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Loan-sharking 'without the baseball bat'

Group seeks regulation of predatory lenders

Dan Keeton

It's a week short of payday, and you need cash. Where do you go?

Not to your bank or credit union branch. They don't handle small, quick loans. And besides, there often isn't a bank branch handy in your neighbourhood.

So you head the local Money Mart, or some other quick-loan outlet, for a loan that could reach an interest rate of 1,200 per cent. These are the "predatory lenders," and they need to be curbed, says John Young.
Young heads a campaign urging the federal and provincial governments to regulate the industry and enforce laws prohibiting excess interest charges.

He represents ACORN Canada, an offshoot of a U.S. Public advocacy group that wages campaigns on behalf of the poor. Its recent report, Protecting Canadians' Interest: Reining in the Payday Lending Industry, says predatory lenders target the most vulnerable members of Canadian society.

"You have companies, large and small, who target vulnerable people who need to borrow money -- whether it's a mortgage or a payday loan, it's a relatively small amount of money --  and price those loans at exorbitant rates," says Young.

Of the predatory lenders, Money Mart is the best known, with more than 300 outlets across Canada. With the other loan companies the number of outlets is estimated at around 1,200. But no one knows for sure because the industry is unregulated.

Clients routinely take out payday loans, meaning they borrow against their next paycheque to the tune of 40 per cent. The maximum annual interest rate allowed under the Criminal Code is 60 per cent. But additional fees are charged, says Young.

"We had a member in Vancouver who borrowed about $400. She ended up paying out about $451, which calculated under the Criminal Code yielded an annual interest rate of 1,242 per cent."

Such predatory practices often ensure that the borrowers wind up on a perpetual debt treadmill.
"These guys are literally getting away with murder, day in and day out. The federal government knows it, the provincial governments know it, and they all sort of quietly worry about it. [But] they've yet to move in any kind of coherent way."

Acorn released its report November 17 and generated a lot of interest among the federal, provincial and large municipal governments,  though "many have yet to do a damn thing," Young relates. "But some of them are moving more quickly."

The ACORN report recommends a number of regulations and enforcement procedures. Key among them:

-- Prohibiting "rollovers" of loans and loan extensions and implementing a "cooling off period" between loans;
-- Subjecting all lenders to mandatory licensing, with regular detailed reporting of transactions to the regulator;
-- Establishing a provincial regulator or similar body with strong powers of enforcement, including prosecution;
-- Requiring loan applications and agreements for all transactions;
-- Ending the practice whereby borrows agree to waive legal rights should disputes arise.

The report includes maps of Greater Vancouver proving that payday lenders move into poorer neighbourhoods where banks and other financial institutions have closed branches.

"We are starting have conversations with some of the big credit unions about delivering this service. There's an enormous amount of money to be made. Why aren't the banks and credit unions stepping into this role?"
Considerable support has come from unions, says Young, including the United Steelworkers and the B.C. Government and Service Employees Union, which recently printed the ACORN report.
It's unacceptable that an industry worth possibly $5 billion annually should remain unregulated, unmonitored and uninformed, says Young. "It's pretty much loan sharking without the baseball bat."

The ACORN report can be read in full at http://www.acorn.org/fileadmin/International/Canada/Reports/Payday_Lending_Report.pdf