Pressure to regulate payday lenders and cheque-cashing outlets has been coming at the Ontario government from all sides this week in the run-up to tomorrow's Throne Speech laying out the agenda for the new session of the legislature.
According to a United Way report released Monday, fringe lending companies are profiting off the backs of Toronto's poor.
With costly administration fees, rollover charges and interest rates, customers pay "$50 to take out a 14-day $300 dollar loan - the equivalent of 435-per-cent rate of interest," the report estimated.
But Ontario Premier Dalton McGuinty is not likely to address the issue of payday loan stores in tomorrow's Speech from the Throne, a government source said. The government also has no immediate plans to ban these fringe financial products.
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Frances Lankin, president of the United Way of Greater Toronto, said "the rise is largely tied to the growth of poor families." The report found that a far higher proportion of Toronto families are living in poverty than in the surrounding Greater Toronto Area or the rest of the country.
The report found that, in 1995, there were 39 payday lending outlets in the city. A drive-by survey this summer counted 317.
For four years, Robert Smits has been giving a portion of what little income he has to CashMoney, a payday loan and cheque cashing store.
"I have bad credit and no bank account. I don't even have proper ID to open an account," the 37-year-old said in an interview.
Every month, Mr. Smits receives an Ontario disability paycheque for $947 and each time he cashes it, he pays the store around $24, he said.
With rent at $427, plus food and other expenses, the Parkdale resident said, "it adds up."
Cheri DiNovo, NDP MPP for Parkdale-High Park, said yesterday that she will again try to introduce a private member's bill that would cap the companies' interest rates at 35 per cent.
She called the lending companies "usurious" for the high rates they charge and blasted them for what she said is preying "upon the poorest and those most in need."
Stan Keyes, president of the Canadian Payday Loan Association, which represents 23 lending companies across Canada, said that although he would welcome industry regulation, a cap of that size would put companies out of business and take away a "legitimate, convenient financial product," leaving borrowers out in the cold.
"There is no payday product in the province of Quebec," he said, where the 35-per-cent cap is law. "Where do Quebeckers turn to for small short-term loans?"
Manitoba, Saskatchewan, Nova Scotia, and British Columbia have adopted regulations since the federal government passed legislation last year giving provinces the authority.
"Ontario should follow the example set by Manitoba and bring in legislation to establish provincial control," said Tim Hudak, Progressive Conservative finance critic and MPP for Erie-Lincoln.
Although he dismissed the 35-per-cent cap, saying "our best approach is to follow what has worked," he urged that the province needs "to make sure some of the shoddy offices in the industry are shut down."
Mr. Keyes disagrees with what he called the "United Way's depiction of Payday Loan customers as poor, uneducated and unaware of what they're getting into," and pointed instead to a 2007 Pollara survey of 503 Ontario Payday Loan customers, which found 68 per cent were employed full-time, more than half had postsecondary education, and only 42 per cent earned less than $50,000 a year.
But Laurie Campbell, executive director of Credit Canada Counselling, a national association of not-for-profit credit counselling agencies and orderly payment of debt programs, said many payday arrangements have caused a "real domino effect" on customers who are often marginalized and desperate.
"Very often, the people we see have more than one debt to [different] payday loans - five or six often."
Whether or not the province imposes restrictions on payday lenders and cheque-cashing shops, the United Way's president said the organization plans to provide funding for "educational and problem-solving programs run by community agencies" in Toronto neighbourhoods.
The programs will try to foster "understanding of how the debt cycle works" by helping people "manage credit" and "establish relationships with major banks when they need to borrow money," Ms. Lankin said.
With a report from Karen Howlett
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