Check out our new documentary DEBTASIZED.

Check out our new documentary DEBTASIZED.

Why Payday Loans Won’t Go Away

Why Payday Loans Won’t Go Away

Each February, we release updated research about payday loans and we know that 4 in 10 Ontario insolvencies involve payday loans. Payday loans have been a fairly popular discussion in 2018, as the Government of Ontario changed laws lowering the cost of borrowing for these types of loans and the City of Hamilton stepped in to be the first municipality in Ontario to limit the number of payday loan locations.

Yet despite all the warnings and changes, payday loan use among our clients is on the rise. Why aren’t these changes working? Why are indebted Ontarians in fact taking out bigger and bigger loans from payday loan companies?  To answer these questions and discuss the unintended consequences of recent changes to the payday loan industry, I talk with my co-founder and fellow payday loan antagonist Ted Michalos.

In Ted’s view, it’s a chilling fact that 37% (updated) of our clients have payday loans when they file a bankruptcy or consumer proposal.

It’s three times what it used to be when we started the study.

In 2011, 1 out of 8 clients were using these loans and now, it’s 4 out of 10. Ted argues that this situation is especially problematic because indebted Ontarians aren’t using payday loans to pay for living expenses. They’re using them to make other debt payments.

Our average client with payday loans now has $5,200 worth of payday loan debt plus an additional $30,000 of other debt. It’s a debt load that just can’t be repaid when payday loans total almost twice their monthly income.

If the reliance on these loans isn’t troubling enough, Ted highlights that people are also borrowing more too.

The average loan now is $1,311. So when we started doing this in 2011, it was $716. That’s a massive increase!

Unfortunately, high-cost borrowing won’t be out of the picture anytime soon. In fact, Ted explains how the Ontario government’s new law to drop the cost of borrowing payday loans has unintended consequences. The maximum allowable cost per $100 borrowed used to be $21. Since January 1, 2018, it’s been dropped to $15 per $100 borrowed.

Ted argues that reducing the cost to borrowing will result in people just borrowing more because they think they can afford to. On the surface, it looks cheaper.

In addition, this new legislation has encouraged payday lenders to look for more ways to make money. Since they no longer make as much per loan, they create new products.

They’re like any other business. You’ve got a basic product line and it’s doing very well for you and someone cuts into your profit margins, you’re going to find another way that you can sell similar products. The similar product that the payday loan companies are switching to are something called installment loans.

These installment loans can be taken out for several months, with interest rates restricted by law to a maximum of 60%.

Use of high interest installment loans and lines of credit from payday lenders is on the rise with these loans charging between 39% and 60%.

The results from our bankruptcy study on payday loans, coupled with new lender tactics to generate more revenue don’t have either Ted or me particularly thrilled. But, if you find yourself having more debt than you can ever repay, it’s better to explore your options for getting payday loan relief now to avoid making endless payments towards an expensive loan.

For more insight into the unintended consequences of new legislation, including solutions to curbing payday loan debt, tune into today’s podcast or read the full transcript below.

Other Resources Mentioned in the Show

FULL TRANSCRIPT – Show 182 Why Payday Loans Won’t Go Away

Why payday loans won't go away

Doug H:            Every now and then I like to get my Hoyes Michalos co-founder and business partner, Ted Michalos, all riled up so I put a microphone in front of his face and say those words that always drive him crazy, those words are payday loans. That was the topic of the first ever edition of Debt Free in 30, episode number one, way back in September 2014. The title was Ted Michalos Rants about Payday Loans. And even today three and a half years and 182 episodes later, that show is still in the top five of all time downloads for this podcast.

Obviously payday loans are a popular discussion topic and everyone has an opinion but the reason I’m bringing Ted back today is to talk about some scary new statistics we’ve put together showing that the payday loan issue continues to get worse. And I also want to talk about the unintended consequences of driving down the cost of payday loans. So, Ted are you all ready to get all riled up?

Ted M:              I hate these guys.

Doug H:            I know you do. I know you do. So before we get to your opinions let’s start with some facts. We just released our sixth annual review of payday loan use amongst people who file a bankruptcy or consumer proposal with us. We’ll leave a link to the study in the show notes but Ted, what did we find? Give us some of the quick overview.

Ted M:              Probably the most chilling thing is now 31% of our clients, so one out of three, have got payday loans when they file some sort of insolvency with us. Worse than that, it’s two and a half times what it used to be when we started the study. So, the first time we did a payday loan analysis in 2011 it was one out of eight clients were using payday loans and now it’s one out of three.

Doug H:            Yeah it’s obviously getting worse. So we know that people use payday loans and that the payday loan industry will say well, it’s a necessary evil, people in need of emergency funds they can’t get a regular loan so why then is the use of payday loans by our clients such a bad thing?

Ted M:              Well, because they’re not using payday loans for living expenses. They’re using payday loans to make other debt payments. It’s not a one off emergency loan, it’s once you get into this cycle you have to keep doing it. They get in multiple loans from more than one lender and the debts are piling up. So, the average client who’s got payday loans now has $3,400 worth of payday loans in their total debt. They’ve got $30,000 of other debt so that’s 134% of their take home pay every month they owe in payday loans.

Doug H:            Yeah, so there’s no way you can actually pay that back.

Ted M:              It just doesn’t make any sense.

Doug H:            The math just doesn’t work. If my paycheque is $3,000 and my loans are more than that there’s no way I can pay it back on my next payday.

Ted M:              That’s right.

Doug H:            It’s just not possible. So, now you said that our clients don’t just have one payday loan, they have more than that.

Ted M:              Yeah, you know what’s interesting when we first started this study our clients that had payday loans, it was one out of eight and they had 3.2 loans each. It peaked at 3.5 loans each in 2014. So everyone who had a payday loan probably actually had three and a half of them. It’s dropped now to 3.2 which you would think would be a good news story but it’s not really because the number of loans is down but the average value of the loans is up.

Doug H:            They’re borrowing more.

Ted M:              That’s exactly right.

Doug H:            How much are they borrowing on a per loan basis?

Ted M:              So the average loan now is $1,095. So when we started doing this in 2011 it was $757. That’s a massive increase.

Doug H:            Wow, so more people have them and they’re bigger so it’s kind of, you know, two bad things happening.

Ted M:              Right.

Doug H:            So, to summarize what you said the use of payday loans among people already in debt is increasing, they owe more in payday loans than what they make in a month, a lot more and they’re taking out larger loans than they were before. So, now that last one is even more concerning. I mean we all know, we’ve talked about it here before, the government of Ontario has changed the laws and more changes are coming. So why aren’t they working, why aren’t less people visiting a payday loan store, you know, why is it more and why are they taking out larger loans? So, let’s delve into this a bit. So let’s look at how the industry and legislation is changing and let’s talk about the real life consequences for those changes.

So, let me throw some out here and you can give me your comments on it. The most obvious change that’s happened is the cost of borrowing so two years ago the maximum allowable cost per $100 borrowed was $21, that was up until 2017. Last year 2017 they dropped it to $18 and then now, so from January 1, 2018 onwards it’s $15 per $100 borrowed. Now we’ll talk about why we’re quoting this as $100 borrowed instead of interest rates when we get there, but it seems on the surface like a good change for borrowers, cost is going down. I used to only pay $21 now I only have to pay $15. Are you happy about this, Mr. Michalos?

Ted M:              So look folks anybody listening to this, $15 on a $100 loan in two weeks still works out to an annual interest rate of 390%.

Doug H:            So, what you’re saying is $15 I do that 26 times because I’m paying it back every two weeks, 15 times 26 is 390. So, okay that sounds like a pretty big number to me.

Ted M:              Well and so an average credit card today if you’re a reasonable customer is 18%. I mean the law says anything over 16% for anything other than a payday loan is usury yet payday loans are 390% and we’re supposed to be happy about that.

Doug H:            Well, they’ve got some special rules that –

Ted M:              They have some very special rules; I’d like to know how they got them.

Doug H:            Good lobbyist I would assume. Well, what they would say is hey, it’s only 15 bucks on a 100 that’s 15% so technically –

Ted M:              And that’s the way people think about it, so one of our concerns is always been that it’s not clear to anyone borrowing this money that they’re paying ridiculous interest rate.

But you started out this top of the show talking about unintended consequences. So the government has made it less expensive to borrow this money and so the unintended consequence of that is people are borrowing more money. If you’ve got so much aside to pay for interest and they’re going to charge you less interest then I guess you can borrow more.

Doug H:            Well and that’s exactly what happened in the mortgage market.

Ted M:              Exactly.

Doug H:            Mortgage interest rates have come down, obviously they’ve started to creep up now into 2018 but over many years they kept going down and so what did that do to the price of houses? Made them go way up, I can borrow more so I can borrow more, it’s a simple as that. Now there’s no doubt that the average loan size and the total amount borrowed keeps going up and I’m not going to say that corrolation proves causation, I mean I can’t necessarily draw a straight line from one to the other, there’s obviously a lot of other factors here but it’s not helping. Let’s talk about other unintended consequences then. So, if you lower the cost that a payday loan company can charge I assume then they’ve got to look elsewhere to make money?

Ted M:              Right, they’re like any other business. You’ve got a basic product line and it’s doing very well for you and someone cuts into your profit margins, you’re going to find another way that you can sell similar products. The similar product that the payday loan companies are switching to are something called installment loans, you see them on the internet all over the place. So they’re not payday loans anymore, these are loans that you take out for three months, four months, five months, six months. The interest rates are restricted by law to a maximum of 60% but what we found is that they’re charging bloody close to that maximum.

Doug H:            Yeah and I met with a client a couple of weeks ago who had a $15,000 loan from a payday loan company. So it wasn’t a payday loan, he didn’t have to pay it back on payday, but of course it was like you say the interest rate was ridiculous. He had no choice but to come in and see me.

Okay, so the Ontario government is looking to make even more changes designed to help the consumer when it comes to payday loans, so let’s look at these and you can give me your thoughts on perhaps some other unintended consequences. So, we talked about lowering the borrowing rate. Effective July 1, 2018 the maximum loan is going to become a thing.  Lenders will not be able to lend more than 50% of your previous month’s net income per loan.

Ted M:              Half your pay.

Doug H:            Half your pay, tell me your thoughts.

Ted M:              Alright, so let’s look at our typical insolvent client that has payday loans. Their take home pay is roughly $2,600 a month, so that means under these new rules any one individual loan could be a maximum of $1,300. We know that the average client has 3.2 of those loans so they could actually owe what does that work out $4,100 or thereabouts under the new rules, when currently they borrow $3,500.

Doug H:            Well we know that the average loan size right now is just under $1,100.

Ted M:              Yeah, $1,095, something like that.

Doug H:            Yeah. So, under the new rules okay, I guess I can borrow $1,200.

Ted M:              And I’m willing to predict that they will, that’s a pretty safe bet.

Doug H:            Well, yeah. So let’s think this through and I’ll ask my listeners to close their eyes and go on a journey with us here. You walk into the payday loan store and you say I need a loan. And so the person there, these places are very friendly, they’re way better that a bank. They’re brightly lit, they’re happy, there’s lots of people to serve you.

Ted M:              They’re open late hours. They’re really convenient to get money from.

Doug H:            Yeah, they’re fantastic. So I walk in there and I say I’d like a loan and so they say oh, do you have a paystub? Yeah, I’ve got my paystub. Oh, I see so you qualify to borrow $1,300. Okay, well then I guess I’ll borrow $1,300 as opposed to now where I go in and I say okay I need $1,100 they’re going to offer me – they’re going to start at the high number, why not? That’s how it’ll work. So, I think that’s a serious unintended consequence that’ll no doubt catch people.

So, another new rule, the extended payment plan rule. So beginning July, 2018  assuming these  laws come into effect and I believe they will, it’s already been passed by the legislature. These are just changed to regulations, they don’t need any laws to change. Lenders must give you the option of an extended payment plan if you take out three loans within a 63 day period.

Ted M:              I assume that means three loans with the same lender.

Doug H:            That’s what we assume.

Ted M:              But we never know, right?

Doug H:            It’s not specific in the regulations but how could it be anything other than that because of course they’re not aware of all our other loans at every other place.

Ted M:              Because they’re not reported anywhere, that’s a different topic.

Doug H:            Exactly, in most cases they’re not on your credit bureau. So if you are paid weekly, bi-weekly or semi-monthly the installments must be spread out over at least three pay periods. So that the maximum amount of each installment is well, obviously around 35% of the combined total of principle in interest. Now 63 days is the same as saying well, over two months, which is presumably where it comes from, July and August are 62 days so I guess 63 is more.

So walk me through the math on this. Because on the surface again this sounds like a great thing, the amount they can charge you is limited to $15 on $100 whether I pay it back over one week or six weeks so I’m getting a longer amount of time to pay back my loan. This sounds like a good idea, tell me where I’m missing the unintended consequences.

Ted M:              Alright, well I’m going to keep the math simple. Remember that we said the typical client that has payday loans, has 3.2 loans and they owe $3,500. And also their take home pay every month is $2,600. So let’s take that $3,500 and apply the $15 per 100 interest rate, adds another $500 to it so now they owe let’s call it $3,900. It’s a nice simple number.

Doug H:            Pretty close to 4 grand.

Ted M:              Three equal installments is what this new rule requires means they would be paying back $1,300 per installment. So we already said that their take home pay is $2,600 a month, half their take home pay is $1,300. Their equal installment is $1,300. So how is that viable for anybody?

Doug H:            Well, it sounds like it’s impossible and you just quoted the number on – yeah so I owe –

Ted M:              Yeah and I used round numbers, if you use precise numbers you actually end up paying – they have to pay more than they actually get in their paycheque. It’s just impossible.

Doug H:            Yeah, it’s impossible. So, I borrow $3,464 the cost of borrowing like you say just over $500, call it 520 so if you multiply that by –

Ted M:              You add that to the 34.

Doug H:            Yeah so I’m up to almost four grand so equal installments yeah that would be about $1,327 I guess if you wanted to use exact numbers. And so that’s bi-weekly so on a monthly basis you could either multiply it by two which is what you did or you could multiple it by 26 because there’s a couple of months where you’ve got to make extra payments divided by 12. That’s where you get to around $2,800, $2,900 and they only make $2,600.

Ted M:              It just doesn’t make any sense.

Doug H:            So, that would be an obvious unintended consequence then. We think we’re helping people but all we’re really doing is allowing them to borrow so much money that they can never pay it back.

Ted M:              Well, we can already predict what’s going to happen. If somebody is on this program they’re going to have to go to another payday lender to get enough money to actually live because their paycheque is going to pay the first guy.

Doug H:            Yep, you’re going to borrow more so you’re going to have to just keep cycling it around. So, okay now that everyone’s all depressed here.

Ted M:              I’m just mad. I’m not depressed.

Doug H:            I know and it’s very frustrating and, you know, you’ve kind of got to give the government the benefit of the doubt because okay on the surface these rules look like they are designed to help people making things, you know, more affordable, allowing them longer time periods to pay. But as we’ve shown there’s a bunch of unintended consequences too and it’s probably just going to drive people to borrow even more.

Ted M:              I think it makes it worse.

Doug H:            So, there’s one final change I want to talk about and then I want to start talking about solutions here. So, I mean I personally have said on this show many times that I think one of the solutions to society’s debt problems is education. I mean that’s not a full solution because as we’ve talked about on this show before a lot of people get into financial trouble because they have reduced incomes. They lost their job, they got sick, they got divorced and they started to use debt to survive so we’ve got an income problem not a debt problem.

We don’t have time to discuss that issue today but if we could solve the income problem we could help the debt problem. But beyond that as you already mentioned our clients, maybe we didn’t actually touch on this point but our clients who earn over $4,000 a month are more likely to have payday loans than our clients who earn between a thousand and two thousand dollars a month. So it’s not just an income problem, it’s more than that. I think it’s an education issue not knowing how crazily expensive payday loans are.

So here’s the final new rule, disclosure. Currently lenders are required to disclose and advertise the cost per $100 borrowed. Effective July 1, 2018 they must also disclose the equivalent annual interest rate on a $500 term loan for 14 days in both a poster and a flyer. Well, we’ve already done the math for them it’s 390%.

Ted M:              Right.

Doug H:            Now Ted, this is something you and I have lobbied for for many years, we included this in our submission to the provincial government back in May, 2016 so I guess you can I take credit, I’m sure they did exactly what we had recommended.

Ted M:              Well we know that they listen to these podcasts quite religiously.

Doug H:            It was probably the podcast that turned the tide here. I mean I’ll include a link to that in the show notes. I guess that’s good news, right? They’re actually going to do what we’ve asked them to do, disclose the effective annual interest rate?

Ted M:              So I’m going to say that it sounds like good news but the proof will be in the pudding. I’m going to need to see how they actually implement this before I can tell you whether or not it’s going to be effective.

Doug H:            Well so let’s wait till July and see what happens.

Ted M:              Which means you’re going to bring this up again in July.

Doug H:            We will, we’re going to talk about that. So okay I mean I’m willing to buy that. I think it’s a good start. I mean we’ve already said it our clients with payday loans almost $3,500 in payday loans but they also have almost $30,000 in other unsecured debt. So even if they could almost magically eliminate their payday loans, they’ve still got $30,000 in other debt.

So, one thing I’d like to see on those posters and flyers in the payday loans stores is a link to resources that could actually help people deal with their debt. Now I was invited to speak before the planning committee of Hamilton City Council on February 20. If I can get a copy of that recording I’ll put it in at the end of this episode. But what I recommended, and they were looking at changes to payday loan bi-laws, was that Hamilton change their bi-laws to require a link in those posters to page in the city of Hamilton website to other resources.

I would like to see Ontario do the same thing. I mean it would cost virtually nothing to have a link to a page like I don’t know, that could have a list of resources like licensed insolvency trustees who could actually help you eliminate your debt. It’s that other $30,000 in debt that’s the big problem. If I didn’t have that debt I wouldn’t be getting the payday loan, so, final word to you on that Ted.

Ted M:              Well, so this is going to sound like a commercial but if you’ve got more debt than you can deal with, the solution is not to incur even more debt at a more expensive level. So you go this $30,000 that our average client has and to make those payments you go out and you borrow payday loans to make the minimum payments and so now you owe $33,000 and you just can’t make the monthly payments. The solution isn’t to keep this cycle going, it’s to break the cycle, which means you need to talk to somebody with a professional knowledge and experience to solve your problem.

Doug H:            And I’m going to interrupt you there because I want you to further talk about that. But okay, in real life here my rent is due on the first of the month.

Ted M:              Yep, for most people.

Doug H:            I don’t get my paycheque this month till the third. So, I’ve got no choice but to get a payday loan. I mean all the education in the world isn’t going to change that simple fact.

Ted M:              Well, no I think you’re looking at it the wrong way, and I know you’re being facetious.

Doug H:            Yes, I’m throwing you questions.

Ted M:              You know that at the first of the month the rent is due every month. If you’re getting paid bi-weekly you know that twice a month you get a paycheque and one of those paycheques you have to set aside the money for the rent. And so the example you’re giving is somebody who isn’t able to set aside the money for the rent because they got all these other obligations that they’re trying to deal with. payday loans just make that worse.

Doug H:            And yeah if it was a case of a temporary interruption in income, I was off sick for a week because of the flu which everyone seems to have at the moment then the obvious answer is to go talk to your landlord and say look sorry, I’m not going to have the cheque for you on the first, it’s going to be on the third. It’s highly unlikely they’re going to evict you for being three days late. But you’re right, the real problem is I’ve got all this other debt I’m trying to keep all the balls in the air. So, our clients end up primarily when they have payday loans and other debts they’re looking at a consumer proposal.

Ted M:              That’s right.

Doug H:            How is that helping the situation and how does that work?

Ted M:              So for folks who aren’t familiar with what a consumer proposal is, it’s a plan whereby you repay a portion of what you owe. Interest is stopped immediately, you’re not paying back the debts in full in most cases because you’re only repaying what you can afford to repay. Typical example you pay back a third, but it varies for everybody that we talk to.

Doug H:            So in a case of the typical client we’ve got that’s got payday loans, they owe somewhere around 33, $34,000.

Ted M:              Probably they’re repaying somewhere around 11 to $12,000 depending on who it is that they owe in their financial situation but that would be –

Doug H:            That would be a typical number.

Ted M:              And that’s an average number.

Doug H:            So you’d be looking at maybe a couple of hundred bucks over a few years, something like that. And that would be all in that would include all of our fees, all the government fees, everything.

Ted M:              Well and think back to a second, the math we did earlier in the show, if that client had $3500 in payday loans it’s $520 a month of interest on the payday loans.

Doug H:            In interest, that’s not repaying the debt.

Ted M:              So you’re already – that money’s already gone and we’re telling you there’s a solution.

Doug H:            Well, if you’re paying your payday loans in three installments, because that’s going to be allowed now, right? So then the payments each month are going to be –

Ted M:              Your entire paycheque for three paycheques.

Doug H:            So, okay so a proposal is like a no brainer then.

Ted M:              It pretty much is. Now most people still haven’t heard of these things and they almost always say that they sound too good to be true. The alternative to a proposal though is a bankruptcy. A bankruptcy still scares the bejesus out of people. It’s a pride issue and I get it. No one wants to talk to someone about saying look, I just can’t deal with my debts. There are times when it’s the right answer too. Bankruptcy you’re saying look, I can’t pay back this $34,000 that I owe, I need relief. And that’s why the laws were put into place. Most of the people we talk to can do proposal instead but frankly we’re going to talk about both because you need to look at all your options don’t just listen to me.

Doug H:            Yeah and I think the proposal is such a good option when you have payday loans is you can only get a payday loan if you have income. It doesn’t have to be a job, the payday loans places will lend you if you’ve got a pension, which is another topic for another day.

Ted M:              Hard to sell them blood.

Doug H:            But if you’ve got income coming in they’re willing to give you a payday loan well the good news is if you’ve got income coming in you probably can do a consumer proposal as well.

Ted M:              At significantly lower costs of what we were talking about for this damn interest on the payday loans.

Doug H:            Yeah, if you’re looking at over $2,000 a month to be servicing your payday loans and other debt, you can do a proposal for a couple of hundred bucks a month it really is a low brainer.

Ted M:              It really is.

Doug H:            And do you feel sorry then for all the payday loan companies who aren’t going to get all their money when someone does a proposal.

Ted M:              Yes, I’m happy to send them all flowers when they die.

Doug H:            Yeah we’re here to do what’s best for all concerned but I’m certainly happy that we can help our clients with like you say a much better deal.

Ted M:              Well and we’re not trying to put the payday loan people out of business. Before they came along it used to be you’d see Guido on the shop floor and he’d give you a loan till next payday and you’d pay him an extra 20 or 50 bucks or whatever it was. The payday loans at least now they’re out in the daylight. The problem is people aren’t educated enough. As you said nobody realizes that it’s 390% interest on the loan.

Doug H:            Yeah and once you grasp that I think that forces you to look for other options.

Ted M:              Right.

Doug H:            $15 on 100 doesn’t sound like much, 390% does.

Ted M:              Right. So that same $100 then you’re going to pay $390 in interest on the $100 you borrowed if it takes you the year to pay it back.

Doug H:            It’s impossible. Well and that’s obviously why we’re not big fans of payday loans and obviously why we want people to explore other options to deal with their debt. So, thanks Ted.

As I said earlier, our goal is to educate the public, and advocate on behalf of the average person.

So, in that spirit, on February 20 I spoke before the Planning Committee at Hamilton City Council.  At that meeting Hamilton became the first municipality in Ontario to pass a suggested bylaw that will limit the number of payday loan stores in Hamilton.

Under the new bylaw, there can only be one payday loan store per ward, and there are 15 wards in Hamilton.  Existing stores will be grandfathered so there will be more than 15 for a while yet.

Is that a good idea?

Here’s the audio from my 5 minute presentation to the Planning Committee in Hamilton:

I start by referring to the previous speaker, Tom Cooper, of the Hamilton Roundtable for Poverty Reduction, who did a good job of detailing the financial impact of high interest loans on the people of Hamilton.

Thank you.

My name is Doug Hoyes, I am a CPA, what we used to call a chartered accountant, and a Licensed Insolvency Trustee, what we used to call a bankruptcy trustee.

My firm, Hoyes Michalos & Associates, is now in it’s 20th year.  Our Hamilton office is on the Mountain, on Upper James, just by the Linc.

We’ve analyzed the numbers for our clients across Ontario, and we’ve found that almost one third of my clients, people who have so much debt that they have no choice but to file a consumer proposal or bankruptcy, owe almost $3,500 on not just one but over 3 payday loans when they file with us.

Payday loans are an issue, because under Ontario law, the maximum a payday lender can charge is $15 on every $100 borrowed, so if you borrow $100, and pay back $115 two weeks later, and do that all year long, you will end up paying $390 in interest.

That’s a 390% interest rate.

But of course, my clients aren’t just borrowing $100; they’re borrowing almost $3,500, so over the course of a year that means they are paying over $13,500 in interest on a $3,500 loan.

That’s horrific.

Imagine what it would be like to borrow $3,500, and pay over $1,100 in interest every month!

It’s impossible.

So, we can all agree that there’s an issue with payday loans.

If payday lenders charge such a high interest rate, why do people get payday loans?

As I said, my clients with payday loans owe on average almost $3,500 on payday loans, but they also have almost $30,000 owing on other unsecured debt, like credit cards.

Payday loans aren’t the problem.

Debt is the problem.

A payday loan is not the first loan my clients get.

It’s the last.

They only get a payday loan because they have maxed out on every other type of loan.

They can’t borrow anywhere else, so they get a payday loan.

So, what’s the solution?

Because there are a lot of payday loan stores in Hamilton, one option that this Committee is considering would be to limit the number of payday loan stores, to make it less convenient to get a payday loan.  Seems reasonable.

I know that the Hamilton Roundtable for Poverty Reduction has done a lot of work on this issue, so I will defer to their expertise on this solution.  My only words of warning would be that you don’t want to make the rules too restrictive, because people may just go online to get a loan, and you can’t easily regulate that.  Today’s Hamilton Spectator has a story of exactly that happening, where a number of people got scammed.  Online lenders don’t have to live in the community, so they are not accountable to anyone.

Payday loans are a symptom of the real problem, so the solution must address the real problem: debt.

Since the City of Hamilton doesn’t have the power to solve our national debt problem, I recommend that we do what we can to give more information to payday loan borrowers.

I agree with the Ontario government’s plan to require payday loan stores, by July 1, to both display a poster and provide everyone seeking a payday loan with a flyer that states that:

“Our Maximum Annualized Interest Rate on a Two Week Loan is 390%”.

Making it obvious that the equivalent annual interest rate is 390% may make people think twice about getting a loan.

But I think Hamilton can do more than that.

I recommend that on that poster and flyer you provide a link to a webpage on the city of Hamilton’s website, perhaps something like, where you can provide an updated list of resources for people dealing with overwhelming debt.

That list could include not for profit credit counsellors, but should only include credit counsellors who have a physical office in Hamilton; you don’t want to be referring people to a call centre in another city or province.

But credit counselling isn’t enough if you have massive debt.

Most people who get a payday loan because they have massive debt can’t afford a credit counselling debt management plan where they pay back their debts in full.  It’s too expensive.

The City of Hamilton is contemplating more regulation of payday loan lenders, so if you are going to go down the regulation route, the list of resources must include links to the only professionals that are actually regulated and licensed by the federal government to provide legally binding debt relief, and that’s licensed insolvency trustees.

Again, that list should only include licensed insolvency trustees that are physically located in Hamilton.

Residents of Hamilton get payday loans because they can’t borrow anywhere else. They have too much debt. So in addition to bylaw restrictions on store locations, let’s give them access to resources to deal with their debt, so we can work towards solving the real problem.

That was my presentation before the Planning Committee at Hamilton City Council on February 20, 2018.

As I said, I believe we need to focus not simply on restricting access to payday loans, but also on helping reduce the demand for payday loans by giving people the resources to deal with their debt, and that’s why I think consumer proposals are part of the solution to the payday loan problem.

That’s our show for today.

Full show notes, including a full transcript and links to everything we talked about today can be found at, that’s

Thanks for listening.

Until next week, I’m Doug Hoyes, that was Debt Free in 30.

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  3. Why the Ontario Government Didn’t Come Down Hard Enough on the Payday Loan Industry
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  5. What is the Maximum Amount of Interest I Can Be Charged in Ontario?

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