Creating A Better Payday Loan Industry

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

better payday loan

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The payday loan industry in Canada loans an estimated $2.5 billion each year to over 2 million borrowers. Like it or not, payday loans often meet the need for urgent cash for individuals who can’t, or won’t, borrow from more traditional sources. If your hydro is about to be disconnected, the cost of a payday loan may be less than the hydro re-connection fee, so it may be a prudent financial decision in some cases.

As a “one time” source of cash a payday loan may not be an issue. The real problem is payday loans are structured to keep customers dependent on their services.  Like opening a box of chocolates, you can’t get just one. Since a payday loan is due in full on payday, unless your situation has improved, you may have no choice but to get another loan from another payday lender to pay off the first loan, and a vicious debt cycle begins.

How to Solve the Payday Loan Problem

So what’s the solution?  That’s the question I asked my two guests, Brian Dijkema and Rhys McKendry, authors of a new study, Banking on the Margins – Finding Ways to Build an Enabling Small-Dollar Credit Market.

Rhys talks about how the objective should be to build a better small dollar credit market, not just look for ways to eliminate or regulate what a perceived as a bad product:

a big part of creating a better market for consumers is finding a way to maintain that access to credit, to reach people with a credit product but structure it in a way that is affordable, that is safe and that enables them to achieve financial stability and really improve their financial situation.

Their report provides a three-pronged approach, or as Brian says on the show the “three legs on a stool” approach to aligning the interests of consumers and lenders in the small-dollar loan market.

there is no magic bullet solution is really what we’re getting at in this paper. It’s a complex issue and there’s a lot of deeper issues that are driving this problem. But what we think … is there’s actions that government, that financial institutions, that community organizations can take to shape a better market for consumers.

The Role of Government Regulation

Government should play a role, but both Brian and Rhys acknowledge that government cannot solve everything about payday loans.  They believe that the focus of new legislation should be on mandating longer loan terms which would allow the lenders to earn a profit while making loans easier to repay for consumers.

If a borrower is required to repay the entire payday loan, with interest, on their next payday, they are likely left with no funds to survive, so they require another short term loan.  If they could repay the payday loan over their next few paycheques the authors believe the borrower would be more likely to be able to repay the loan without creating a cycle of borrowing.

The math makes sense.  Instead of making a “balloon payment” of $800 on payday, the borrower could perhaps repay $200 on each of their next four paydays, thereby spreading out the cost of the loan.

While this may be a more affordable solution, it also presents the risk that short term loans take a longer time to repay, so the borrower remains in debt for a longer period of time.

Existing Financial Institutions Can Create A Better Small Dollar Loan Market

Brian and Rhys point out that it is the lack of small dollar credit options that create much of the problem. Credit unions and other financial institutions can help by making small dollar loans more available to a broader array of customers. They need to consider that making these loans, even though they may not be as profitable, create healthy communities in which they operate.

If payday loan companies charge too much, why not have community organizations (churches, charities) make loans directly?  Making small-dollar loans requires infrastructure.  In addition to a physical location, you require computer systems to loan money and collect it.  Banks and credit unions already have that infrastructure, so they are well positioned to provide small-dollar loans.

Partnerships With Civil Society Organizations

If one group cannot solve this problem on their own, the solution may be with a partnership between government, charities, and financial institutions.  As Brian says, a solution may be:

partnership with civil society organizations.  People who want to invest in their communities to see their communities thrive, and who want to be able to provide some capital or resources for the financial institutions who want to do this but don’t have the resources to do this.

This “partnership” approach is an interesting conclusion in this study.  Perhaps a church, or the YMCA, could make space available for a small-loan lender, with the “back office” infrastructure provided by a credit union or bank.  Perhaps the government or other entities could provide some form of loan guarantees.

Is this a realistic solution?  As the authors say, more study is needed, but a good starting point is getting the conversation going to explore alternatives.

Responsible Lending and Responsible Borrowing

As I said at the end of the show, another piece in this puzzle is the existence of other debt that small-loan borrowers already have.

  • In our Joe Debtor study, borrowers facing financial problems often turn to payday loans as a final source of credit. In fact 18% of all insolvent debtors owed money to at least one payday lender.
  • Over-extended borrowers also borrow more than the average payday loan user. Ontario data says that the average payday loan is around $450.  Our Joe Debtor study found the average payday loan for an insolvent borrower was $794.
  • Insolvent borrowers are more likely to be chronic or multiple payday loan users carrying on average 3.5 payday loans in our study.
  • They have more than likely turned to payday loans after all their other credit options have been exhausted. On average 82% of insolvent payday loan borrowers had at least one credit card compared to only 60% for all payday loan borrowers.

When payday loans are piled on top of other unsecured debt, borrowers would be better off dealing with their other debt, perhaps through a bankruptcy or consumer proposal, so that a short-term or payday loan may be less necessary.

So while restructuring payday loans to make occasional use better for consumers is a positive goal, we are still concerned about the chronic user who builds up more debt than they can repay. Increasing access to additional short term loan options may just create another avenue to accumulating unsustainable debt.

For more information, read the full transcript below.

Resources Mentioned in the Show

FULL TRANSCRIPT show #83 with Brian Dijkema and Rhys McKendry

better-payday-loan-transcript

We’ve discuss payday loans here on Debt Free in 30 many times and every time we do I make the same point – payday loans are expensive. In Ontario the maximum a payday lender can charge is $21 on a $100. So, if you get a new payday loan every two weeks, you end up paying $546% in annual interest. That’s the problem with payday loans.

So, why do people get payday and short-term loans if they’re that expensive and what can we do about it? Well, I’m a big believer in education, that’s one of the reasons I do this show every week, to give my listeners different strategies to become debt free.

But is education enough or do we need more? Do we need stricter government regulations or are there other solutions? So, how can we solve the payday lender problem?

That’s the topic today and I’ve got two guests who recently co-authored a very detailed research study on this very topic. So, let’s get started, author number one, who are you, where do you work and what’s the name of your study?

Brian Dijkema: My name is Brian Dijkema, I’m the program director for work and economics and Cardus. And I am co-author of the report called Banking on the Margins.

Doug Hoyes: And let’s have your co-author say hello. Tell us who you are and what you do here at Cardus.

Rhys McKendry: My name is Rhys McKendry, I’m the other co-author of this report and I am the lead researcher here on this project at Cardus.

Doug Hoyes: Excellent, you’re the math guy as we already established here before we started.

So, I know from our Joe Debtor study of people in Ontario who go bankrupt and file a consumer proposal that 63% of all payday loan borrowers who become insolvent have income of $2,000 a month or higher. And this is net income we’re talking about and more than a quarter of them, 27%, have income over $3,000 per month. So, these aren’t low income people. 30% of them are 50 years and older so they’re not young people either in a lot of cases. On average, our clients who have a payday loan have 3.5 payday loans when they file with us. So why do people use payday loans.

So, why don’t I start with you Rhys on that or Brian, whoever wants to chime in first. Let’s start with the why question. Why do people use payday loans?

Rhys McKendry: The reason people use payday loans is generally because they’re in urgent need of cash. The research we’ve done suggests that those that don’t have a lot of money in the bank, so those with less than $500 in savings are almost three times as likely to use a payday loan. Income, lower income people generally are more likely to use payday loans because they don’t have as much savings in the bank, it’s harder for them to save. But really when you account for savings and the predictors for what drives payday loan use, the relevance of income actually drops out of what predicts payday loan use.

Doug Hoyes: So, it’s an urgency thing. And I guess that makes sense because in our study we’re seeing people at every different income level who are using payday loans. So, again I’ll leave it with you Rhys, give me the solution then. Tell me the one thing we can do right now based on your study that can solve this payday loan problem

Rhys McKendry: Yeah, well I think there is no magic bullet solution is really what we’re getting at in this paper. It’s a complex issue and there’s a lot of deeper issues that are driving this problem. But what we think we can do is there’s actions that government, that financial institutions that community organizations can take to shape a better market for consumers.

Doug Hoyes: Well, so let’s flip it over to Brian then and maybe explore those in some kind of detail then. So, there is no one single thing you can do to solve the payday loan problem. In your report you kind of go through I guess three different areas that we should start exploring. So, walk me through, you know, what would be the first thing you would be exploring right now if I give you the magic wand and you get to start solving this problem?

Brian Dijkema: Right, I think there’s – really it’s a problem that because it’s so complex requires a complex and multifaceted response. And our paper recommends and I think there’s good reason to pursue this is that the response needs to be lead by three groups. One of them is the primary group is financial institutions. One of the real reasons why payday loans are so prevalent is that there’s a lack of small dollar credit options out there for people who need it. And that’s really an issue with financial institutions, credit unions, banks not offering those services. So, that’s number one.

There’s also a role for government. Our paper says that if you’re looking to government to solve the problem you’re looking in the wrong spot. But at the same time there is a role for government to play, particularly if you look at the way the loans are structured right now.

The main problem, and you would know this from talking to your clients, one of the real challenges with payday loans is that you take them for a 10 day term, which is the average term, or 14 days. And you have to pay the whole thing back, the principle plus the interest back in one lump sum, that’s the balloon payment. And for people who have cash flow problems, which is why people are using it in the first place, that big lump sum, that big balloon payment is what really kills you.

So, we think that’s – if the government wants to make a real difference on this issue, they could actually look at and change some of the structures of the loans to allow people to pay back in instalments. And that’s been done in Colorado to some effect. But again, we have to be careful, that’s not a silver bullet. Just changing those loan structures is not going to change the market. It’s still going to leave people without alternatives. So, we need to have financial institutions partnering with others to do that.

We think the third leg of the stool, and I think this is a very important one; the third leg of the stool is partnership with civil society organizations. People who want to invest in their communities to see their communities thrive. And who want to be able to provide some capital or some resources for the financial institutions who want to do this but don’t have the resources to do that. So, we think that if we’re going to address the problem you need to have a partnership between financial institutions, community organizations, charities, community foundations, churches, others that are interested in investing in the community inside a strong and I think fair regulatory environment.

Doug Hoyes: So, you hit on a lot of areas there so I get to play devil’s advocate here and just disagree with everything you said or question everything you said so let’s kind of go through it one by one then.

So, the first pillar in your stool, leg in your stool, I got to keep your analogies straight here. The first leg in the stool is financial institutions, right, okay? So, the reason that banks don’t give these kind of loans is because presumably they can’t make money off of it. If a bank could make money, they’d be doing it. Do you agree or disagree with that statement?

Brian Dijkema: Yeah, I think the way that banks are structured is that they have to pursue the highest amount of money that they can make. So, it may be that a product will make them a small amount of money but because banks, their nature and the fact that they’re publicly traded and they have to pursue, try to maximize value for their shareholders, that there is not enough money in it for them.

Doug Hoyes: So, they’d rather go after credit cards and mortgages and car loans and things like that, which are higher dollar value amounts. So, if my average credit card starts at $5,000 and my average small loan, payday loan, starts at $500, well it’s pretty easy to see, even if the interest rate is three times as high on a payday loan, they’re going to make more on a credit card loan. So, that’s why presumably the banks are not in that business, which is why payday loan companies have come into existence. They can actually make money at that ’cause I guess they got a different cost structure, that’s all they do and they’re able to do it.

So, do you have any hope then that you can turn this monolith around? I mean the big banks in Canada make, you know, each of them on average a billion dollars every three months. So, can we actually convince them to look at this market or is that not really realistic?

Brian Dijkema: So, two responses to that. One is that I think when we’re talking about financial institutions we have to realize that there’s more to it than the Canadian market than just the big banks. Obviously they’re the biggest players but you also have a fairly robust array of credit unions, other organizations, the co-operative banking and that type of stuff that’s around. That, while they do want to make a profit, and many of them do and do well by their members, they’re also interested in ensuring that the communities in which they work are thriving.

So, I think there certainly is, and I’ll say a bit more about the big banks later, but we have to realize more than just the big banks that play here. Credit unions are across the country and have a role to play, in fact maybe even better suited for it.

On the question of the big banks though I do think that one of the things that we’ve talked about is that if you’re a bank, what you want, you will do well in a market economy that’s thriving as a whole. And it does not do well and does not bode well for your future and the sort of long-term prospects for your organization if increasingly more and more people are getting into debt. It means that you’re in an unhealthy situation. It’s not a robust and vital economy. And I know that banks have a lot of corporate social responsibility programs and so on. And they’re often aimed at sort of market initiatives or community initiatives and so on. We think there’s actually an opportunity for them to dedicate some of those funds towards ensuring that the ground from which their future profits are going to be drawn is healthy.

Doug Hoyes: Yeah and again to play devil’s advocate here I’m of the view that credit unions for the most part are just banks. Okay, they’re smaller – in the past a credit union was a community organization. The people at the local, you know, auto parts plant got together, created a credit union, their own money got lend to members. But now we have credit unions that are huge. They’ve got millions and millions in revenue. Aren’t they really just banks under a different name?

Brian Dijkema: I’d say there is actually a real difference between the banks and the credit unions. I know that the charters of all of them are often and their purpose and their very mission they do talk about investing in their communities. And many of them, I’d say even most of them I think I’d be willing to say that, put their money where their mouth is.

So, absolutely there’s no disputing the fact they need to be responsible and they need to understand that way markets work and they need to get a profit for their members. But credit unions I think as a whole, as a body, as a community, are much more interested in ensuring the communities in which they, from which they take deposits, and in which they invest are healthy. And that’s why I think in Canada, especially in this past year and in recent times, there’s been an increased interest in addressing this and providing alternatives from the credit union, the credit union world.

Doug Hoyes: So, the second pillar was government and maybe Rhys you can chime in on this one then. So, again I’ve kind of been of the view that well we want the government to solve our problems? I mean aren’t these the guys who run up massive deficits and aren’t these the guys that run the post office? I mean is this really where we want to look to? Now, I know in Ontario right now as we record this in the spring of 2016, there is a bill before the legislature, I believe it’s Bill 156, that will adjust some of the regulatory environment for payday loans, I guess kind of addressing like you said allowing for longer term loans. Are there other things that you think government should be doing now or other roles that government should have in this process?

Rhys McKendry: Yeah and I think as Brian has said we don’t believe that government alone can fix this problem. But aside from regulation, we think that government can play a role in supporting financial institutions, community organizations and helping develop these alternatives. So, because there are public costs to debt dependency, whether it’s increased costs to healthcare, policing services, there’s a number of studies that have been don’t to show that the effects of payday loans on communities, on families create costs for the state.

So, the government has a reason to get involved and helping support these alternatives. Whether that’s through providing funds for loan loss reserves or providing space and free advertising for these types of programs, just helping to create incentives for these institutions to develop these alternatives and helping to shift the economics of that market because it is as you said such a difficult market to operate in profitably, helping to create ways to enable them to sustain these types of alternatives.

Doug Hoyes: Well, so let me jump on one of the things you said there. Your phrase was something like helping to guarantee loan losses or something. So, what in my mind you’re describing is CMHC, which is a government organization funded by the fee on your mortgage but also backstopped by the tax payers so that I can get a mortgage with less than a 20% down payment. I believe the law in Canada now or certainly the standard practice is any mortgage I get where I have less than a 20% down payment has to be guaranteed. CMHC is the biggest guarantor.

And so what we’ve seen certainly in Ontario and British Columbia over the last five or 10 years is massive increases in house prices because  we now have the ability to borrow more. Of course CMHC doesn’t guarantee me, if I lose my job they don’t pay my mortgage. What they’re doing is they’re guaranteeing the banks. So, these banks who make billions of dollars in profits don’t have as much risk on their mortgages because the government was trying to backstop it. Is that what you’re suggesting some similar organization for small loans and payday loans?

Brian Dijkema: I think what you’re pointing out is the fact what they would call a moral hazard. That if we don’t actually pay attention to the fact that there are risks associated with this that we will end up funding a program that is actually just going to increase loans and so on. We don’t want that.

I do think though that as Rhys mentioned there are real public costs to debt. And there are real public costs associated with the debt that comes from payday lending. So, I think the government does have an interest in finding some ways to assist firms that for whatever reason are not able to provide that given their own risk portfolios and so on with a way to do that.

One thing that we note in our paper and I think that’s unique about our approach is we think that it’s not just – there are ways to do that that mitigates that moral hazard but that also involves non-government players in this field. And I know that there’s a lot of charities, a lot of community associations that recognize, they recognize the problems with payday loans, they see the problems in their community and they want to do that as well. So, we’re not saying that the government should set up a CMHC for payday loans or anything like that. But that there’s room for them to perhaps partner with community associations that will have their own accountability structures and will also be putting some skin in the game so to speak.

Doug Hoyes: Well, so let’s talk about that then, because that’s the third chair on your stool. Again, I butchered your analogy sorry, leg on the stool, there we go. So, the third leg on the stool was what you called civil society and so you defined that as organizations like charities, community organizations, church groups, things like that who are not governments, who are not banks but who could play a role in this. So, explain your vision for that then? How would the local church group, the local charity potentially be able to help in this area?

Brian Dijkema: Well, I think one way they could do that, there are a number of ways but one of – the probably the primary way, is that they would be able to actually allocate some of the capital that would mitigate some of the risks or at least provide a bit of a space for credit unions, basically looking at market based community focused financial institutions to experiment. And this is one of the real challenges, the real problems with this is that there are not a lot of small dollar credit alternatives for people.

So, if you’re looking for a $450 loan, which is I think the average size of a payday loan, there are not a lot of places where you can get that, especially if you have some challenges with credit history or if you’re a newcomer of if you’re not familiar with that.

So, there’s a role to play for institutions like churches that have often a lot of capital tied up in investments or what have you, community foundations, many of which have again capital resources that they’re there to invest in their communities. And I think if you do that, if you provide sort of a partnership there’s a local accountability structure, there’s a sense in which that money is there. That’s one way for these groups to do it.

There are also, we could go on for a little bit but there’s also physical resources. One of the real contributors to the cost of payday loans is capital cost, buildings, rent, turning on the lights. And if you look throughout communities, there’s a whole host of places that are run, there’s actually physical space that could be provided by civil society organizations, by charities.

Doug Hoyes: Like the church basement kind of thing.

Brian Dijkema: That’s one example, YMCA is another one. There’s a whole host of those. And you also look at for instance, you know, I’m a good public transit user in Hamilton I take the bus every day. You look and there’s all kinds of empty advertising space. That’s again a huge cost for payday lenders. They invest heavily into advertising. And there’s a way there I think for creative responses to helping innovate in this market.

Doug Hoyes: What role do you think debt plays in all of this? So, in my study of course the people who go bankrupt have a whole bunch of other debts and they end up having a payday loan as kind of the last resort and that’s what tips them over the edge. So, my answer, one of my answers to the problem is take a look at your debt profile, maybe what you have to do is clean up the $50,000 you have in credit cards and lines of credit and all the lines of credit first, which would lessen the need for this high interest, high urgency lender. Is that a factor at all? Is that something that you noticed in your study at all?

Rhys McKendry: Yeah, certainly we, through our research it revealed that those that had trouble managing debt in the past, those that have poor credit history, have been refused credit cards, have maxed out their available credit card, their line of credit, are much more likely to use a payday loan because that credit is no longer available. And that’s the only place they can turn. So, helping people to manage that credit, to manage their money better, to improve their credit rating and build their credit rating so they can access higher quality credit is important.

Doug Hoyes: As a starting point. So, well I think that’s a good way to end it. Now just so that everybody can read this study, your organization’s name is Cardus and is there – what’s your website?

Brian Dijkema: The best way to find the study is go to www.cardus.ca and if you want to do that as cardus.ca/paydayloans that will bring you right to the site. There’s a short video there that sort of describes our work and you can download the paper as well.

Doug Hoyes: Yeah and you’ve got a search function on there. There’s a whole bunch of other studies that you’ve done over the years. So, I guess one question I should ask you then, you guys are funded by the big banks then I guess. Is that where all your money comes from to do all this stuff? Who’s paying for this?

Brian Dijkema: If any of the CEOs of the big banks are listening I would love to have a conversation and take a cheque from you but we’re not actually funded by the big banks.

This was funded by a private foundation and private donor, this work. And both of those folks who helped support this project have no interest in the payday lending environment nor in some of the alternatives. This was philanthropists who were quite concerned with our community and wanted to see some of this work done. And that’s where all of our funding comes from, it comes from private donors and community foundations and what have you.

Doug Hoyes: It’s not the big banks then, there you go.

Brian Dijkema: Certainly not.

Doug Hoyes: Well, excellent. That’s a great way to end this segment. We’re going to have more in a minute, Brian Dijkema, Rhys McKendry, thanks for being with me today.

Doug Hoyes: Thank you.

Doug Hoyes: It’s time for the Let’s Get Started segment here on Debt Free in 30. I’m joined today by Brian Dijkema and Rhys McKendry who are the authors of study called Banking on the Margins, finding ways to build an enabling small dollar credit market. And obviously we’ve been talking a lot about payday loans today.

The question I’d like to address in this segment is are payday loans a net benefit to society. People use them, they’ve got short-term cash need so I guess that helps them out so they can get their rent paid. But then you’ve got this counter balancing huge cost. And that’s the thing that tips people into big troubles.

I addressed out Joe Debtor study earlier. When you look at the average payday loan borrower in Ontario, they’re borrowing somewhere between $300 and $500 depending on what stats you’re looking at. The person who is dealing with us is averaging more like $794 in terms of their payday loan debt. They’re multiple users, they’ve got three and a half of these loans at the time they go bankrupt. 60% of payday loan borrowers in the general population have at least a credit card. In our study it’s 82% so obviously the accumulated debt that they’ve got is one of the things that is driving them to this. So, are payday loans helping the situation, not helping the situation? Brian why don’t you address that? Is there a net benefit to society to payday loans or not?

Brian Dijkema: Yeah, I think to some extent that’s the wrong question to be asking. One of the reasons why we wrote this paper was that we were looking at and studying this issue and we saw that this was often the way the debate worked. Some people would say that payday loans are good, they’re a market response to real demand for cash.

And there’s a point to that. If you look at it and think about what some of the costs of not having access to that cash would be they’re pretty extreme. So, for instance NSFs if you get a bounced cheque or something like that, often those charges, they’re around $42 from the banks themselves, there’s often additional charges on that. So, all of a sudden for a $200 loan it starts to look, at $21 per $100, it starts to look actually like not a bad choice, right? And you think about if I make the rent or not do I get groceries or not? It seems like a decent choice at that point. So, there is – and there’s something to that, there’s something good about that.

The trouble is the folks on the other side who say they’re actually not a net benefit also have a point. They create dependency. You can look at, as we’ve done in our paper, we’ve looked at the loan structures, the business structures of those that provided them. They start a cycle, a whirlpool of debt that drags people down. It actually ends up acting like a ball and chain when you’re trying to swim out of the water, right? So, we have this debate between are they good, are they bad? Both sides have a point. Our paper tries to ask the next question which is how do we build a better market? How do we make that credit, that small dollar credit market a better place for people who need it?

Doug Hoyes: So, Rhys what are your thoughts on that then? How do we build a better credit market for people who need it?

Rhys McKendry: Well as Brian got at it, there’s significant structural issues with the way these payday loans are designed. So, a big part of creating a better market for consumers is finding a way to maintain that access to credit, to reach people with a credit product but structure it in a way that is affordable, that is safe and that enables them to achieve financial stability and really improve their financial situation.

So, one of the big things that we identify is that the short-term nature of payday loans are a real problem that because payday loans are often less than a two week term and are due with a large balloon payment at the end of the period, people have a lot of trouble paying off that debt and staying out of debt because they’re already working on a tight budget.

Doug Hoyes: Yeah, I borrowed $500 and I got to pay back $600 or $700 or whatever the number is. How am I going to do that? If I don’t have the money today how am I going to have it in 10 days?

Rhys McKendry: Exactly, so what payday lenders do is they structure that payment to be due on your next payday. So, when your cash flow is at its highest, they’re going to get paid back most likely ’cause it’s due when you have that cash inflow. But the fact is that two weeks later or a month later when you come to the end of your cash flow cycle, you’re likely going to be a few hundred dollars short again because of that large deficit in that cash flow. And so, what happens is people have to go back to these payday lenders and borrow again.

So, what we’ve identified is we need to find ways to structure this debt that allows people to spread it out over multiple pay periods. Although the overall dollar amount that they may be paying maybe the same over the long-term or even a little bit higher, allowing them to spread that over pay periods creates a more affordable structure for them to pay off that debt and then stay out of it once they’re done paying it off.

Doug Hoyes: So, I borrow $500. Instead of paying it in 10 days maybe I pay back $100 every payday every two weeks.

Rhys McKendry: Exactly.

Doug Hoyes: So, I’ve got two months or three months to pay it off. So, does that actually help the situation though or am I just dragging out the inevitable? Instead of getting hit with it in 10 days, while I spread it out over two months would it make a difference do you think?

Rhys McKendry: Well, I mean it certainly depends on the person’s financial context and that’s another part of structuring credit in a way that’s safe for the consumer. The lender needs to understand what the consumer’s capacity is for repayment. For some consumers it may be that they can afford $50 out of their budget every two weeks. Some consumers it could be $100, some it could be $200. Every situation is a little bit different, so, finding ways to structure debt over a term and a period that enables consumers to fit it within their budget and their ability to repay.

Doug Hoyes: Is what it takes. Well, great that’s excellent information guys. More information is available on your website cardus.ca just do a search for payday loans and they’ve got all the information there. Brian Dijkema and Rhys McKendry thanks for being here on the Let’s Get Started segment of Debt Free in 30.

Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. On today’s show Brian Dijkema and Rhys McKendry discussed the need for financial institutions, government and civil society to work together to address the payday loan problem. That’s the 30 second recap of what we discussed today.

I agree that new approaches are necessarily but I think the starting point is to deal with the other debt consumers have before they take out a payday loan. Of my clients that have a payday loan, 82% of them also owe money on at least one credit card. So, if they could deal with their other debts that may significantly reduce the need for a short-term payday loan.