Bill 156 – Is This The Payday Loan Regulation We Need?

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Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

payday loan regulation we need
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It’s no secret that payday loans charge an outrageously high interest rate. In Ontario, they can charge $21 for $100. If you take out a new $100 loan every two weeks, you would pay $546 a year, that’s an interest rate is 546% on an annual basis. And therein lies the problem with these types of loans. But what is the solution?

On today’s podcast, I speak with Jonathan Bishop, a Research and Parliamentary Analyst at the Public Interest Advocacy Centre (PIAC) about Bill 156 and pay day loan regulation. The PIAC is a non-profit organization that conducts research into public service issues that affect consumers. The payday loan industry is something they have been investigating for well over a decade.

History of Payday Loan Legislation In Ontario

Before 2007 interest rates were limited to a maximum of 60% under the Criminal Code of Canada. The Criminal Code was amended in 2006 to allow payday lenders under provincial regulation rather than under the usury laws of the Criminal Code. Payday loans would be allowed to charge more than 60% as long as provincial legislation existed to provide set limits around the cost of borrowing even if this exceeded the criminal code rate. In reality Ontario payday loans were already operating at that time so the amendment to the law prior to 2007 permitted what was already occurring with payday loans in Ontario.

Ontario itself enacted the Payday Loans Act in 2008, limiting fees to $21 per $100 borrowed for two weeks.

Is Payday Loan Regulation Changing? 

Currently, Ontario is considering revisions to the existing laws that govern payday loans through Bill 156. The consultation process began when the Premier committed the Minister of Government and Consumer Services to:

explore opportunities to increase protection for vulnerable and vetted consumers such as modernizing payday loan legislation.

PIAC responded to the initial call for comments with a 50-page policy analysis and a recent research report on debt collection practices. Bill 156 was the result of the consultation process.

One of the changes proposed in the bill will affect repayment time. If you get a third payday loan, the loan becomes an installment loan that has to be paid back over a period of 62 days instead of two weeks. This is to help break the payday loan cycle of someone trying to repay a payday loan with a payday loan from another payday loan lender.

As Jonathan says:

One of the other outstanding issues with a payday loan product is that onetime balloon payment in terms of the borrower has to pay it back all at once. There’s no kind of steps to doing it or planning. It’s just ‘here’s my paycheque. Oh here you go, you’re the first in line ’cause you have my paycheque, so I don’t have any choice’… rather than if you say two paycheques or three paycheques to pay it off.

Jonathan also mentioned that part of the challenge with payday loans is access:

  • Traditional financial institutions move out of a neighbourhood in a process called ‘redlining’ to focus on geographic areas and products offering a higher return.
  • Additionally, small ‘mom and pop’ businesses historically provided some of the basic services of a bank for a nominal fee, such as cashing a cheque. The proliferation of big box stores has squeezed small businesses out of the market, further reducing a community’s access to affordable financial services.

Payday lenders and alternative cheque cashing services move in to fill the void but at a high cost.

Possible Solutions to Payday Loans

A possible solution that Jonathan offered, was that a trusted authority such as the Ministry of Consumer Services could provide the community with the locations and business hours of alternatives that are within walking distance or within their neighbourhood.

In addition, another solution the PIAC put into its submission to the Ontario Government, was that the government should support legitimate micro-credited initiatives by partnering with local financial institutions to make this financial product available. The goal being that these micro-loans would be a competitive product that satisfies the need for immediate cash without trapping a person on in a payday debt cycle.

Other structural changes Jonathan would like to see in Bill 156:

  • some lengthening of the repayment period,
  • a limit on the number of payday loans a person can borrow in a given year
  • a reduction in the allowable cost of borrowing, and
  • lenders should be required to consider the borrower’s ability to repay the payday loan before granting credit.

He notes that in Manitoba, a payday loan cannot be more than 30% of the borrower’s net income. In British Columbia and Saskatchewan, the limit is 50% of the borrower’s next paycheck. The PIAC, recommends that the limit should be no more than 5% of the borrower’s monthly income to give the borrower enough money for other living expenses.

Doug acknowledges that some of the changes proposed in Bill 156 may help, but he is concerned that the bill isn’t addressing the underlying problem with payday loans – debt:

[Borrowers] are maxed out on their credit cards and they can’t borrow from a bank so they turn to payday loans. If we could address the underlying problems, one of which is excessive of debt, perhaps the need for payday loans would be greatly diminished.

Learn more by reading the full transcript below.

Resources Mentioned in the Show

FULL TRANSCRIPT show #85 with Jonathan Bishop

payday-loan-regulation-we-need-transcript

Today we’re going to talk about a topic we’ve discussed here before on Debt Free in 30, payday loans. You’ve heard me give my thoughts on payday loans and I’ve other licensed insolvency trustees and credit counsellors on the show to discuss the evils of payday loans. We all know the problem, they charge very high interest rates. In Ontario, they can charge $21 on $100 loan so if you get a new $100 loan every two weeks you end up paying $546 a year, which on $100 loan is a 546% interest rate on an annual basis.

That’s the problem with payday loans but what’s the solution? Should the government have a greater role in regulating payday loans and short-term loans? Is that the solution? Would it work? If so, what should the government actually do? We already have laws regulating payday loans in Ontario, and most other provinces, and that hasn’t solved the problem so is the government the answer? That’s the question I want to ask my guest, who isn’t a licensed insolvency trustee or credit counsellor and he doesn’t work for a bank or payday lender.

So, let’s get started. Who are you? Where do you work and what do you do?

Jonathan Bishop: Good morning Doug. Thank you for having me. My name is Jonathan Bishop, I’m a Research and Parliamentary Analyst at Public Interest Advocacy Centre here in Ottawa. I do policy research on a variety of subjects, and including payday loans and financial service issues.

Doug Hoyes: Can you tell me what the Public Interest Advocacy Centre is? So, you – do you go by the initials, how do you refer to it?

Jonathan Bishop: Well, around the office we go by PIAC. Anybody that deals with us on a regular basis, that’s kind of what we’re known by. But the Public Interest Advocacy Centre is a non-profit organization and charity that provides legal and research services on behalf of consumer interests and particularly vulnerable interests concerning the provision of public services.

Doug Hoyes: So, you’re looking at people who – you’re doing research into issues that help real people. You’re not trying to figure out a way to make banks more profitable, you’re dealing with the actual real person is what you’re doing.

Jonathan Bishop: Yes.

Doug Hoyes: So, what kind of projects have you worked on in the past?

Jonathan Bishop: The past two or three years myself, I’ve worked on issues relating to wireless data roaming, the commissioner for complaints of telecommunication services, payday loans obviously, loyalty programs, online group buying, the amount of money you pay to receive a paper bill for communications or a financial institution bill on a month basis, things of that nature.

Doug Hoyes: So, a wide variety of things, so let’s talk then about payday loans. So, you’ve done some research into this area why don’t you start me off with a short history lesson then. So, what is the state of payday loan legislation, you know, in Canada and in Ontario whatever, wherever you want to start.

Jonathan Bishop: Sure, the Public Interest Advocacy Centre has been investigating payday loans for well over a decade. Prior to 2007 the maximum for all rates for all loans in Canada, according to the criminal code was 60%. However at that time an exemption to the criminal interest rate was passed to allow payday loans, which were operating in Ontario at that time, in provinces that opted to permit it. So, Ontario had them but they didn’t have any regulations around it. So, the amendment to the criminal code in 2007 kind of permitted what was already there. To my knowledge on Newfoundland and New Brunswick are the provinces remaining that don’t have active payday loan legislation.

Quebec for example has gone a different route than many of the provinces by limiting the criminal rate of interest to 35%. This has in effect curtailed the operation of payday lenders there.

Doug Hoyes: Just a question on that then, so in Quebec the maximum interest rate that can be charged I guess by any lender is 35% is that correct?

Jonathan Bishop: That’s my understanding, yes.

Doug Hoyes: And that’s curtailed payday lending just because it’s not profitable to do it.

Jonathan Bishop: That’s my understanding. I know there are still storefronts there but they’re not offering products on a similar basis as they do in other provinces.

Doug Hoyes: Got you. Whereas, where I said in the introduction at a place like Ontario here, the maximum interest rate, which is governed by federal law, as you said, which are governed by the usury laws I guess, is 60% but the payday loans get around that. Is it because of this specific provision that you talked about going back to 2007?

Jonathan Bishop: That’s right.

Doug Hoyes: That’s what it is, okay. So, they’re charging on an annual basis a higher rate of interest but there’s a special rule that allows them to do it is essentially what happened, okay.

Jonathan Bishop: When the amendment was introduced in 2007, the provinces were told that you could regulate the interest on, you know, the maximum rate of borrowing a payday loan if legislative measures that protect recipients of payday loans and that provide for limits on the total cost of borrowing under the agreements were put in place. So, what’s happened is that’s occurred in many of the provinces. New Brunswick’s established payday regulation, but they haven’t put it in place yet. They haven’t finalized it.

Doug Hoyes: Got you. So, these laws have been in place in Ontario for a number of years. And yet I understand that, and I think you were probably the one that made me aware of this, that Ontario is now considering revisions to the existing rules. So, this is Bill 156, am I correct?

Jonathan Bishop: Yes, you are correct.

Doug Hoyes: So, tell me about Bill 156. What’s the point of Bill 156?

Jonathan Bishop: Sure. Bill 156 was introduced in Queen’s Park in December. It began its political life as basically a sentence in the mandate letter in 2014 from the Premier to the Minister of Government and Consumer Services, committing the ministry to quote explore opportunities to increase protection for vulnerable and vetted consumers such as modernizing payday loan legislation, unquote.

So, in to order effectively check that box, the ministry began a consultation process last summer asking for comments. They issued a paper that had about 22 questions in it. The Public Interest Advocacy Centre answered that call with a 50 page document policy analysis and we also attached a recent research report on debt collection practices because that was part of the questions that were asked by the ministry. And so Bill 156 is the end result of that consultation process.

Doug Hoyes: We’re now in the spring, it’s April of 2016, the bill as I believe has gone through first reading, presumably there’ll be lots of committee work, and so on and so forth. So, would you agree with me that’s it’s unlikely that we’re going to see any new legislation in 2016. Is this more likely that it’s 2017 if anything happens or could it happen quicker than that?

Jonathan Bishop: It could happen quicker than that if there’s a political will to make it happen. However, with Bill 156 a lot of where the rubber’s going to hit the road, so to speak, will be when regulations are established. And that won’t be until 2017 even if the political will is there to pass this bill by the end of 2016.

Doug Hoyes: Got you. And obviously they have the votes because it’s a majority government in Ontario right now. But it’s whether they want to do it. And you’re right, the devil is in the details, the legislation itself will contain a few lines, but then there are regulations which actually spell out how it works. And I think this is exactly what we saw with the legislation that I believe came into being in 2015, in Ontario with respect to debt settlement agencies for example. The legislation itself was reasonably short but then there are regulations that actually spell out how it works. So, it’s the same concept, I guess, that we’re going to have to wait to see the regulations. But, what is specifically included in Bill 156 now that would impact on payday lenders?

Jonathan Bishop: Well, specifically there are rules in here, in 156, to change restrictions applicable to replacement payday loans. So, for instance in the Bill there’s rules saying if you get to a third payday loan in a period of time, then that payday loan becomes essentially, they don’t say so, but essentially an installment loan that has to be paid over 62 days rather than a two week period or a, you know, that kind of thing. They’re going to attempt to lengthen out the repayment time specifically. There’s a couple of other nuances in here as well.

Doug Hoyes: But is that the big change then?

Jonathan Bishop: That is one of the big changes, yes.

Doug Hoyes: So, right now I go get a payday loan, it’s due on payday, which is two weeks from now. So, two weeks from now I’ve got to come up with the money to pay it plus I’ve got to pay the charge that was added on top of it. So, my $100 loan I’ve got to pay back $121 but I don’t have the money so I go to – I can’t go to the same payday loan place and borrow again. I can’t get a loan from company A to pay off the loan from Company A under the existing rules. But I can go to Company B, borrow from Company B, come back to Company A and pay it off. Under the new regulations if I get a certain number of loans from the same company in a predefined period, the third loan can’t be just another two week loan, it’s got to have a longer time period, am I understanding the gist of it correctly?

Jonathan Bishop: That’s right. If you get into a third payday loan agreement within 62 days, then that third agreement has to be repaid in 62 days.

Doug Hoyes: Got you, Okay. So, what they are trying to do is break this cycle. So, let’s get into some solutions here then. So, we understand now conceptually what the rules are today in Ontario and in many provinces there is a cap on how much a payday lender can charge. And under the new rules there will be, perhaps, the requirement to extend the payment terms to give someone a little bit of extra time to pay them off.

I want to hear your thoughts on what possible solutions there are then. So, should the government just adopt Bill C-156 and does that correct all our problems? Well, I’m sure the answer to that question is no. So, why don’t you walk me through some specifics solutions that – I don’t want to say that you are advocating them but things that you think are at least worthy of consideration? Where would you start?

Jonathan Bishop: Well, there are a number of potential solutions to investigate from the mundane. So, when part of the problem with payday loans or the challenge is access. Consumers have lost access in many instances to traditional financial institutions just because they’ve moved out their neighbourhoods.

So, in instances such as that, it may be beneficial to consumers if the Ministry of Consumer Services say, a trusted voice were to – it would provide them with locations and business hours of alternatives that are within walking distance or within the neighbourhood, rather than waiting then having a payday loan institution come into their neighbourhood that replaces the bank, so to speak, geographically. And then, you know, then operates

Doug Hoyes: So, what you’re saying is that banks now, there are fewer branches than there used to be. If we looked at the number of branches 20 years ago and the number of branches today, it’s a lower number. And a lot of that is because we now all do online banking and things like that. And what you’re saying is a lot of the branches that have closed, have closed in perhaps, less affluent neighbourhoods and so those people perhaps don’t have access to cars to go into the next neighbourhood to use the bank. And as a result, perhaps, they’re being more drawn to payday lenders who are on every corner, sort of like a coffee shop. So, you’re saying one possible solution then would be to provide different physical location access then.

Jonathan Bishop: Yes, that’s correct. I mean there is a little more to it than that, but yes. Researchers in this field call this whole process redlining, where banks essentially redline a neighbourhood and move out because they want to focus on products that provide more return on investment. So, rather than say being in one central area of Toronto, they’ll move out to a place like Whitby where they can concentrate on financial products to get a little better return, leaving that inner city neighbourhood without that financial institution.

Another part of this that we found is the evolution of big box stores kind of crowding out local retailers, where those local retailers used to do things like say cash a paycheque for a fee. Now with the removal of that local retailer, some citizens are left with having to go to another organization that might charge an exorbitant fee in order to do something simple like cash a cheque.

Doug Hoyes: So, the local grocery store, hardware store used to fulfill some of the functions of a bank, like cheque cashing for example. Just, I want to make sure I understood then on the first point about the redlining and the banks moving out, so you are suggesting, what as the alternative, that different organizations then come into pick up the slack, so to speak?

Jonathan Bishop: Well, there are a couple of – that’s happened in other jurisdictions. Say for instance credit unions have come into the fray with products and offerings that are somewhat similar to a payday lending product. I can think of the good folks at Vancity have offered I think it’s fast and free loan or something, fast and friendly loan or something of that nature.

In Montreal, going back to the Quebec example you alluded to earlier, there’s an advocacy group that works in conjunction with financial institutions to offer a longer-term loan product at a very low interest rate. I believe in Thunder Bay there’s also a movement to offer a product that’s in competition with a payday lending product. There are small – they’re examples, but they’re kind of few and far between and sprinkled throughout the country in terms of products that could be comparable to a payday lending product.

Doug Hoyes: Got you, so it may be credit unions, it may be other types of organizations that pick up the slack. So, okay, so back to the solutions then, so I’ll let you continue. We talked about access, we’ve talked about how big box stores have crowded out some of the small retailers that were providing some of the functions of banks. What are some of the other things on your list of possible solutions?

Jonathan Bishop: When there’s a little bit more of creative solutions, one of which PIAC had put into its submission to the Ontario government and it’s that the government could consider supporting legitimate micro credited initiatives to replace the high cost of these alternative financial service loans. With micro credit options – so, you’d have to – we suggest the government partner up with say local financial institutions in order to make these offerings. So, it’s not just relying on those folks like say a credit union to kind of enter into this field but provide some incentive to enter into this field in order to help consumers. So, that’s one of those more original options.

Doug Hoyes: So, when you say micro credit, what do you mean by that? You’re talking about loans that are under a certain amount, is that really what micro credit would be defined as, so kind of a loan of under $1,000 or $2,000 or whatever?

Jonathan Bishop: Right, I mean we’ve heard from industry spokespeople in the past that say, look the payday loan product is used to, say – it’s cheaper than say, having my electricity disconnected and then reconnected. Or, you know, going without groceries or going without something for a short period of time and paying a fee, so, for say, like a disconnection.

So, holding these industry folks to their word, put out a competitive product that addresses that need for that immediate cash fix but doesn’t necessarily mean you have to get stuck on debt treadmill.

Doug Hoyes: So, let me play devil’s advocate here. We’ve got the payday loan companies and these other short-term lenders, a lot of them are now internet based, but they’re all out there. Presumably they’re all making a profit. So, I just want to play devil’s advocate here. So, we’ve got these payday loan companies, short-term loan companies that are obviously I guess making money or they wouldn’t be there. The banks don’t want to go into that market because presumably they don’t think they can make money. And so, what you’re saying is well maybe we need to give a little bit of help to either the traditional financial institutions who already make a billion dollars three months, each one of them, or we need to help, perhaps, credit unions or small local initiatives to do this. Well, if the payday loan companies can make money at this why would there be any need to support other people to also do this?

Jonathan Bishop: Well, I would counter that by saying if the payday loan industry was a purely competitive industry that wasn’t just a creation of a regulation or regulator, then these payday loan providers would compete on the basis of price and they don’t compete on the basis of price. They all hover around the maximum of borrowing allowed by regulation. They don’t seem to offer that kind of – I mean other markets don’t lower the price to entice competition, they all just seem to hover above the top.

So, if it’s a structural issue maybe there needs to be some injection of competition through something of a nature like helping out another institution provide a competitive product. Not that they need to subsidize a large corporation like a bank or credit union, but for the benefit of the fairness to the consumer.

Doug Hoyes:  So, if I was to say to you okay Jonathan I have a hundred million dollars in my pocket, and you and I are going to start a financial institution and we are going to focus on micro credit, we’re only going to give loans of $1,000 or less, and we are only to charge a maximum of 10% interest. So, we are going to put the payday loan guys out of business by offering the exact same product at a much lower cost. Would that work or would you and I lose money because we weren’t charging enough?

Jonathan Bishop: I’m not sure if we’d make any money Doug. However, I know that that particular model does exist and it is operating in Montreal. The good folks at Option Consommateurs offer a product in conjunction with a financial institution that charges in interest rate somewhere in the neighbourhood of 5% for a loan that is somewhere in the realm of, I think the limit is $1,000 or $1,500. And it’s payable over a couple of years. It’s not in an effort for it to make Option Consommateurs or the group that’s doing this rich or anything of that nature, it’s just a matter of offering a service to assist consumers. That’s my understanding.

Doug Hoyes: Got you, so it may require then an organization that is doing it not for profit, maybe on break even basis to be able to shoulder the costs of making these types of loans without making or needing to make a huge amount of profit on.

So, okay I’d like to hear some more potential solutions. We’re going to take a quick break though and come back and talk more and maybe you can give me some of your far out ideas on how we can address the payday loan situation.

So, we’ll take a quick break and I’ll be back with Jonathan Bishop. You’re listening to Debt Free in 30.

It’s time for the Let’s Get Started segment here on Debt Free in 30. My guest is Jonathan Bishop from The Public Interest Advocacy Centre. So, Jonathan what do you hope is accomplished with Bill 156 in Ontario.

Jonathan Bishop: What I hope happens as a result of Bill 156 in Ontario, for instance, is that the government introduces some kind of limit to the number of payday loans that borrows can take out in any given year. In addition, one thing at the time to repay those loans would be nice. Reducing the allowable cost of borrowing would be terrific. If that were done so through say a public hearing where organizations in the industry can put forward cases to regulate the maximum cost of borrowing at a certain rate instead of just having it dictated by cabinet, that would be terrific.

And also, the consideration of a borrower’s ability to repay a payday loan product when they applied for a payday loan product would be some very good first steps, PIAC thinks, in terms of addressing some of the outstanding concerns in regard to the offering of payday loans. Because we think there’s a balance there but we don’t think necessarily that balance is found in Ontario at the moment and I don’t think the Ministry of Government Consumer Services thinks so either ’cause otherwise we wouldn’t be having a conversation about a Bill 156.

Doug Hoyes: Right, they wouldn’t be introducing a bill if everything was perfect. So, limiting the number of payday loans you could borrow, would there need to be central database of all payday loan borrowers? Is that how it would work?

Jonathan Bishop: That’s our understanding. That would be our proposal in terms of how that would work practically. Yes, there would be some kind of repository information that a payday lender would have to consult before agreeing to provide a payday loan product to a borrower and hopefully that repository would be administered by The Government of Consumer Services.

Doug Hoyes: And I guess there’d have to be some discussion about what goes into that repository, presumably every loan that is covered by that usury law in the criminal code exemption we talked about would be included.

So, you also talked about lengthening the time a borrower has to repay their payday loan. So, right now I assume the average payday loan is paid in full on your next payday and that’s a hardship because if I needed to borrow $100 two weeks ago, what are the chances that I have $600 to pay off the loan today and I have enough money to survive until my next paycheque. So, by lengthening the time to repay I assume it would make it easier on borrowers. How long do you need to give borrowers to repay? What’s the magic number?

Jonathan Bishop: I don’t know what the magic number is. However the longer you can provide a customer in order to make that repayment the better off they’re going to be in the long run financially rather than get trapped on the, as I refer to it, become a debt hamster or be put on the debt treadmill. Even if it say went from 14 days to 28 days, at least it would give a little bit more time for that repayment process to kind of kick in.

One of the other outstanding issues with a payday loan product is that onetime balloon payment in terms of the borrower has to pay it back all at once. There’s no kind of steps to doing it or planning. It’s just here’s my paycheque. Oh here you go, you’re the first in line ’cause you have my paycheque, so I don’t have any choice, so here you go, you’re all paid at once, rather than if you had say two paycheques or three paycheques to pay it off, you might be able to do it kind of in installments.

Doug Hoyes: Right, because I pretty much have to take out another payday loan to pay off the first one ’cause I have to pay the whole thing off whereas if I was allowed to pay it back in four equal payments, so I’ve got $1,000 loan it’s only $250 of my next four paycheques, that would make it a little simpler, perhaps.

So, final point Jonathan, you had said considering the borrower’s ability to repay before the payday loan company would be able to grant the loan, explain to me what you mean by that and how that would work.

Jonathan Bishop: Okay. In Manitoba, for instance, part of the consideration for a borrower to go in for a payday loan product is that the payday lender has to take into consideration what percentage of net income this encompasses. I think in Manitoba they introduced a limit of 30% of a borrower’s net income in 2010 and then it was reviewed in 2013, so, also in B.C and Saskatchewan, also, borrowing limits of 50% of the net amount of an individual’s next paycheque as a barrier, kind of as a limit, a ceiling for this.

There’s also another theory out there considering the borrower’s ability to repay in order that’s based on a selected basket of expenses. So, something like say the consumer price index that sounds to us like something that’s found in the consumer financial protection bureau’s notes in regard to payday loan regulation in the U.S that says quote, make a reasonable determination that’s sufficient income remains to cover loan costs and estimated living expenses.

Because like I say in the U.S. the CFBP has been looking at payday loan for two or three years now. I would imagine the good folks in The Ministry of Government Consumer Services are looking to that organization for a little bit of guidance as they go through this process as Bill 156.

PIAC takes an extreme view on this particular point. Through our policy research and through a variety of sources throughout North America in terms of payday loan regulation, we’ve determined and we’ve said this to the government of Ontario, that the average limit of borrowing should be about 5% of monthly income and no higher. Otherwise you get into situations where consumers are putting off saying paying for food or other bills or other needed expenses in order to pay off these financial products.

Doug Hoyes: Great. Thanks Jonathan. I’ll be right back to wrap it up. This is Debt Free in 30.

Doug Hoyes:  Welcome back, it’s time for the 30 second recap of what we discussed today. My guest today was Jonathan Bishop, the research and parliament affairs analyst for the Public Interest Advocacy Centre. And he discussed with us the results of the research into the payday loan problem in Canada and he shared with us many possible solutions to help consumers get out of the cycle of payday loan debt. That’s the 30 second recap of what we discussed today.

As frequent listeners to this show know, payday loans are a problem because they charge very high interest rates and they require the borrower to pay the loan in full on their next payday. That’s often not possible so a second payday loan is often taken out to pay off the first one and the cycle continues.

Jonathan made some good suggestions to help alleviate this problem. He suggested if a payday loan lender allowed a borrower to pay off the loan over a few pay periods that may alleviate some of the problem. The math makes sense. Paying $800 on my next payday may leave me with no cash for rent or other living expenses. If I could pay $200 on each of my next four paydays that might leave me with enough cash to cover my other debts, and therefore, not make it necessary for me to keep borrowing to stay afloat.

The proposed Bill 156 in Ontario does include a provision for longer repayment terms so that may help. My worry with all of these tweaks is that they may help a little bit, but they aren’t addressing the underlying problem. A lot of payday loan borrowers have a lot of other debt. They’re maxed out on their credit cards and they can’t borrow from a bank so they turn to payday loans. If we could address the underlying problems, one of which is excessive of debt, perhaps the need for payday loans would be greatly diminished.

I’ve got a lot more to say on this topic but we’re out of time on today’s show so stay tuned for future episodes where we’ll discuss payday loan solutions in more detail.