New book offers analysis of payday lending and presents solutions for policy makers
Canadians of modest means are often left with no choice but to borrow from a high-cost payday lender. Since these fringe lenders charge upwards of 390 per cent annualized interest – well in excess of current consumer borrowing rates at banks and credit unions – those who can least afford to pay are forced to do so.
A new book titled, Payday Lending in Canada in a Global Context: A Mature Industry with Chronic Challenges, is edited by Administrative Studies Professor Chris Robinson and Economics and Public Policy Professor Brenda Spotton Visano, together with Jerry Buckland, a colleague at Menno Simons College (a University of Winnipeg affiliate). In it, an interdisciplinary team of eight scholars examines the highly contentious payday lending industry in Canada.
“When Canadians and newcomers to Canada are unable to access mainstream credit sources but need to do what we all need to do occasionally – namely, cover an unexpected expense until the next income payment arrives – they may turn to high-cost fringe lenders,” says Spotton Visano who teaches in the Faculty of Liberal Arts & Professional Studies’ Economics and Public Policy programs.
As Courtney Hare, public policy manager for Momentum in Calgary, states in her foreword in the book, the problem arises when the “short term relief of immediate cash turned into long-term grief, and an endless debt cycle.” At interest rates of 390 per cent and higher, it is easy to see how a debt trap awaits, observes Spotton Visano.
The authors offer an interdisciplinary mix of financial, econometric, legal, behavioural economic and socioeconomic analyses of such questions as: Who are the customers? How do they feel about their situation? What is the financial and operational nature of the companies? What are the barriers to mainstream banking? What are the alternatives? How does the legal-regulatory environment operate? And what are the ethical considerations?
“We conclude with some very doable solutions for policy makers. Rather than prolong the incredibly inefficient and inequitable practice of patching provincial and territorial payday lending legislation and then filling in some of the remaining holes with municipal by-law restrictions on payday lender location, we argue that a federal ban on high cost consumer lending – by simply restoring the universal prohibition of rates in excess of 60 per cent as currently legislated in Canada’s Criminal Code – should follow regulations ensuring all Canadians have access to fair and affordable financial services,” says Spotton Visano.
“Adding minimal overdraft protection to the current requirement that banks guarantee access to low cost basic bank accounts would service those near a bank or credit union. Using the existing network of postal outlets with only a modest expansion of current activities and infrastructure would service Canadians and Indigenous Peoples in remote communities,” she adds.
Spotton Visano argues passionately for those whose lack of financial privilege constrains their social and economic opportunities.
“As a requirement for functioning in today’s economy, basic banking services need to be universally accessible at rates that are affordable,” she says. “This book offers an in-depth analysis of the industry; it explains how, by allowing high cost lenders to operate, we impose a poverty penalty on those who can least afford it, and suggests what we might do to restore fairness in basic banking.”