Payday loans are short-term loans with very high interest. The interest can be as high as 500% in some cases. Scary. These loans seem like the only option for low-income Canadians, but there are more options now. Both the Provincial Government of Ontario and companies that provide loans for people with bad credit are aware of the payloan problem that some Canadian faced. The Provincial Governments across Canada are helping vulnerable low-income Canadians by changing the way payloan companies like CashMoney and Money Mart work. In 2017, Ontario decreased the fee for every $100 from $21 to $18. This was a great step towards helping Canadians who may need a small loans to pay a bill or for an emergency. Provinces with a high cost of living followed suit within months. This week, Ontario decided to lower the fee for every $100 from $18 to $15! As great as this is, will this really help low-income Canadians? How will this affect small business owners like Mr.Piet? You can read the article below.
Payday lenders squeezed by new regulations
The Globe and Mail–Dec. 18, 2017
Provinces across Canada have tightened rules governing the payday-loan industry, comprised of businesses such as this Cash Money store seen in Toronto. … Mr. Piet operates eight Money Mart franchises sprinkled across Canada, located in small towns such as Banff, Alta., and Timmins, Ont. Legislative
changes in numerous provinces – including Ontario, to take effect on Jan. 1 – have squeezed payday lenders, in particular smaller players such as Hamilton-based Mr. Piet. New rules reduce how much they can charge and put restrictions on lending.
“Tough,” says Mr. Piet of his 2018 outlook. “Really tough.”
The much-maligned payday-loan industry sells short-term loans at a high cost, mostly to lower-income Canadians. If a person doesn’t have access to credit, but is short on money in between paycheques and needs to cover something essential, such as the hydro bill, a lender such as Money Mart is an easy and fast place to get cash. The loans are generally repaid quickly, but the fees, which long stood at more than $20 for every $100 borrowed, added up to an annual interest rate of 500 per cent and more.
Provinces across Canada have tightened the rules that govern the industry. Payday lenders insist they provide an essential service, but they have been widely criticized for exploiting vulnerable customers and charging too much. Now they say their margins are being squeezed so badly that they’re fighting for survival.
Payday lenders have been forced to lower fees and loosen terms. In 2016, Alberta passed its Act to End Predatory Lending. Among several changes, including an extended payback period for a loan, the fee for every $100 borrowed was capped at $15. British Columbia, at the start of 2017, reduced the maximum allowable fee to $17 from $23 and instituted an extended payback period if a third loan is taken out within two months. Ontario cut its rate to $18 from $21 for 2017 – and on Jan. 1, 2018, Ontario will cut the figure to Alberta’s cap of $15. Ontario is considering an extended repayment period, too.
The various changes have been a challenge for payday lenders. In Alberta, where the traditional two-week loan is gone, lenders have moved to figure out different products. One is to offer instalment loans, sometimes for larger amounts, payable over an extended period. Fewer customers qualify, however, and smaller payday lenders can’t get the capital needed to finance longer and larger loans.
Another challenge is the new technology. Instant Financial Inc., a Vancouver-based startup, released an app this year that lets workers paid by the hour get their day’s earnings after a shift. It’s free for employees. Employers pay a fee. The focus so far is the hospitality industry, and includes companies such as McDonald’s and Outback Steakhouse in the United States. Instant has about 175,000 people on the service in the United States and about 5,000 in Canada. Wal-Mart has a similar product, which it sourced from another company.
“We can shake our fists at payday lenders and say it’s predatory lending. We took a different approach and said, ‘We’re going to fix this,'” said Instant chief executive Steve Barha.
The number of payday lenders operating in Canada has been on a downward trend for several years, in part because of the new legislation. In 2017, there are an estimated 1,360, down 5 per cent from 1,434 in 2015.
For Mr. Piet, with one Money Mart in Alberta, he has taken pragmatic measures. He has reduced hours of operation, cut advertising and pulled back on community contributions. He called his Banff store’s future “tenuous.”
In Ontario, where his Money Marts are in Timmins and Simcoe, Mr. Piet doesn’t feel the new rules in the province foretell looming closures but feels like he is in a vise as he draws up budgets for the coming year. “Everything is under the microscope,” he said.
The loss of venues such as Money Mart isn’t good for Canada, Mr. Piet said. “People aren’t borrowing money for frivolous things,” he said. “It’s the unexpected car repair. It’s the risk of hydro being cut off.”
The typical payday-loan customer often has no other option, according to a report from the Financial Consumer Agency of Canada, Ottawa’s independent consumer-protection watchdog.
The entire article can be found on The Globe and Mail
With the cost of.. well everything in Canada, more Canadians are having trouble paying for the basic needs. This includes heating, water, gas, and other necessities everyone needs. In 2009, one in every fifty Canadian received a payloan. In 2014, that number double to one in every twenty-five. This is the same time period when Loan Away was established. The financial company has been able to provide loans of their choice for thousands of Canadians across the country. Instead of a short-term loan, Loan Away has over 20 different types of loans such as debt consolidation, long-term loans, personal loans, online loans, and more. Loan Away and the new regulations are causing payloan companies to question if the industry is still profitable. For the past several years, payloads companies have had to close down 5% of locations across Canada. This may not seem like a big step for the economy, but it is. As long as this trend continues, Canadians will no longer need pay loans for bills anymore. Instead, the economy will be more stable and people will get loans to advance themselves instead of maintaining. Within the next few years, Ontario and other provinces will continue to regulate payloan fees; eventually eliminating the payloan industry. Only well established financial institutions will flourish!
How do you feel about the changes that provinces are making towards payday loan companies? Let us know your thoughts! Share this post to bring awareness to every Canadian.
