After more than two decades in the payday loan industry, Anthony Piet is facing his toughest year in the business.
Mr. Piet operates eight Money Mart franchises across Canada, located in small towns such as Banff, Alberta and Timmins, Ontario. Legislative changes in many provinces – including Ontario, which will take effect Jan. 1 – have restricted payday lenders, especially small players such as Hamilton-based Mr Piet. New rules reduce the amount they can charge and place restrictions on loans.
“Tough,” says Piet of his outlook for 2018. “Really tough.”
The much maligned payday loan industry sells short-term loans at a high cost, primarily to low-income Canadians. If a person does not have access to credit, but is running out of money between two paychecks and needs to cover something essential like the electric bill, a lender like Money Mart is a quick and easy place to get it. money. Loans are usually repaid quickly, but the fees, which have long been over $ 20 for every $ 100 borrowed, amounted to an annual interest rate of 500% and above.
Provinces across Canada have tightened the rules governing the industry. Payday lenders insist they are providing an essential service, but they have been widely criticized for exploiting vulnerable customers and overcharging. Now they say their margins are so tight that they are fighting for their survival.
Payday lenders have been forced to cut fees and relax conditions. In 2016, Alberta passed its Act to End Predatory Lending. Among several changes, including an extended repayment period for a loan, the fee for every $ 100 borrowed has been capped at $ 15. British Columbia, in early 2017, reduced the maximum allowable fees from $ 23 to $ 17 and instituted an extended repayment period if a third loan is taken out within two months. Ontario cut its rate from $ 21 to $ 18 for 2017 – and on January 1, 2018, Ontario will lower the figure to Alberta’s $ 15 cap. Ontario is also considering an extended repayment period.
The various changes have been a challenge for payday lenders. In Alberta, where the traditional two-week loan has disappeared, lenders have decided to find different products. One is to offer installment loans, sometimes for larger amounts, repayable over a long period. However, fewer clients qualify, and smaller payday lenders cannot get the capital to fund longer, larger loans.
Another challenge is the new technology. Instant Financial Inc., a Vancouver-based startup, released an app this year that allows hourly paid workers to get their income for the day after a shift. It’s free for employees. Employers pay fees. So far, the focus is on the hospitality industry and includes companies such as McDonald’s and Outback Steakhouse in the United States. Instant has approximately 175,000 people on the service in the United States and approximately 5,000 in Canada. Wal-Mart offers a similar product, which it purchased from another company.
“We can clench our fists against payday lenders and say these are predatory loans. We took a different approach and said, ‘We’re going to fix this problem,'” said Steve Barha, managing director of ‘Instant.
The number of payday lenders operating in Canada has been on a downward trend for several years, in part due to the new legislation. In 2017, there are approximately 1,360, down 5% from 1,434 in 2015.
For Mr. Piet, with a Money Mart in Alberta, he took pragmatic steps. It has reduced hours of operation, reduced advertising and reduced contributions to the community. He called the future of his Banff store “tenuous.”
In Ontario, where his Money Marts are located in Timmins and Simcoe, Piet doesn’t feel the province’s new rules herald impending closures, but he does feel like he’s in a bind as ‘he prepares the budgets for the coming year. “Everything is under the microscope,” he said.
Losing sites like Money Mart is not good for Canada, said Piet. “People don’t borrow money for frivolous things,” he said. “It’s the unexpected repair of the car. It’s the risk that the electricity will be cut off.”
The typical payday loan client often has no other choice, according to a report by the Financial Consumer Agency of Canada, Ottawa’s independent consumer watchdog.
Payday loan customers face the anvil of bad credit. Only one-third have access to a credit card, and only one in eight have a bank line of credit, according to the October 2016 report. The agency said payday loans were “an expensive way to save money.” borrow money, ”but also highlighted their increased use – rising to about 1 in 25 Canadians in 2014, up from 1 in 50 in 2009.
Industry data shows similar results. There were 4.47 million payday loans worth $ 2.19 billion in 2014, among members of the Canadian Consumer Credit Association (formerly the Canadian Payday Loans Association). These figures compare to 2.53 million payday loans worth $ 1.21 billion in 2010.
While times were good for the industry at the start of this decade, the industry association argues that a continuing decline in outlets shows how much has changed and how difficult it has gotten. . The industry association had no more recent numbers than data from 2010 and 2014 – the good years. The association based its claims of hardship on the decline in the number of payday lenders and the rapidly changing regulatory environment that is reducing their income.
One of the great discoveries of the Ottawa agency was habitual use. More than half of payday loan clients used the service at least twice over a three-year period. A quarter of payday loan clients have used it six or more times.
This accumulation of costly debt was the main target of criticism from the industry, then elected officials. “We have ended predatory 600% interest rates and vicious debt cycles,” said Stephanie McLean, Minister of Service Alberta, in 2016.
Capped rates, argues the payday loan industry, are too low. The $ 15 figure is lower than what a 2016 report from Deloitte LLP, paid for by the industry association, said it costs a lender in Ontario. Deloitte calculated the operating cost for each $ 100 to be $ 11.39, but the additional costs – including about $ 5 to cover bad debts – pushed the number to $ 18.14.
“We are very concerned about Ontario,” said Tony Irwin, president and CEO of the Canadian Association of Consumer Finance.
“When your income goes down 30%, it has an impact,” Irwin said. “This is a huge concern for the whole industry, but especially for our smaller members. They don’t know if they can survive. They are small businesses.”