Monday, March 06, 2006

$100 Til Payday

Payday lenders like Money Mart might well be ripping off their clientele with criminally usurious rates of interest disguised as administration fees.

On the other hand, they do provide a valuable service that other financial institutions don't, especially if you can't hit up your friends and family for money, and your boss can't or won't give you an advance.

And most people who use them, even if they are lower income earners, usually are pretty financially irresponsible to begin with.

Now some of them are trying to sue their way back into the money:

It was not a good week for National Money Mart, a company that sells itself as a convenient means for real people to get fast cash and has employed the Trailer Park Boys as pitchmen.

First, the chain of 350 Canadian cheque-cashing and payday lending outlets received its second "Loan Shark of the Year" award in a row from a grassroots citizen organization known for its campaigns against predatory lending here and south of the border.

Then, the Supreme Court of Canada dismissed a bid by the company, owned by U.S. parent company Dollar Financial Corp., to derail a proposed class-action suit launched by Windsor pensioner Margaret Smith, who is alleging the fees and interest combined on the company's short-term payday loans exceeds the legal rate of interest set out in the Criminal Code — 60 per cent per annum — many times over. To borrow a well-worn retort from Bubbles, the Trailer Park character with Coke-bottle glasses, Money Mart might well be thinking, "Holy crap."


Critics say the high fees and interest charged on the paycheque-to-paycheque loans trap already vulnerable borrowers in a cycle of debt. The industry contends it is supplying a service people need and banks do not supply, and that the unsecured loans come at a cost. Provincial and federal consumer ministers have been examining the largely unregulated industry, which has taken steps to self-regulate.

In Matter of Interest, a 2004 Toronto Star series on the payday industry, the paper sampled loans from a dozen Toronto payday lending businesses, including Money Mart, and found that the fees and interest on a typical two-week loan, when combined and calculated as an annual interest rate, ranged from 390 to 900 per cent. Money Mart's was indeed amongst the cheapest.

"Money Mart abides by the highest professional standards in providing quality financial products and services to Canadians," the company said at the time. "As the class-action suits have yet to go before the courts, we cannot comment on this matter further."

At least eight proposed class actions against different payday lenders are underway across the country — each alleging the fees and interest charged is criminal. In Smith's Money Mart case, the representative claimant is seeking from Money Mart and its U.S. parent company $555 million, on behalf of Canadian borrowers.

Sometimes living paycheque to paycheque is unavoidable for low-income earners. But constantly having to live that way, and shelling out money to pay back these storefront lenders, should be a signal to their customers either to cut unnecessary expenses (if they have them) or to try to find a way to make more money (if they can).

Using a payday lender to cover groceries when you've got a cable bill and a tab at the slots is a sign of a much deeper problem than the predatory practices of payday lenders.

Source: Toronto Star

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