Toronto city council is facing pressure from the city’s general government and licensing committee, which said Wednesday that the city should stop issuing licences to new payday loan stores that try and open up shop.
Payday loan stores are usually located in low-income areas like Weston Road and Lawrence, where residents in dire financial situations see them as an attractive option but then find themselves locked in a cycle of debt as they go from lender to lender, the committee argued.
“These are in areas where residents are very vulnerable,” said Ward 5 Councillor Frances Nunziata. “We have to control them.”
A spokesperson for the payday loans industry told the Toronto Star that payday loan stores are licensed and regulated. And if licences aren’t granted to new shops, it will only result in illegal and unlicensed stores cropping up in order to meet the demand.
Jim Burnett, of Pathway Group Inc., who was speaking on behalf of the Canadian Consumer Finance Association, told council that targeting brick-and-mortar stores will also push financially desperate residents to seek out the same loans online.
“The demand will remain the same and people will go online and get riskier loans — that’s what’s happening now,” Burnett said. “The way it is set up now is, by attrition, you’re eliminating every payday loan store in Toronto, eventually.”
According to one insolvency trustee, that’s already happening.
Scott Terrio, manager of consumer insolvency at Hoyes Michalos & Associates in Toronto, tweeted earlier this week that based on what he’s seeing in his office every day, online payday lenders are becoming increasingly common — and dangerous.
“Anecdotal from what we are seeing here, but online payday lending is getting to be a huge issue,” Terrio wrote. “People get into debt trouble and then turn to these as they are faceless, easy. And they mostly don't report to credit bureaus.”
Research from Hoyes Michalos that was released in March revealed that payday loans are the second-largest contributor to millennial insolvencies.
Consumer Protection Ontario cautions that “payday loans are an expensive form of credit” and if you can avoid them by borrowing money in another way, such as from family or friends or a credit card, you would be better off.
As of Jan 1. 2018, the maximum cost of borrowing from a payday lender is $15 for every $100 borrowed. So, if you take out a loan of $300 for two weeks, you’ll pay a $45 fee. If you were to borrow that same amount of money from a credit card with 23% annual interest rate, it would cost you $6.15.
According to Nelson Belchior, president and co-founder of Pay2Day, banning new payday loan stores would give large companies like Money Mart, Cash Money and Cash 4 You a monopoly on the industry.
“The top three have just been granted a monopoly card,” he said. “This is about minimizing competition. We’re the competition and we’re being told we can’t go in there and compete.”
The decision is ultimately in the hands of city council, which will debate the proposal on Oct. 2.