet it was only five years ago that we started to take notice that so many of our program participants were drowning in payday loan debt We began to listen and look for stories of people’s experiences with payday loans and other harmful high-cost lenders, and what we heard was astounding People revealed that they had multiple loans from multiple lenders across the city at one time, and that once they paid off a loan they were bombarded with advertising, phone calls, and reminders to come and borrow again We also learned that most only paid off their loan in order to vii viii   FOREWORD borrow again, because they could not make ends meet Participants shared with us that when they needed the money, they needed it right away, but in the end, they wished they had never gotten a loan The short-­term relief of immediate cash turned into long-term grief and an endless debt cycle In Momentum’s most recent public consultations on high-cost credit, participants shared the following wise words, many of which were similar sentiments shared by the group: • “I probably spent more on interest than on the actual loan.” • “We felt powerless to negotiate a lower interest rate It felt like kidnapping.” • “Insurance payments cost more than car payments.” • “The fine print should be the big print.” • “We need better options They are often the only option Not even the last option.” • “Banks need to offer credit building products.” • “We use banks, but this has a limit Banks are very protective, and their practices are not flexible You are treated well at a [payday] lender, but not treated well at the bank.” • “I would change the regular banks I would make them friendlier, more understanding, and make them provide services that are similar, but a lower cost.” One participant shared with us that she got a payday loan to finance payments for a rent-to-own computer, which her kids needed for their schoolwork Soon after, she decided to pawn the computer to cover basic living expenses This series of decisions left her indebted to three different lenders at annual interest rates of 60–300%, and owing two places a computer She later learned in our money management workshops that there were a few alternatives that she could have used to prevent this level of debt However, at the time she had no idea and was left wondering how on earth she could legally end up in such financial turmoil Momentum works directly with people to grow their financial literacy and assets, but we also work with government to change the system and to identify the root causes of poverty and financial exclusion High-cost credit contributes to a two-tiered banking system, where the poor pay more for far inferior services Often referred to as having a poverty premium, and often likened to throwing someone an anchor when they are drowning, high-cost credit services appear to help when an individual is  FOREWORD     ix strapped for cash and already in debt They are also an easy place to turn when the banks say “no.” However, they hurt people’s financial well-­ being and are targeted at people with no other choice Their neon signs and slogans dot the landscape online and on the street • “We say yes when banks aren’t an option.” • “Welcoming all cash- and credit-constrained consumers.” • “Instantly borrow the money you need today—no credit checks, no delay!” • “Good, poor, or bad credit? No problem! … We don’t credit checks.” Some view these lenders as pernicious, insidious, and extremely harmful Others see them as providing a vital service to a population long ignored by the mainstream financial institutions What is sometimes forgotten is their impact on whole communities These retailers drive away more desirable business and diminish residents’ capacity to invest in other businesses and their community In the words of a resident of Calgary’s Greater Forest Lawn area, the clustering of high-cost lenders has a significant impact on how the community is perceived High-cost lenders reinforce narratives about the area as undesirable to live or start a business in, dangerous, crime-ridden, poor, and so on and greatly limit the community’s ability to present an alternative, positive narrative Improving access to safe and affordable credit requires the careful attention of academics, policymakers, economists, urban planners, politicians, community leaders, and community members This book is for these leaders This book provides a careful, thorough, and forward-­ thinking analysis of this complex issue in the context of an ever-changing market It equips you with the knowledge and know-how to effect change, particularly regulatory change In a time when most literature and analysis on this issue is from the United States, this Canada-specific research is necessary and appreciated This book is a must-read for anyone interested in gaining a better understanding of financial inequality and wondering what we can about it Read it and join us in advocating for fairer and more responsible lending in Canada Public Policy Manager, Momentum www.momentum.org Courtney Hare Acknowledgments This book relies upon a large amount of research completed over the last 13 years Many people assisted us in this research including respondents, research assistants, research associates, academic colleagues, and organizational leaders We are grateful to all of them and are able to mention some names here: Marilyn Brennan, Tom Carter, John Osborne, Brian McGregor, and Evan Sinclair We thank Zoe St-Aubin and Anita Friesen for particularly important insights they shared with us from their research We are very grateful for the long-standing support provided to our research by Gloria Desorcy, Executive Director of the Consumer Council of Canada (Manitoba) Inc.; John Silver, Executive Director of Community Financial Counselling Services; and Louise Simbandumwe, Co-director of SEED Winnipeg We are most appreciative of the collaborations with and support from the staff at Public Interest Law Centre, Winnipeg Harvest, ACORN Canada, and our Toronto community partners convened under the auspices of the Black Creek Financial Action Network We are indebted to the editorial staff at Palgrave Macmillan for the support that we received from them including Sarah Lawrence, Elizabeth Graber, and Allison Neuburger The idea for the project began with a conversation with Ms Lawrence who set the process in motion, and we are indebted to her for that We are thankful for the ongoing assistance of Ms Graber and particularly grateful for all the support that Allison Neuburger provided us Thank you! We would like to thank Mr G Nirmal Kumar and his team for his careful copy editing of this volume The co-editors would like to thank their respective universities for continued research support Brenda Spotton Visano acknowledges the xi xii   ACKNOWLEDGMENTS Department of Economics, the School of Public Policy and Administration, and the Faculty of Liberal Arts and Professional Studies, York University Chris Robinson acknowledges the School of Administrative Studies and Faculty of Liberal Arts and Professional Studies, York University Jerry Buckland is grateful to Canadian Mennonite University, its thoughtful programming and engaged faculty members in (International) Development and Conflict Resolution Studies, and its Menno Simons College campus .. .Payday Lending in Canada in a Global Context Jerry Buckland  •  Chris Robinson Brenda Spotton Visano Editors Payday Lending in Canada in a Global Context A Mature Industry with Chronic Challenges. .. anyone interested in gaining a better understanding of financial inequality and wondering what we can about it Read it and join us in advocating for fairer and more responsible lending in Canada Public... payday lenders in each province 86 Largest payday lenders in Canada 87 Analysis of Dollar Financial expenses 91 DFC Global US$ loan volumes and loan losses 96 Dollar Financial average loan