If you’re short on cash and bills are piling up, a payday loan may be a solution.
That’s how Cash Money promotes its outlets online, but a financial adviser says there are better fixes.
“They serve a small value but overall I can’t support payday loans,” said John Eisner, president of Credit Counselling Services of Atlantic Canada.
“It’s not just the poor and the uneducated, as a lot of people think,” he said. “A lot of people think that’s the clients that are using this sort of service. A lot of times it’s people who are hitting rock bottom or have maxed out their debts or maybe they don’t have access to credit. That $1,500 is just a one-time thing. Wouldn’t it be wonderful if it was just a one-time thing but that’s not what we are seeing.”
There are 42 payday loan outlets in Nova Scotia, including 22 Money Marts. The Cash Money Cheque Cashing Inc. storefront on Chebucto Road at the Armdale Rotary in Halifax is one of a chain of five in the province.
The Chebucto Road lender sports signs reading “Cheque cashing, Payday advance.” Another sign offers potential customers a $300 loan for $20, on a first loan only.
“Payday loans are high-cost loans,” the smaller print on another sign reads. “Under this offer, the cost of borrowing is $6.67 per $100 on $300 loan for 14 days.”
Still another sign promises “simple, fast, friendly cash money.” And the outlet is open seven days a week.
But on a sunny Wednesday afternoon, business is far from brisk. Only two customers emerge over a 20-minute period.
“It doesn’t interfere with me a lot,” said a woman in her 60s who came out of the building with loan forms in hand. “I just use it when I need money. I know it’s a high
nterest . . .”
She didn’t want to give her name and the man who accompanied her had nothing to say, as if they were embarrassed by the transaction.
The Nova Scotia Utility and Review Board will hold a hearing in September about the payday loan industry to discuss, among other issues, placing restrictions on concurrent and repeat loans.
Halifax lawyer David Roberts is the Nova Scotia consumer advocate and he will make a presentation to the UARB. He said recurring loans and the possibility of reducing the maximum cost of borrowing permitted, which is now set at $22 per $100 loaned, will be on his agenda.
Roberts said he would like to see that maximum cost number dropped to $15 per $100, as is the case in New Brunswick.
In preparation for the board hearing, Roberts commissioned a report from Michael Gardner of Gardner Pinfold Consultants in Halifax.
In his analysis, Gardner says the payday loan industry is “made up of consumers seeking short-term, low-value loans who are willing to pay high interest rates to account for convenience, low credit rating, and/or lack of other available options.”
Gardner’s report referenced a survey of 1,500 Canadian payday loan users that found:
• 72 per cent of respondents were between 25 and 54;
• more than 50 per cent lived in households with an annual income under $55,000;
• 43 per cent understood that a payday loan is more expensive than an outstanding balance on a credit card or a cash advance;
• 75 per cent reported loans of a $1,000 or less, 55 per cent reported loans of $500 or less;
• 70 per cent reported using paycheques to repay loans and only seven per cent repaid the loan with a rollover loan;
• 29 per cent reported only taking one loan in the past three years.
The total number of loans granted in Nova Scotia in 2017 was 209,000, 117,896 of which were repeat loans.
A loan payment is usually taken from the borrower’s account or from a post-dated cheque. When a non-sufficient funds charge is applied to a loan payment, Nova Scotia allows charges of up to $40. The estimated cost of NSF charges to provincial borrowers increased from $13,304 to $16,020 from 2013 to 2017.
“While payday loan regulations in Nova Scotia prohibit the granting or acquisition of rollover loans, there is no system of tracking that would identify a borrower who acquires a loan from one lender to pay the loan held by a different lender,” Gardner’s report says.
Federal regulations prohibit the charge of more than 60 per cent interest on payday loans, but Eisner suspects with all the fees attached, interest often exceeds 60 per cent.
“There is nothing in place to enforce thesepercentages,” Eisner said. “We’ve proved that at hearings. One client was being charged, whenyou did the math, over 1,000 per cent interest
“There are people at times, maybe they need $1,500 and it’s not accessible to them. I can see that as a one off, but a lot of the clients that we see have access to three, four, five and, in worst-case scenarios, we’ve seen as many as 10 to 12 (loans).”
Eisner said personal lines of credit and other bank loans are much more affordable than payday loans.
“At one time the banks used to do small loans — $1,000, $1,500. They got out of that years ago and then the finance companies got into it. The problem is that those payday loans are usually $1,000 to $3,000. The banks, even the finance companies, don’t do that stuff anymore. It’s too time-consuming and for that small amount of money, it’s too costly.”
Eisner said some people never learn how to manage money.
“If we really think about the big picture, where do we ever learn our money management skills? For most, you learn from your parents. If mom and dad did a good job, chances are you are doing a good job. If they didn’t do such a good job, chances are you picked up their bad habits. We learn from the people in front of us.”
And if we learn to take expensive loans, the repercussions can be lasting, he said.
“You don’t get out from under 60 per cent interest rates. People just fall into it and they stay in it. It’s a revolving door, in my opinion.”