Payday loans have not put this woman on the street. This study indicates that there is in fact no clear correlation between using payday loans and facing financial calamity like bankruptcy. (Photo: flickr.com)

Human Ecology professors Ruth Berry and Karen Duncan of the University of Manitoba appear to have been ready to point the accusing finger at payday loans in Canada. Given supporting data, it appears they would have been happy to report that payday loans and bankruptcy were strongly connected in the Great White North. However, “The Importance of Payday Loans in Canadian Consumer Insolvency” does nothing of the sort because doing so would fly in the face of hard evidence. There is no clear correlation between bankruptcy and use of payday loans in Canada, according to the authors of this study. In fact, the overall financial well-being of payday loan customers appeared to be slightly more favorable than those surveyed who did not use payday loans.

Payday Loans in Urban Centers and Inner Cities

In much the same way that payday lending has grown across the American landscape, payday lenders have stepped in to serve people of the inner cities who have been abandoned by the traditional banking industry – all because there wasn’t enough money to be had. And yet the same banks are the ones who charge payday loan companies with exploiting the public. While it is true that interest rates (when annualized as APR) for payday loans are higher than some traditional bank loans, the ease and convenience of payday loans tends to trump the offerings of banks and credit unions who demand higher customer qualifications and force applicants through a maze of paperwork. Credit-constrained consumers who lack liquid assets continue to find payday loans infinitely useful.

Berry and Duncan Want to Find the Payday Loan-Insolvency Connection

In their quest for this grail, the authors obtain data from “the main industry players in the payday loan field in Canada,” namely National Money Mart Company, RentCash and Cash Money. They also reference the Canadian Payday Loan Association, which is the national industry association that represents at least 40 payday loan companies (including those mentioned above), and the Financial Consumer Agency of Canada through analysis of related studies.

Previous Studies Didn’t Find a Connection, Either

“Not much literature exists connecting the experience of payday loans with consumers filing for bankruptcy,” write the authors. Perhaps this is because there isn’t a real connection? One study they cite found that only one in 10 payday loan customers filed for bankruptcy following a payday loan. Other studies noted a similar percentage. Those respondents who were found to have multiple payday loans at the same time may have been more prone to bankruptcy, but this group was found to be a minority. Moderate usage – which represents the majority of payday loans – shows no clear correlation with bankruptcy filings. In fact, a study by Robert Mayer (”Payday Lending and Personal Bankruptcy,” 2004) showed that those who displayed such moderate use owed only 17 percent of net monthly income, which is hardly a bankruptcy-inducing situation.

More Findings that Break the Mold

• The authors’ data indicated that payday loan customers tended to hold less in the way of long-term loans that did those surveyed who did not use payday loans. Such loans were most often mortgage loans.
• Interestingly, those who filed for bankruptcy and had used payday loans carried “significantly less” short-term debt than those bankruptcy filers who had not filed for payday loans. Payday loan customers held a mean of $14,485 in debt for 2005 and $13,938 for 2006, while those who did not use payday loans showed a mean debt of $25,972 and $26,615 in those years.
• Insolvent consumers didn’t display any tendency toward being either male or female.
• Households surveyed who used payday loans tended to be smaller than those households who didn’t.

Data by City

Berry and Duncan analyzed data from a number of major Canadian cities. What they found tended to be consistent with what has been discussed thus far: that payday loans do not correlate directly to bankruptcy and that payday loan consumers tended to display greater financial well-being than those surveyed who had never used the short term loans. Here’s a sampling:

Vancouver: Bankruptcy households who used payday loans versus those who did not displayed a higher average income.

Calgary, Edmonton and Toronto: Payday loan users showed much less long-term debt.

Installment Loans: Yet Another Path to Avoiding Bankruptcy

Berry and Duncan freely admit that “bankrupts with payday loans are more likely to be employed and have higher incomes and lower debt-to-income ratios than other bankrupts.” This brings them to their burning question: “Do payday loans contribute to bankruptcy?” Numerous studies paint very different pictures regarding the average amount for payday loans. Since more of them point to relatively small figures, it seems unlikely that such amounts would contribute heavily to bankruptcy. And since many lenders offer installment loans as an option in the event that a consumer is unable to pay their payday loan on the maturity date, there is a built-in path leading away from default and bankruptcy.

There’s an Indictment in Here Somewhere

Despite the fact that they found that payday loan customers tended to be more financially healthy than those respondents who never used the product, Berry and Duncan continue to operate from the position that payday loans are some evil product that should be avoided at all costs. Such is not the case, truly. They fulfill a need that traditional banking has largely ignored. Oh, but if only “mainstream lenders provided more accessible services, and educational institutions and non-profit or government agencies gave more objective information about payday lenders in public service advertisements, perhaps these borrowers might attempt to access other lending options,” write the authors. They follow that statement with the false claim that payday lenders do not make their interest rates known to consumers. In America, payday loan companies are required by the Truth in Lending Act to make this information readily available to consumers.

Prescience and Payday Loan Law

If there were only a database in place that could record payday loan usage, then perhaps there would be fewer abuses. That’s what the authors suggest in their 2007 study, and it has come to pass in numerous U.S. states. “A model that might be considered for regulating the number of payday loans held by one individual is the Drug Program Information Database (DPIN) which connects Manitoba Health and all pharmacies in Manitoba to a central database,” they write in reference to a 2006 Manitoba Centre for Health Policy study. “This prevents duplication and double-doctoring by providing the dispensing pharmacy with real time information to show the patient’s drug profile and allows the pharmacist to deny filling a prescription, which is the same or similar to another recently prescribed.” This is quite similar to what we see with payday loan databases. Such inventions do tend to lean toward the nanny state frame of mind, but many lawmakers have insisted upon pushing it through.

Correlation Does Not Imply Causation

And in this case, the authors can’t even draw a correlation between payday loans and bankruptcy filings in Canada. Certainly, those who have filed for bankruptcy would be burdened by any additional debt (including payday loans), but that implies no correlation (let alone causation). “It is not possible to determine whether the loan is hastening the insolvent’s decision to file for bankruptcy,” write Berry and Duncan. I’d go further than that, based upon their findings. I’ll say what they appear unwilling to admit: that payday loans help more than they hurt when used moderately (as most are). Bankruptcy is frequently the result of a complex mixture of financial and social issues. Payday loans are no scapegoat.

Payday loans are heavily regulated in the Canadian province of Manitoba. This flies in the face of reason, as 310-LOAN's executive study indicates. (Photo: picasaweb.google.com)

Governments both large and small often take it upon themselves to decide what consumers should or shouldn’t be able to do with their own money. Call this the “nanny state” mentality if you will. Regardless, it seems that a population is somewhat less than empowered if the ability to make financial choices is taken away, replaced by rules (explicit or otherwise). Through the eyes of capitalism, if consumers are not afforded self-determination, the market flounders and the people become increasingly dependent upon their government for financial protection.

The payday loans industry has taken its lumps when it comes to regulation-happy governments. Despite well-reasoned arguments that reflect the trends, tendencies and – dare I say it – general will of the people, numerous governments have managed to push through legislation that effectively kills consumer choice and destroys the payday lending industry within the affected region. In addition to the obvious unemployment that results from such careless legislation, the consumers who demanded the payday loan product are driven to less desirable (more expensive) alternatives. There’s a reason they weren’t depending upon the traditional banking system in the first place. Just because payday lending is regulated out of states and provinces doesn’t mean all of the consumers who depending upon payday loans are acceptable risks by traditional banking industry standards.

Manitoba Allows 17 Percent APR

This rate cannot sustain a payday lending business that relies upon payday loans alone for operating profits. It’s been proven many times over. Canada’s provinces have made life difficult for businesses that offer payday loans. British Columbia has a 23 percent APR rate cap, Quebec caps rates at 35 percent and Nova Scotia allows 60 percent. Compared with Nova Scotia, it seems that Manitoba payday lending lobbyists forgot to show up for the party. I jest, of course. One 2007 study by Andrew Smyth and Nathan Slee of 310-LOAN (considered to be Canada’s largest direct payday lender) makes such a clear case that one wonders if Manitoba’s government even read it. If they had read it and still voted to go with a 17 percent APR cap, you’d wonder either what axe they have to grind or who was fronting their retreat to Aruba.

“Evidence pertaining to public hearings before the Manitoba Public Utility Board to determine maximum allowable charges and fees for payday loans“

To preface the study, the authors cite a comment by Manitoba’s Minister of Finance at the time, Greg Selinger. Selinger said that “The intention is not to drive the companies out of business, because people are showing an interest in having this service, but to make sure that when they offer the service they do it in a way that’s just and reasonable.”

What is “Just and Reasonable?”

310-LOAN, according to the authors, clearly explains their fee structure to customers before any agreements are signed. They also verify that customers are actively employed as opposed to depending upon pensions or social assistance. That is a reasonable way to treat one’s payday loan customers, it would seem. Furthermore, 310-LOAN will not accept applicants who already have more than two NSF transactions in their recent banking history or more than one outstanding payday loan with another lender. They accept applicants who can reasonably repay their payday loans. Such is a protection for both the consumer and the payday loan company. Just and reasonable care is taken that neither party is exploited.

Who Uses Payday Loans?

The study authors utilize payday loan studies from Statistics Canada (StatsCan), IpsosReid, Environics, The Public Interest Advocacy Centre (PIAC) and StratCom. When available, these findings are compared against the general Manitoban population. The data for Manitoba indicates that payday loans are used by consumers who earn a slightly below average income for the province, but these consumers are far from being the “victimized poor.”

Average Age: Neither Too Young nor Too Old

According to Environics, the average Manitoba payday loans customer is 39 years old. StatsCan puts the number at 39.5, while PIAC found the average to be 42. With these and all the following results, it should be noted (and perhaps goes without saying) that the survey audiences are not identical.

Gender Split

It’s nearly a 50/50 split according to most studies. The 2006 Census for Manitoba gave a three to four percent bump up for female payday loan customers, however.

Marital Status: Most are From Married Households

The 2006 Census found that 48 percent of payday loan customers in Manitoba were married. Environics recorded 49 percent while PIAC was significantly higher at 59 percent. For single payday loan customers, the numbers were almost identical across the board: 35 percent by the Census, 35 by Environics and 31 percent according to PIAC. Only a small sample listed themselves as separated, divorced or widowed: 17 percent in the Census, 15 percent by Environics’ count and 10 percent according to PIAC.

They Will Have Residency

Partakers of payday loans in Manitoba tend to weight more heavily toward being renters, but the RBC Home Ownership Survey used for a portion of the data indicates that a majority (61 percent) do indeed own homes. In total, renters totaled 39 (RBC), 76 (Environics) and 41 percent of the respondents. Home ownership was 61 percent according to RBC, 21 percent for Environics and 59 percent for PIAC. The variations in the Environics study are curious, but not discussed by the study authors.

Household Income: Below Average, But Not Poor

Manitoba’s payday loan portrait is decidedly middle-class according to data the study authors present. Using 2001 Census data for the province, the average income for all Manitobans was $58,360. Looking at payday loan customers, PIAC found that the average income level was $51,400 and StratCom (using stats for Toronto in the Ontario province) marked it at $53,480. Environics was considerably lower at $41,376, while StratCom (using Vancouver, British Columbia data) was $42,026.

Education Level: Educated Payday Loan Customers

Using the same sources as the previous indicator, the 2001 Census found that 23 percent of Manitobans had graduated from university, 31 percent had gone to college or vocational school and 24 percent had at least a high school diploma (leaving 23 percent under that education level). StratCom (again for Vancouver) puts those numbers at 16, 28, 44 and 12 percent, respectively. StratCom Toronto clocks in at 26, 36, 34 and a miniscule three percent (more highly educated in urban Ontario, it seems). Environics’ distribution is 21, 43, 20 and 14 percent and PIAC’s is 18, 23 52 and six percent.

Employment: Payday Loan Customers Have Steady Jobs

As stated earlier, 310-LOAN requires that their customers be gainfully employed. While this standard is not exclusive in the payday lending industry as a whole, it is a dominant requirement to which most lenders adhere. Looking first at the general population of Manitoba as surveyed by Environics, we see the following breakdown, supporting the notion that payday loans in Manitoba and beyond are taken by consumers with the ability to repay:

• Employed: 62 percent
• Unemployed: Four percent (very low by today’s standards)
• Student: Six percent
• Retired: 21 percent
• Homemaker: Four percent

The total sample of payday loan customers taken by StratCom (Vancouver and Toronto) is as follows:

• Employed: 89 percent
• Unemployed: Four percent
• Student: One percent
• Retired: Four percent
• Homemaker: One percent

For Environics in Manitoba:

• Employed: 78 percent
• Unemployed: Seven percent
• Student: Two percent
• Retired: Five percent
• Homemaker: Two percent

And finally PIAC:

• Employed: 70 percent
• Unemployed: 10 percent
• Student: Eight percent
• Retired: Seven percent
• Homemaker: Five percent

Why Does Manitoba Use Payday Loans?

Emergency cash and money to cover unexpected expenses are the main reasons given in the PIAC and Environics studies, report the 310-LOAN study authors. Environics also found that consumers use payday loans to avoid bouncing a check. For Environics:

• Necessary Emergency Cash: 36 percent
• Covering Surprise Expenses: 24 percent
• To Cover a Potential Bounced Check: 21 percent
• Short-term Income Shortage: 11 percent
• For Discretionary Purchases: Four percent
• Other: Three percent

PIAC showed similar results, but notice the differences, which are not excluded to the categories PIAC respondents didn’t even cite that did rank in the Environics study:

• Necessary Emergency Cash: 31 percent
• Covering Surprise Expenses: 34 percent
• Bounced Check: Seven percent (why it’s so much lower is unclear)
• For a Major Purchase: Five percent
• Discretionary Purchases: 16 percent (why so much higher?)

When Banks Simply Won’t Do

Speed, convenience, privacy and the ability to handle emergency financial situations were all significant indicators for payday loan customers across multiple study sources. In addition, there is some evidence that suggests some dissatisfaction with traditional banking sources. See the authors’ study for specific numbers. It should also be noted that the studies referenced lean significantly toward “very satisfied” or “somewhat satisfied” for consumer approval level with payday loans and alternative financial services.

What Does a Harsh Rate Cap Do to Payday Loans in Manitoba?

310-LOAN’s study authors attempt to illustrate this is terms of where their own business is in the product life cycle. They claim payday lending is reaching the maturity stage, where saturation in society is relatively high. “In the case of payday loans, as more lenders appear, consumers are more exposed to the product and more inclined to use it,” write the authors. The saturation tends to intensify competition, leading the market toward greater self-regulation of pricing. This competition ultimately benefits the consumer, but the competition must be allowed to reach its apex if they are to fully reap the benefits. That’s the nature of a free-market economy.

Canadian Government Thinks Competition Should Already Be Maxed

Thus, they think rates should have already reached the lowest “consumer-friendly” point. Since they consider rates to be too high (a notion that the average consumer surveyed disputes), governments impose rate caps. It kills payday lenders, but does not kill demand for payday loans.

310-LOAN finds that while payday lending has grown quickly, supply is only now starting to catch up with demand. Their support for this notion is that payday loan industry advertising spending in Manitoba has begun to exceed revenue increases only in this most recent stage in payday lending’s life cycle. Earlier findings (where the supply was lower) wouldn’t need excessive advertising in order to gain customers. Demand provided fuel for growth.

Section 347 of the Criminal Code Has Delayed Saturation

Legal woes for the payday loan industry have slowed growth. This is not to say that the product is illegal; it certainly is not. But enough roadblocks were set up by the Canadian legal system to slow payday loan industry growth. In many cases, it was even a barrier to entry for potential payday lenders. This kept many potential investors away as well.

Competition and Lower Rates: the U.S. Model

The authors cite a Federal Reserve study by Donald Morgan (”Defining and Detecting Predatory Lending“) in which the connection between more payday loan stores per capita and lower rates is made quite clear. This does not mean, as the authors comment on a 60 percent APR cap that some Manitoba lawmakers had proposed before going off the deep end at 17 percent, that such a rate would be sustainable. That’s far from the truth in their estimation. In fact, it had been widely acknowledged that 60 percent is not financially viable for payday loan companies.

“Without an agreed upon method of calculating an unconscionable rate,” write the study authors, “we suggest that the board consider the costs involved in issuing short-term, small sum loans in the market today in order to effectively set the limit on the cost of borrowing.” Using a well-known Ernst & Young study, they note the profit margins for what are considered to be Canada’s “big five” banks:

• CIBC: 23.61 percent
• BMO Bank of Montreal: 27.43 percent
• RBC Royal Bank: 23.26 percent
• Scotiabank: 32.81 percent
• TD Canada Trust: 35.51 percent
  Average: 28.52 percent

Also based upon Ernst & Young findings, the authors note that the rate for issuing a $279 payday loan is $74.08. That’s 26.55 percent for the loan issued, which compares quite favorably with the average banking profit margin above. Based upon the authors’ interpretation of data on 11 payday lenders, such a rate would allow 10 of them to “remain in the market and stimulate and immediate increase in supply and investment in the payday loan industry.”

The Risks of an Excessively Low Rate Ceiling

Allow the industry to evolve in a natural free-market setting, argue the study authors. That will enhance both product and pricing according to consumer need. Set the rates too low and lenders must slash costs wherever possible and abandon efforts to meet consumer need. For instance, allowing for installment loans has proven to be popular with consumers in many locations, but the cost associated would be impossible to swallow for lenders if rates are cut to the proverbial quick. For consumers, there is anecdotal evidence that the convenience of installment loans would outweigh having the least expensive loan possible under law.

Life Dictates Debt, Not Payday Lenders

Situations like job loss, illness and family or other personal difficulties tend to have the greatest impact upon a consumer’s ability to repay short term credit such as payday loans. Yet the Manitoba government (or any government) wants the public to believe that it is the rates of supposedly predatory lenders that cause the problem. Thus, they see rate caps as the only answer. Consumers and even economists do not tend to share such views. Interest rate caps to not solve personal and societal issues; they merely restrict the free market and tend to add trouble rather than subtract it.

It's all well and good when you're a baby, but Ontario wants to nanny its payday loan customers so they don't have to be responsible. (Photo: flickr.com)

When it comes to short-term consumer lending, few products are as quick and convenient as a payday loan. The bulk of payday loan companies in Canada operate within the bounds of established governmental guidelines into order to provide consumers with a safe, affordable product while businesses collect profits that offset operating costs. Yet there are an unfortunate few who attempt to operate “beneath the radar,” charging overly inflated rates and enforcing abusive loan terms. Section 347 of the Canadian criminal code attempts to regulate this with a limit of 60 percent interest that can be charged per annum, but further intervention has been necessary in order to protect consumers.

The Payday Loans Act of 2008

Here’s a prime example of an attempt to make things right. In June of 2008, the Ontario Legislature devised the Payday Loans Act in order to require that all payday lenders and pawnbrokers:

• Become licensed
• Clearly spell out all costs of borrowing
• Prohibit loan rollover by instituting a database
• Allow borrowers to cancel their payday loan contract during an initial cooling-off period (within the first two days)

Furthermore, the Payday Loans Act was to make it easier for offending payday loan companies to have their licenses suspended and establish the Ontario Payday Lending Education Fund to promote consumer understanding of and confidence in the product.

Capping the Numbers

By the time additional provisions were in place by April 1, 2009, the Payday Loan Act was also altered by Ontario’s Maximum Total Cost of Borrowing Advisory Board so the most money that could be charged per $100 borrowed is $21. For a standard two-week payday loan, that’s 21 percent, which is not out of the realm of feasibility.

However, there was little or no penalty in place for consumers who defaulted on their loans. It seems unconscionable for there not to be consequences when a consumer makes a promise to repay a debt and doesn’t follow through. Such a lack of safeguarding damages payday lenders severely, just as it would any business that exposed itself to financial risk but didn’t have the tools to protect itself in the event of default. This is definitely an example of the nanny state at work, absolving others of taking responsibility for themselves.

Now Ontario has an Order Dealing with “Criminal Interest Rates”

Specifically, “Order Designating Ontario for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code P.C. 2009-1628 October 1, 2009” has taken a big step toward expunging out-of-control interest rates. Payday loan companies that fail to toe the line will no longer be able to escape notice. This is an order “DESIGNATING ONTARIO FOR THE PURPOSES OF THE CRIMINAL INTEREST RATE PROVISIONS OF THE CRIMINAL CODE.” It appears in large, capital letters because Ontario wants it known that from this point forward, all payday loan stores in the province are required by section 347.1 of the Criminal Code. Once the following two provisions are in effect:

1. The Payday Loans Act, 2008, S.O. 2008, c. 9, except for sections 52 and 66 to 74; and
2. Ontario Regulation 98/09, except for sections 37 and 38.

The $21 per $100 loaned will definitely be in effect, without exemption. But what will happen to the lack of protection afforded payday loan companies for customers who don’t pay? What does Nanny Ontario plan to do about that? This isn’t a game of jacks among five-year-olds; these are adults who should have learned to take responsibility for their actions a decade or more before. It would be in the best interests of its citizens if Ontario (and Canada as a whole) reconsidered this ridiculous lack of penalty for default.

Related Video:

A man in St. Catherine’s, Ontario, has been charged with fraud after a three-month police investigation.

Police have determined that the 51-year-old man cashed counterfeit bank drafts at a payday loan business. The company offers short-term loans, installment loans and cash advances along with check-cashing services.

Canadian newspaper news brief:

ST. CATHARINES — A 51-year-old St. Catharines man faces fraud charges after a three-month police investigation into complaints about counterfeit bank drafts.

Niagara Regional Police said a man cashed two counterfeit bank drafts at a St. Catharines payday loan business, and transferred the money to an account with a different financial institution.

Investigators from the fraud unit determined the bank drafts were counterfeit and identified the suspect with the assistance of the NRP’s forensic services unit.

Sarkis Kishishian is charged with two counts of fraud under $5,000. He was released on a promise to appear in court on July 10.

See the original copy of this news brief at WellandTribune.ca.

Payday loan crimes

This isn’t the first time a criminal has bilked a business that offers installment loans out of some money. However, most of the time the perpetrators simply walk in the door with a gun and demand money. Here are some earlier accounts I wrote of payday loan store robberies:

Payday loan robberies in Indiana

A Check into Cash store in Crown Point, Indiana, was robbed April 16. There was only one employee in the store at the time.

Armed robber

The employee reports that the robber pointed a handgun at him and demanded he empty the cash drawer. After the cash was put in the robber’s bag, the man ordered the employee to lie facedown on the floor for five minutes.

Popular crime in Indiana

Several payday loan stores in Indiana have already been robbed this year.  In Indianapolis,  in January, four payday loan stores were robbed within a week. On  Jan. 19, two stores were robbed within about 45 minutes of each other.

During the week before those robberies, two other payday loan stores were hit. The same two men were suspected of committing all four robberies as well as another robbery at an auto parts store.

Also this year, criminals have robbed payday loan stores in Iowa, Texas and Illinois.

Invest in security

In 2007, an employee at a payday loan store in Illinois was killed during a  robbery. The woman was working alone at the time she was shot. After that incident, many payday loan stores made a point of making sure employees were never left alone in stores. It is disturbing to hear that some store owners are not taking this precaution.

A class-action lawsuit that was filed in Ontario went to trial Tuesday. The suit against Canada payday loan company Money Mart alleges that the defendant charged an unlawful amount of interest to its customers.

Money Mart maintains that it did not charge illegal interest or interest rates of any kind, as its services are fee-based.

Payday loan lawsuit details

The lawsuit seeks a total of $224 million plus interest for 264,000 plaintiffs. These plaintiffs include customers who got short-term loans, cash advances or payday loans from Money Mart between Aug. 19, 1997, and Sept. 9, 2007.

TheStar.com reports:

The class action lawsuit alleges Money Mart and its U.S. parent company, Dollar Financial Group Inc., breached section 347 of the Criminal Code by charging and collecting fees and interest at an effective annual interest rate in excess of 60 percent on its so-called payday loans.

Lawyer’s rebuttal

Money Mart’s lawyer Paul Morrison explained in court that if the plaintiffs had paid back their short-term loans on or before the previously negotiated dates, they would have avoided additional fees.

The fees charged for payday loans do not constitute interest, Morrison contested, and thus the company is not in violation of the criminal code. Just as fees charged on other financial transactions, such as check cashing and NSF fees from banks, are not interest charges, neither are the charges on payday loans.

“We say check-cashing fees and item fees are not payable for advancing of credit so do not fall under the definition of interest under 347,” Morrison said.

Plaintiff assassinates own character?

TheStar.com reports that part of the plaintiffs’ case is built on its reputation. The claim filed by lawyers on behalf of the plaintiffs paints quite the negative picture of the people its representing.

The plaintiffs are portrayed as poor, uneducated borrowers who Money Mart took advantage of through payday loan fees.

Company statistics

Company executives and authors of public-opinion surveys will testify during the trial that the plaintiffs are not the backward folk their lawyers are representing.

Money Mart presented survey data in court that showed more than half its customers have completed post-secondary education. Furthermore, less than 42 percent of Money Mart’s customers make less than $50,000 per year. That’s about on par with average income for the province.

Money Mart’s data also showed that the average age of a payday loan customer is 39.

No quick fix

Ontario Superior Court Justice Nancy Spies, who will preside over the trial for the duration, expects the trial to last about six weeks.

Ontario has added some new provisions to its Payday Loan Act that will be effective on April 1. The new piece of legislation will require payday lenders and other loan brokers to be licensed. All payday loan lenders must get licenses before April 1.

No loan for a loan

The new laws also prohibit what are commonly called “rollover loans.” That’s when a borrower uses one payday loan to pay off another payday loan. That means Ontario will need some sort of system for tracking all of the payday loans given through all of the province’s 750 payday loan companies.

Cool down time

The new laws also allow what they call a “cooling off” period of two days. Payday loan borrowers can cancel their loans without reason or penalty within two days of taking out the loan, and they will get their money back in full without paying any fees.

Sure enough, rate caps

Ontario’s Maximum Total Cost of Borrowing Advisory Board advised that Ontario put a fees and interest cap on all payday loans of $21 per $100 borrowed. That effectively caps interest rates at 21 percent. It also means that there is little or no penalty for borrowers who default on their loans.

This could be devastating for payday lenders. It also sends a message to consumers that it’s OK, and in fact sanctioned by the government, to be irresponsible. Having no consequences for late payments teaches irresponsible borrowing practices.

Financial education

Ontario is also requiring that payday lenders establish a Payday Lending Education Fund. The lenders must pay for the fund themselves. I certainly think it’s good for payday loan companies to educate their customers about how their loans work. It might make more sense for each business to do so on an individual basis instead of having a central fund. But I think the sentiment is commendable.

Soon GM might not be so big anymore.

General Motors has begun dismantling; car prices are being driven so low in Canada that buyers probably won’t need payday loans to cover their down payments.

Cheap Cars in Canada

Auto prices in Canada fell in 2008 for the second year in a row. If a Canadian car salesman tries to convince people they must rush out and get payday loans to take advantage of a good price right now, buyer beware. Competition, the economy and a growing preference for smaller vehicles is driving auto prices down, down, down.

GM backing out of Europe?

GM-owned Swedish auto brand Saab began “reorganization” today, meaning it is going to separate from GM and become its own company. It has been granted protection from all of its creditors during the reorganization time. This move has protected the company from going bankrupt.

Germany being shepherded out?

Business Week says “GM is exploring options” regarding Opel, the U.S. auto giant’s German unit. One of these options includes selling the operation, but so far it’s hard to tell how likely that is.

Auto “giant” downgraded to “tall”

GM sold more vehicles than any other automaker for 77 years straight. This year, for the first time, GM lost the title of World’s Largest Automaker to Toyota. But that was just the beginning.

GM is unloading Saab, exploring Opel options and meanwhile downsizing its operations within the U.S.

“Without Europe, GM almost becomes a second-tier player,” says Joe Phillippi, head of AutoTrends in Short Hills, N.J.

Saab story continued

Now that Saab has been booted from GM, the Swedish courts have three months to turn Saab into a stand-alone car maker. The courts must find investors and creditors and can use money from various government programs. If this cannot be achieved in three months, Saab will liquidate.

Rough road ahead

Saab only sold 93,000 vehicles worldwide last year. Based on these numbers, if Saab employees need extra cash for necessities involved in looking for a job, they might want to start thinking about getting payday loans now.

President Obama has gone to Canada in search of answers about energy, where no easy loans will suffice. Sheryl Gay Stolberg of the New York Times reports that President Obama’s first foreign trip was focused most heavily upon energy and its impact on NAFTA.

First, there is the question of oil sands in Alberta, and how petroleum can be most easily extracted for use. The U.S. imports Canadian oil, and Prime Minister Harper wants to exempt the sands from regulation. This would speed extraction efforts, which environmentalists decry due to the what is left over. While no major agreement is expected, says Stolberg, it is assumed that they will agree to further research and share info on extraction techniques. Information loans easily.

Is “Buy American” a threat?

Regarding trade, Canada is worried about the new “Buy American” provision Congress put into the $787 billion economic recovery package. The concern is that it will be a barrier to free trade as defined in NAFTA, but President Obama is anxious to allay such fears. Obama, says Stolberg, will “stress drafting new environmental and labor protection side-agreements to the pact, and will emphasize the $1.5 billion-a-day trading relationship between the United States and Canada, the largest trading relationship in the world.”

Strong allies, easy loans

It has been traditional for a U.S. president’s first foreign trip to be to Canada, at least since the days of Ronald Reagan. Former President George W. Bush, however, bucked the trend and went to Mexico. This irritated Canada, so President Obama wanted to avoid any slight. Paul Cellucci, ambassador to Canada under Bush, said Obama “would be wise to strike a friendly tone,” as Canada is a strong ally.

“You don’t want to go down the road of a trade war, if we’re getting all this energy from Canada and it’s a reliable source of energy. It’s not Venezuela, it’s not the Middle East. Why would we want to jeopardize that?” asked Cellucci.

With a trade war, there would of course be no easy loans to be had from Canada, particularly when it comes to the development of the tremendous oil resource in those Alberta sands.

Related articles

• PM sees ‘fresh start’ with U.S. (thestar.com)
• Ignatieff has friends in Obama’s White House (ctv.ca)

If certain groups in Ontario have their way, a payday loan would be as hard to come by as honest bank CEOs… right?

Recently, the Center For Responsible Lending or a similar “self-interest” group sat Ontario’s Public Interest Advocacy Centre (PIAC) down in its lap and made its mouth move. The dummy spoke, and anti-payday loan rhetoric came oozing out like bad peanut butter.

Rash decisions cause economic rash

CNW Group writes in a press release that the PIAC has taken it upon themselves to condemn the Ontario Maximum Total Cost of Borrowing Advisory Board’s currently proposed cash advance rate as “astronomically high.” They claim that the proposed $21 per $100 loaned rate takes advantage of “most vulnerable” consumers. It is my hope that reasonable discourse and exchange of opinion occurs, rather than a rash decision like the one recently made by Manitoba government to cap payday loans, despite their court’s ruling to the contrary.

PIAC legal Counsel John Lawford says that the advisory board’s report “proposes not only burying Ontario’s most needy and vulnerable consumers under new mounds of debt but has picked out the most expensive casket for them.” This is rhetoric without basis in fact, sir. Please do your research. I’ll get you started with a study on your own countrymen.

I say we help John Lawford out… he seems confused

Next, Lawford plays the broken record of “astronomical” APR rates. Faxless payday loans are not annual loans and you are misleading your constituency. Take a look, please.

If you’d like to encourage Mr. Lawford to further his payday loan research, he asks for calls and mail at the following: John Lawford, Counsel, Public Interest Advocacy Centre, ONE Nicholas Street, Suite 1204, Ottawa, ON, K1N 7B7, (613)  62-4002 x 25 (Tel), (613) 562-0007 (Fax). Help him out, people.

Related articles

• Media Advisory: Canadian Payday Loan Association Available for Comment on the Government of Ontario’s Advisory Board Report on Payday Loan Rates (newswire.ca)
• Board says Ontario should put cap on payday loans (ctv.ca)
• Cap payday loan costs, board urges (thestar.com)

Related videos

• About Personal Money Store (personalmoneystore.com)

That may be the least of your worries

Regardless about how each individual consumer feels about the cost relative to the service offered on airlines, things could always be worse – as in, your plane may end up crashing.  In the news today is a passenger airplane, United Airways flight 1549 plunged into the Hudson River just after takeoff from LaGuardia airport in New York City.  The flight was en-route to Charlotte, North Carolina when it descended into the river, like how your budget can crash if you don’t supplement it with payday loans.

Passengers rescued at the scene reported hearing a bang, and smelling and seeing smoke just minutes after takeoff.  The pilot then announced to the passengers and crew that they should brace for landing, meaning a crash of some sort.  The plane fell into the Hudson, but instead of plunging glided in and skimmed the surface until coming to a stop.  The pilot was attempting to return to the airport when the plane began its descent, and was steered in at a slight angle to minimize impact, showcasing the pilot’s skill at handling an emergency that could have easily ended in disaster, for which he should be commended.

Miracle in New York

The miracle of the situation was several fold; firstly, the pilot adeptly guided the plane into the water to create a soft landing.  Then, the plane managed to stay afloat, giving passengers and flight crew the time to get onto life rafts and get clear of the wreckage.  The best news of all is that there seem to be no fatalities, and every passenger made it safely off the plane.  The reason for the plane’s descent and loss of engine use appears to be due to bird strike, which the pilot reported.

Bird strikes are when a bird or flock of them is pulled into an airplane’s engines, and it has resulted in hundreds of fatalities since aviation on a larger scale became prevalent in the last fifty years or so.  Apparently, UA 1549 flew into a flock of Canada geese, amongst the most habitual offending bird species, which shut down both engines.  Pilots and workers in the Japanese aviation industry call bird strikes yakitori, after the meat dish typically made from poultry.  Now it is a miracle that none were hurt, and serious commendation should be awarded the flight crew for successfully steering the plane into a slow descent so that none were hurt.  Perhaps they should be given a bonus, which payday loans can be when you need a stop gap from crashing your finances.

Rapid growth to meet unaddressed need

From the 1990s to the time of Pyper’s study in 2007, roughly 200 faxless payday loan outlets in the United States blossomed to around 22,000, with an annual loan volume of $40 billion (Ernst and Young 2004; Kirchhoff 2006). A similar growth pattern occurred in Canada, where a few stores became about 1,200 in 2004 (Kitching and Starky 2006, 4). These numbers obviously pale in comparison to the gigantic banking establishment, but the number of transactions performed by payday loan companies is significant (Ramsay 2000, 4).

Relatively high costs and clear disclosure are issues Canadian critics have raised (Canada 2006; ACORN Canada 2004), but on a practical level, many families value the convenience and don’t have a problem with the product. And the costs are much less than the closest alternative for those in need: depending upon checking overdraft.

Why do consumers like payday loans?

Families borrow money for different reasons. Like many of us, they encounter difficulties from time to time that make it impossible to meet all of their financial obligations with what they have on hand. It could be due to health, a broken down car, family emergency or most anything else with real short-term implications. Realistically, money management is also a factor. How we save and how we spend have a tremendous impact upon our financial well-being.

Pyper explores the question of why people take faxless payday loans rather than going to a traditional bank. Convenience, location, operating hours and approval speed are determining factors (Environics 2005), as is the reality that banks and credit unions have for the most part failed to serve certain communities and clientele with less than perfect credit (ACORN 2004, CMC 2002).

The blush of youth

Looking at Pyper’s Canadian sample, fully one-quarter of families who were payday loan borrowers had a major income recipient aged 15 to 24, compared with only six percent who were not. Similarly, payday loan families less frequently had a major income recipient 45 or older. Based upon her findings, young families were three times more likely to have used payday loans.

Why more often with younger families? If there are children, expenses can be stretched to more challenging levels, but the statistical impact as this relates to using payday loans was – in Pyper’s findings – not significant. Some sources even suggest that the greater the education level, the less likely consumers would be to use the product. However, Pyper’s findings run contrary to this assertion.

Payday loans, income and liquid savings

Pyper had this to say regarding family income findings:

Low-income families (after tax) were fully twice as likely as those not in low income to have used payday loans—4.6 percent compared with 2.3 percent. A further breakdown shows that families with higher incomes had significantly lower incidence of using payday loans—1.4 percent for those above $66,000 versus three percent for those between $40,001 and $66,000.

Liquid assets and whether the borrower was a homeowner did prove to be significant to the payday loan use equation. The greater the assets held, the less likely people were found to call on payday loans. Moreover, renters were found to be three times more likely than homeowners to use the product.

Payday loans: less costly than credit cards

Families who were without a credit card were more likely to have had a payday loan in Pyper’s study. In fact, for those who had been unable to obtain credit in that way, respondents were three times more likely to have used faxless payday loans instead. Unfortunately, the revolving debt trap credit cards pose could have been avoided if customers had relied upon payday loans for their short-term credit needs. After the typical two-week period, a loan could have been repaid with only an additional 15- to 30-percent outlay.

A very real need

Pyper’s findings are impossible to ignore. Nearly half of families who used payday loans reported that they “had no one to turn to for financial assistance in the face of financial difficulty, significantly more than other families (32%).”

As many of us are experiencing greater than normal financial challenges during the current recession, having the ability to responsibly rely upon a product like the payday loan is extremely valuable. Consumers who need a quick solution to a financial emergency can take advantage of the speed, convenience and discretion the products provide, without the worry of constantly spiraling debt that credit cards can easily introduce.

The Canadian Parliament elected one of its first Conservative party governments in living memory.   It was a bit shaky, but it was still the strongest presence of the conservative element in their legislature for decades.   Even though the recession had technically started in December of last year, things had apparently been doing fine up until September of this year.  That’s when the re-elected Conservative Prime Minister Stephen Harper had to deal with stock market fluctuations, and international trade drops.  These fluctuations have affected not only the North American continent, but had also caused shock waves in Europe and Asia to boot, and many governments are considering making payday loans to troubled sectors.

This week, it was evident to the Prime Minister that he was on shaky ground, and it was going to get even shakier as the other members of parliament refused to cooperate with him and were heading towards a vote of no confidence.  Since a vote of no confidence doesn’t really come up in the US, and some people may not understand what it means, I’ll explain.  A vote of no confidence means that a majority of members of a parliamentary (or otherwise) body have come to the conclusion that the head of the organization is not fit to serve in that capacity.  A vote comes before the floor to declare no confidence or not, and if so, that person is removed from their post.  The Canadian P.M. Harper may well have been looking that straight in the face, but decided instead to ask for the help of the Governor General to suspend the parliament for a recess of about two months, to let his office deal with the recession properly, without being hampered by partisan issues.  A temporary suspension of a legislative body is called “prorogation.”  It’s the first time since the 70s that it has been asked for, or done.

The recession is hitting the world, not just the US

This recession is hitting the world hard, not just Americans, and at
times, it can be hard or even close to impossible to remember that.  We in the U.S. can in no way tell our friends and neighbors to the north how to do things.  We know that what has gone on has done so for a reason.   The same holds true with our presidents and congresses.  Good will come out of this.  Both countries are fighting to combat the economic hardship that everyone is experiencing.  We just like to be aware of what our good friend’s situation is as well.  Remember also, that if some recent financial trouble has you wondering just what will happen, you can get some peace of mind with payday loans.

In our previous study, we analyzed current demographic data for users of PersonalMoneyStore.com, an online portal where users can be matched with lenders who supply payday loans for consumers who are experiencing short-term financial difficulties.

The collected data refutes prevalent media claims that the payday loan are instruments of economic exploitation. Specifically, it counters the claims that they are exploitative of the poor, uneducated or similar groups. With the following study, let’s extend this example into Canada, where studies have produced quite similar findings.

The Payday Loan Association (CPLA) takes 350 customers from the province of Manitoba as a representative sample. Canada’s leading public opinion survey company, Pollara, conducted the survey. In addition to pointing out who is using the loans in Manitoba, specific attitudes about no fax payday loans and other credit options are also measured.

Who Uses Payday Loans in Canada?

On average, the Canadian faxless payday loan customer is:

• 38 years old
• 77% are employed full time
• Nearly half (46 percent) have completed post-secondary education
• 39% reported income of $50,000 or more
• Overall household income on par or ahead of general population
• 39% of customers reported household income in the $50,000 or more

Regarding the survey findings, CPLA President Stan Keyes stated:

Payday loan customers are everyday Manitobans. It is clear that they know what they’re doing, know what they’re paying and have good reasons for choosing a payday loan over other available credit options.

Manitoban Personal Credit Profile

Contrary to the popular belief that people use faxless payday loans because they have no other option, the surveys demonstrate that customers have access to a wide variety of credit products, yet they still choose short-term consumer credit products:

• Customers owe an average of $24,357 to various financial institutions, excluding mortgages
• Customers have access to a variety of credit options, but choose payday loans over a line of credit, credit card, retail card, overdraft or other forms of credit
• Reasons given are convenience, ease of use and long hours of operation for lenders
• Only 15% of customers who used payday loans stated they had “no other option”

Borrowing Habits

• Customers average only $300.05 when they borrow
• Customers expect to pay an average of $24.67 for a $100 two-week loan
• 79% have paid back their payday loans on time
• 18% have paid back “most” on time

Educated and Informed Consumers

• Customers clearly understand the costs and terms of their payday loan
• They understand this as they do fees and terms on mortgages, credit cards and bank fees
• Customers described themselves as “average, working Canadians”
• Customers indicated they make an “informed choice” when they take out a payday loan

Payday Lenders vs. Banks and Credit Unions

• Customers preferred payday loan companies for overall convenience and ability to access small-sum loans
• Banks and credit unions only offer loans for more than the customer wants or needs
• Customers rate no fax payday loan companies above banks and credit unions in operating hours, speed, convenience and ease of use
• Customers rate faxless payday loan companies similar to banks – ahead of credit unions – in the respect and level of service received
• Customers indicate they prefer pay day loans because they only need a small amount of money for a short period of time
• Customers also indicated that pay day loan companies did not judge them or require justification for needing the money; overall customer service was also rated better with pay day loan companies

Reasons for Needing a Payday Loan

• Nearly 60% cite “emergency” or “unexpected” expenses as the reason for requiring a payday loan
• Specific emergencies include unexpected car repair and maintenance, extended sick leave from work, job transition and unexpected medical expenses
• Customers often require only a small amount until their next payday
• They prefer to borrow a few hundred dollars rather than seeking additional credit with a credit card or line of credit
• 18% use payday loans to avoid bouncing a check or avoid incurring late charges on bills

With these findings as collected by Pollara, it seems clear that payday loans in Manitoba are clearly tools used by educated consumers of solid income. Once again, the image of exploitation simply doesn’t pass muster.