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Calgary Council Cracks Down on City Payday Loan Operators

In the November 9th meeting of the Calgary City Council a report from the Calgary Planning Commission was presented on the subject of pawn shops and pay day loans in the Calgary area.

Of particular concern to the commission was the tendency for these businesses to coalesce

It reported that there were 82 payday lending […]

The Perils of Payday Loans | Fresh Updates from RACFresh …

Visit site: The Perils of Payday Loans | Fresh Updates from RACFresh …

Banking Committee Chair: 'Payday loan sharks preying on most …

Continued here: Banking Committee Chair: 'Payday loan sharks preying on most …

Missouri AG Koster shuts down predatory payday loans | SEMO TIMES

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Attorney General Chris Koster announced yesterday that he has obtained an agreement with eight online payday loan operations to shut down payday loan operations in Missouri, provide $270,000 in consumer restitution, and erase all loan balances for Missouri consumers.

Koster said Martin A. “Butch” Webb acted through numerous business entities operating from a Native American reservation in South Dakota, including Payday Financial, Western Sky Financial, Lakota Cash, Great Sky Finance, Red Stone Financial, Big Sky Cash, Lakota Cash, and Financial Solutions, none of which were licensed to do business in Missouri. These businesses sold short-term loans with exorbitant fees and forced consumers to agree to have their future wages garnished without going through the court system as required by Missouri law.

The Attorney General’s Office received 57 complaints from consumers who were collectively charged approximately $25,000 in excess fees. The Attorney General’s investigation subsequently discovered as many as 6,300 other Missourians who may have also been charged excessive fees. One Missouri consumer was charged a $500 origination fee on a $1,000 loan, which was immediately rolled into the principal of the loan. She was charged 194 percent APR and eventually paid more than $4,000.

“These predatory lending businesses operated in the shadows, taking advantage of Missourians through outrageous fees and unlawful garnishments,” said Koster. “Webb may have thought that by operating on tribal land he could avoid compliance with our state’s laws. He was wrong.”

Under Missouri law, a payday lender cannot charge “origination” or other such fees in excess of 10 percent of the loan, up to a maximum of $75.

The judgment obtained by Koster permanently prohibits Webb or any of his businesses from making or collecting on any loans in Missouri, and it cancels existing loan balances for his Missouri customers. Webb must also instruct credit reporting agencies to remove all information previously supplied to them about specific consumers. In addition, Webb must pay $270,000 in restitution to consumers and $30,000 in penalties to the state.

Consumers who, while living in Missouri, paid excess origination fees to one of the companies listed above—even if the loan was later sold to a third party—may be eligible to receive restitution under the terms of the judgment. The Attorney General’s office will be contacting eligible consumers.

“My hope is that every Missouri consumer who took out a short-term loan with these companies gets back what they were charged in excess of Missouri law,” said Koster. “The message to online payday lenders is clear: follow Missouri law or you won’t be doing business in our state.”

[…]

The Payday Loan Rule Changes That Only Payday Lenders Want …

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Follow the money: payday lenders gave significant campaign money to legislators who are now trying to undo Washington State’s landmark payday lending reforms.dcwcreations / Shutterstock.com

Washington State passed some of the strongest payday lending reforms in the nation in 2009. But now a group of lawmakers want to scrap those reforms in favor of a proposal backed by Moneytree, a local payday lender.

The rule changes they’re going after limit the size and frequency of payday loans and provide a free installment plan option to help borrowers who can’t pay back their loan when it’s due.

According to data from the Department of Financial Institutions, these reforms hit payday lenders hard. In fact, before the reforms took effect, payday loans were available at 603 locations across Washington and lenders were making more than $1.3 billion in loans per year. Last year, there were only 173 locations and it was a $331 million industry.

Now, a proposal, sponsored by Rep. Larry Springer, D-Kirkland, and Sen. Marko Liias, D-Lynnwood, would replace the payday loan system in Washington with a “small consumer installment loan” system that would clear the way for lenders like Moneytree to start offering 6-month to 12-month loans with effective interest rates up to 213 percent.

The proposed law would also increase the maximum size of a loan from $700 to $1,000 and remove the current eight-loan cap, effectively removing the circuit breaker keeping borrowers from getting trapped in a debt cycle.

What’s more, instead of the easy-to-understand fee payday loans we have now, the new loans would have a much more complex fee structure consisting of an amortized 15 percent origination fee, a 7.5 percent monthly maintenance fee, and a 36 percent annual interest rate.

It is incomprehensible, after years of working on payday reforms that finally worked in Washington, that lawmakers would throw out that law and replace it with one created by Moneytree.” says Bruce Neas, an attorney with Columbia Legal Services, a group that provides legal assistance to low-income clients.

Proponents say the new system could save borrowers money. And they’re right, technically, since interest and fees accrue over the life of the loan. However, a loan would need to be paid off in around five weeks or less for that to pencil out—and that seems highly unlikely. In Colorado, which has a similar installment loan product, the average loan is carried for 99 days. What’s more, according the National Consumer Law Center, “loan flipping” in Colorado has led to borrowers averaging 333 days in debt per year, or about 10.9 months.

While numerous consumer advocates have spoken out against the proposal—along with payday loan reform hawks like Sen. Sharon Nelson, D-Maury Island, and even the state’s Attorney General—few have voiced support for it. In fact, in recent committee hearings on the proposal, only four people testified in favor of it:

Dennis Bassford, CEO of Moneytree;

Dennis Schaul, CEO of the payday lending trade organization known as the Consumer Financial Services Association of America;

Rep. Larry Springer, prime House sponsor of the proposal and recipient of $2,850 in campaign contributions from Moneytree executives;

Sen. Marko Liias, prime Senate sponsor of the proposal and recipient of $3,800 in campaign contributions from Moneytree executives.

Springer and Liias aren’t the only state legislators Moneytree executives backed with campaign contributions, though. In the past two years, executives with Moneytree have contributed $95,100 to Washington State Legislature races.

At least 65 percent of the money went to Republicans and the Majority Coalition Caucus. Which is expected, since Republicans have been loyal supporters of Moneytree in the past. When a similar proposal was brought to the Senate floor two years ago, only one Republican voted against it.

More telling is where the remaining money went. Of the $33,150 Moneytree gave to Democrats, $20,500 went to 11 of the 16 Democratic House sponsors of the proposal and $5,700 went to two of the four Democratic Senate sponsors.

Both the Senate and House versions of the proposal have cleared their first major hurdles by moving out of the policy committees. The bills are now up for consideration in their respective chamber’s Rules Committee. The Senate version appears to be the one most likely to move to a floor vote first, since the Republican Majority Coalition Caucus controls the Senate.

Regardless of which bill moves first, payday lenders undoubtedly want to see it happen soon.

The Consumer Financial Protection Bureau, established by Congress in response to the Great Recession, is poised to release their initial draft of regulations for payday lenders. Although the agency’s deliberations are private, it is widely believed the rules will crack down on the number and size of loans payday lenders can make.

Those rules may well affect Moneytree and other payday lenders Washington.

In the likely chance they do, payday lenders could see their profits shrink. Unless, that is, Washington scraps its current system in favor of one carefully crafted by payday lenders looking to avoid federal regulators.

[…]

8 On Your Side: Bill could remove payday loan protections

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LAS VEGAS – Taking out a payday loan is rarely a good idea. Many companies charge high interest rates, and customers can easily get in a trap where they spend years paying off the loans.

If you get a payday loan, be warned. These companies may soon have more leverage over customers. Nevada law offers consumers some protections from payday loan companies, but that could change.

If Senate Bill 123 passes, it would allow payday loan companies that offer long-term loans to sue customers who default on their loans.

“Somebody can get sued after paying for twelve to fourteen months on this loan, and then get sued at the end for more interest,” said consumer advocate Venicia Considine.

Considine says this can hurt payday loan customers who are already strapped for cash.

“The average income nationally of people who go to payday loan lenders is about $22,400 a year,” she said.

Considine says she feels the current laws obligate lenders to ensure anyone they give money to can pay it back. Senate Bill 123 would change that, and it could keep people trapped in a cycle of debt for a long time.

“It’s a lose-lose for the consumer,” she said.

You can voice your opposition to the bill by contacting your state lawmaker.

If you are in trouble with payday loans, the Legal Aid Center of Southern Nevada can help. Their services are free.

If you have a problem you want investigated, contact 8 On Your Side at 702-650-1907.

[…]

Wonga to cut third of staff following new clampdown on payday …

Wonga is slashing about a third of its workforce to cut costs as it responds to a wider clampdown on unfair practices in the payday lending market.

The controversial lender said 325 jobs would go, mainly in the UK and Ireland. Wonga’s Dublin office will close as part of the plans, as will its office in Tel Aviv.

Related: Payday lending will shrink but only a complete ban will do

Andy Haste, the lender’s chairman, said: “Wonga can no longer sustain its high cost base, which must be significantly reduced to reflect our evolving business and market.

“Regrettably, this means we’ve had to take tough but necessary decisions about the size of our workforce. We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”

Wonga’s decision to cut jobs came on the same day that the Competition and Markets Authority announced new rules to force payday lenders into being more transparent about their charges. The CMA is hoping that it will create more competition in the market, lowering costs for millions of consumers who rely on the loans.

Wonga employs a total of 950 people worldwide, but all the job losses relate to its UK payday loans business, which employs 650 people – about 280 in the UK, 175 in Ireland, 185 in South Africa and 10 in Israel.

It is understood about 100 jobs will go in the UK alone. All jobs will go in Ireland and Israel.

The group is aiming to achieve overall cost savings of at least £25m over the next two years, following a period of rapid expansion that saw costs treble between 2012 and 2014.

When Haste was appointed chairman last July, he said Wonga would become smaller and less profitable as it scaled back the number of customers it extended loans to, imposing stricter lending criteria.

In October the company was forced by the City watchdog, the Financial Conduct Authority, to write off £220m of loans to 375,000 borrowers, who it admitted should never have been given loans.

Wonga also announced on Tuesday that its former chairman Robin Klein was stepping down from the board after eight years.

The payday loans industry is undergoing a major shakeup as regulators seek to make the market fairer for cash-strapped consumers.

Under the new rules announced on Tuesday, lenders will have to list their deals on price-comparison websites and make it easier for customers to compare the total cost of different loans offered by various lenders.

Payday lenders will also have to provide customers with a summary of the total cost of their loans, as well as how additional fees such as late repayment affect the cost.

The recommendations were made after a 20-month inquiry into the payday loans industry by the CMA.

The watchdog concluded that a lack of price competition between lenders had driven costs higher for borrowers, with most people failing to shop around partly owing to a lack of clear information on charges.

Simon Polito, who ran the inquiry, said: “We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time.”

The CMA’s decision follows an earlier clampdown by the UK financial regulator, the Financial Conduct Authority (FCA).

The authority introduced a price cap on 2 January to ensure that borrowers are never forced to repay more than double the amount of their original loan.

Interest and fees were capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan was limited to 100% of the original sum. Default fees were to be capped at £15 to protect people struggling to repay their debts.

Polito said: “The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans.

“We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.”

Joanna Elson, chief executive of the Money Advice Trust charity, welcomed the action from the CMA and FCA but added a note of caution: “This is good news for the consumer. More competition and transparency in the payday loan market will ensure that the FCA’s cap on the cost of credit remains precisely that– a cap, not the norm.

“This is a good example of regulators working together to bring about meaningful change in this sector. However, these improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow,” she said.

Payday lenders will be forced to publish the details of their products on at least one price comparison website, authorised by the FCA. The CMA said on Tuesday it would work closely with the FCA to implement the new recommendations.

[…]

Payday Loans Are Bleeding American Workers Dry. Finally, the …

We’ve all seen the ads. “Need cash fast?” a speaker asks. “Have bad credit? You can get up to $1,000 within 24 hours.” The ad then directs you to a sketchy-sounding website, like 44cash.com, or a slightly-less-sketchy-sounding business, like PLS Loan Store. Most of us roll our eyes or go grab another beer when these commercials air. But 12 million people a year turn to payday lenders, who disguise the real cost of these loans. Borrowers often become saddled with unaffordable loans that have sky-high interest rates.

For years, states have tried to crack down on these deceptive business practices. Now, the Consumer Financial Protection Bureau (CFPB) is giving it a shot. On Monday, the New York Times reported that the CFPB will soon issue the first draft of new regulations on the $46 billion payday-lending industry. The rules are being designed to ensure borrowers have a better understanding of the real cost of payday loans and to promote a transparent and fair short-term lending market.

On the surface, payday loans sound like a good idea to many cash-strapped Americans. They offer a short-term loan—generally two weeks in length—for a fixed fee, with payment generally due on the borrower’s next payday. The average borrower takes out a $375 two-week loan with a fee of $55, according to the Pew Charitable Trust’s Safe Small-Dollar Loans Research Project which has put out multiple reports on payday lenders over the past few years. But payday lenders confuse borrowers in a couple of ways.

First, borrowers are rarely able to pay back their loans in two weeks. So they “roll over” the payday loan by paying just the $55 fee. Now, they don’t owe the $375 principal for another two weeks, but they’re hit with another $55 fee. That two-week, $375 loan with a $55 fee just effectively became a four-week, $375 loan with a $110 fee. If, after another two weeks, they still can’t repay the principal, then they will roll it over again for yet another $55 fee. You can see how quickly this can spiral out of control. What started as a two-week loan can last for months at a time—and the fees borrowers incur along the way end up dwarfing the principle. Pew found that the average borrower paid $520 in fees for the $375 loan, which was rolled over an average of eight times. In fact, using data from Oklahoma, Pew found that “more borrowers use at least 17 loans in a year than just one.”

Second, borrowers are often confused about the cost of the loan. The $55 fee—payday lenders often advertise a fee of $15 per $100 borrowed—sounds like a reasonable price for a quick infusion of cash, especially compared to a credit card with a 24-percent annual percentage rate (APR). But that’s actually an extremely high price. Consider the standard two-week, $375 loan with a $55 fee. If you were to roll that loan over for an entire year, you would pay $1,430 in fees ($55 times 26). That’s 3.81 times the original $375 loan—an APR of 381 percent.

Many borrowers, who badly need money to hold them over until their next paycheck, don’t think about when they’ll actually be able to pull it back or how many fees they’ll accumulate. “A lot of people who are taking out the loan focus on the idea that the payday loan is short-term or that it has a fixed $55 fee on average,” said Nick Bourke, the director of the Pew research project. “And they make their choice based on that.”

Lenders advertise the loans as a short-term fix—but their business model actually depends on borrowers accruing fees. That was the conclusion of a 2009 study by the Federal Reserve of Kansas City. Other research has backed up the study’s findings. “They don’t achieve profitability unless their average customer is in debt for months, not weeks,” said Bourke. That’s because payday lending is an inefficient business. Most lenders serve only 500 unique customers a year, Pew found. But they have high overhead costs like renting store space, maintaining working computers, and payroll. That means lenders have to make a significant profit on each borrower.

It’s also why banks and other large companies can offer short-term loans at better prices. Some banks are offering a product called a “deposit advance loan” which is nearly identical to a payday loan. But the fees on those loans are far smaller than traditional payday loans—around $7.50-$10 per $100 loan per two-week borrowing period compared with $15 per $100 loan per two-week period. Yet short-term borrowers are often unaware of these alternatives. In the end, they often opt for payday loans, which are much better advertised.

The CFPB can learn a lot about how to (and how not to) formulate its upcoming regulations from state efforts to crack down on payday lenders. Fourteen states and the District of Columbia have implemented restrictive rules, like setting an interest-rate cap at 36 percent APR, that have shutdown the payday-loan business almost entirely. Another eight states have created hybrid systems that impose some regulations on payday lenders, like requiring longer repayment periods or lower fees, but have not put them out of business. The remaining 28 states have few, if any, restrictions on payday lending:

The CFPB doesn’t have the power to set an interest rate cap nationally, so it won’t be able to stop payday lending altogether. But that probably shouldn’t be the Bureau’s goal anyways. For one, eliminating payday lending could have unintended consequences, such as by driving the lending into other unregulated markets. In some states, that seems to have already happened, with payday lenders registering as car title lenders, offering the same loans under a different name. Whether it would happen on a large scale is less clear. In states that have effectively outlawed payday lending, 95 percent of borrowers said they do not use payday loans elsewhere, whether from online payday lenders or other borrowers. “Part of the reason for that is people who get payday loans [are] pretty much mainstream consumers,” Bourke said. “They have a checking account. They have income, which is usually from employment. They’re attracted to the idea of doing business with a licensed lender in their community. And if the stores in the community go away, they’re not very disposed towards doing business with unlicensed lenders or some kind of loan shark.”

In addition, borrowers value payday lending. In Pew’s survey, 56 percent of borrowers said that the loan relieved stress compared to just 31 percent who said it was a source of stress. Forty-eight percent said payday loans helped borrowers, with 41 percent saying they hurt them. In other words, the short-term, high-cost lending market has value. But borrowers also feel that lenders take advantage of them and the vast majority want more regulation.

So what should that regulation look like? Bourke points to Colorado as an example. Lawmakers there capped the annual interest payment at 45 percent while allowing strict origination and maintenance fees. Even more importantly, Colorado requires lenders to allow borrowers to repay the loans over at least six months, with payments over time slowly reducing the principal. These reforms have been a major success. Average APR rates in Colorado fell from 319 percent to 129 percent and borrowers spent $41.9 million less in 2012 than in 2009, before the changes. That’s a 44 percent drop in payments. At the same time, the number of loans per borrower dropped by 71 percent, from 7.8 to 2.3.

The Colorado law did reduce the number of licensed locations by 53 percent, from 505 to 238. Yet, the number of individual consumers fell just 15 percent. Overall, that leads to an 81 percent increase in borrowers per store, making the industry far more efficient and allowing payday lenders to earn a profit even with lower interest rates and a longer repayment period.

Bourke proposes that the CFPB emulate Colorado’s law by requiring the lenders to allow borrowers to repay the loans over a longer period. But he also thinks the Bureau could improve upon the law by capping payments at 5 percent of borrower’s pretax income, known as an ability-to-repay standard. For example, a monthly payment should not exceed 5 percent of monthly, pretax income. Lenders should also be required to clearly disclose the terms of the loan, including the periodic payment due, the total cost of the loan (all fee and interest payments plus principal), and the effective APR.

The CFPB hasn’t announced the rules yet. But the Times report indicated that the Bureau is considering an ability-to-repay standard. The CFPB may also include car title lenders in the regulation with the hope of reducing payday lenders’ ability to circumvent the rules. However, instead of requiring longer payment periods, the agency may instead limit the number of times a lender could roll over a borrower’s loan. In other words, borrowers may only be able to roll over the loan three or four times a year, preventing them from repeatedly paying the fee.

If the Bureau opts for that rule, it could limit the effectiveness of the law. “That kind of tries to tackle a problem of repeat borrowing and long-term borrowing but that’s a symptom,” Bourke said. “That’s not really the core disease. The core disease is unaffordable payments.” In addition, it could prevent a transparent market from emerging, as payday lenders continue to take advantage of borrowers’ ignorance over these loans. “The market will remain in this mire,” Burke added, “where it’s dominated by a deceptive balloon payment product that makes it difficult for consumers to make good choices but also makes it difficult for better types of lenders to compete with the more fair and transparent product.” Ultimately, that’s in the CFPB’s hands.

[…]

Borrower beware with payday loans | Globalnews.ca

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REGINA – It’s a quick way to get cash when you’re short before a payday. However, the Saskatchewan government wants people to think twice before borrowing money from a payday loan lender.

In Saskatchewan, lenders can charge up to $23.00 in interest and fees for every one-hundred dollars borrowed. On a four-hundred dollar loan, that adds up to $92.00.

Story continues below

The loan, plus interest and fees, is due on your next payday and is withdrawn automatically from your bank account. If a loan is defaulted, the lender can charge up to a maximum of 30 per cent per annum on the loan principle and up to $50.00 for a NSF cheque or if a pre-authorized debit is dishonoured.

IN DEPTH: Chequed out: Inside the payday loan cycle

“Sometimes people don’t have a lot of options when it comes to borrowing money,” says Cory Peters, the consumer credit division director for the Financial and Consumer Affairs Authority of Saskatchewan.

“We want to make sure that people are aware of the fees and re-payment timeframes that are associated with payday loans.”

A Global News analysis by Patrick Cain has found a striking correlation between payday lenders and low-income, high-social-assistance areas.

Payday loan stores and welfare rates »

Payday loan stores and welfare rates

Payday loan stores and income »

Payday loan stores and income

The Saskatchewan government has six tips for those using payday loans:

  1. Use a licensed Saskatchewan lender;
  2. Know the costs – frequent use adds up over time;
  3. Loans are due on your next regular payday;
  4. Don’t take out a second payday loan to pay for the first one;
  5. Read the fine print;
  6. If you change your mind, you have until the end of the next business day to return the money and cancel the loan.

Report an error […]

Chequed out: Inside the payday loan cycle | Globalnews.ca

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Jillane Mignon just needed cash to pay for day care.

Her job with the City of Winnipeg’s 311 program covered the bills, but not the $1,000 a month it cost to care for her son while she was at work.

“When there are [child care] subsidies, there are no spaces. When there are spaces, there’s no subsidy.”

So it started with a small loan from a payday lender. That took care of that month.

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“And then when you get your paycheque, half your paycheque is already gone to pay the lender. So then you have to borrow again.”

At one point, she said, she owed money to four different payday loan outlets – all the money taken out to pay existing loans, plus their rapidly accumulating interest, and get her through to the next paycheque, which was quickly swallowed up in more loan payments.

When Mignon decided to dig herself out of payday loan debt once and for all, she did so “painfully.”

“The last time I took [out a payday loan] I said, ‘Whatever my paycheque comes back as after I pay them back, I’m going to live on,” she said. “Painfully.

“Food banks. Salvation Army. Swallow your pride.”

Read the series

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Graphic by Janet Cordahi

Fringe finances by postal code

It’s a familiar predicament for many – one that’s earned payday lenders and cheque-cashing outlets a reputation for exploiting people who need cash quickly and have no other option.

Money Mart came under fire shortly before Christmas for its practice of exchanging gift cards for half their value in cash. At the time, Money Mart said it was “offering customers a convenient, value-added product though this service.” It eventually suspended the practice.

Neither Money Mart nor the Cash Store would speak with Global News for this article.

But Stan Keyes, a former Minister and Liberal MP for Hamilton, Ont., and head of Canada’s Payday Loan Association, argues these businesses – licensed and regulated by provinces, he notes – are filling a need no one else is meeting.

“What alternative do borrowers have?” he asked.

Squash or regulate the industry out of existence, he warns, and you leave people who need small cash infusions quickly without other options.

“If licensed payday lenders were forced to close their doors, say due to overregulation, the demand for the small sum short term loan does not dry up,” he said. “So I suppose those who claim to speak for payday loan borrowers, some of them often misinformed, don’t mind forcing those who need the small sum financing to, what? Take their television off the wall and take it to a pawn shop?”

Keyes said the fees and interest rates (about $21 for $100 at Money Mart, for example), often criticized as high, are necessary because of the risk taken on by lenders who don’t do credit checks. He also thinks citing annual interest rates of several hundred per cent is misleading because these are short-term loans.

There are about 1,500 payday lender outlets across the country. They skyrocketed in growth in the early 2000s, then levelled off. A 2005 Financial Consumer Agency of Canada survey found about 7 per cent of Canadians say they’d used the services.

A Global News analysis has found payday lenders overwhelmingly concentrated in low-income neighbourhoods and neighbourhoods with a high proportion of people receiving social assistance.

(Keyes, for his part, argues they’re simply located where the commerce is.)

Global News used tax data obtained from Statistics Canada and business location information from Red Lion Data to map payday loan locations against income and social assistance.

Interactive: Explore the map below to see how payday lending locations correlate with social assistance levels in your neighbourhood. Click a circle or coloured shape for more information; click and drag to move around.

Payday loan stores and welfare rates »

Payday loan stores and welfare rates

Payday loan stores and income »

Payday loan stores and income

Most payday loan customers are lower middle class, says Jerry Buckland, a University of Winnipeg and Menno Simons College professor who’s written a book about the practices of these “fringe” financial institutions.

But the heaviest users – the ones who get trapped in a cycle of high-interest debt – are the poorest borrowers.

“It’s those people closer to the edge who aren’t able to pay that payday loan off.”

So maybe they take out another payday loan to fill the gap. And then they’re stuck.

The problem, Buckland argues, is that payday lenders fill a need that traditional banks aren’t.

“Mainstream banks have, over the course of 30 years, shut down more branches in lower-income neighbourhoods,” he said.

“A big thing right now that I see the feds pushing is this financial literacy. And while on the one hand I think financial literacy is important, it certainly doesn’t solve the problem of financial exclusion.”

Maura Drew-Lytle, spokesperson for the Canadian Bankers Association, says banks have done a lot to make themselves more accessible, including offering low-cost accounts for about $4 a month. And as of January, 2015, she said, they’re offering basic, no-cost accounts for low-income seniors, people on disability assistance, students and youth.

She also notes the number of bank branches in Canada “has actually been increasing.”

“Banks have been very focused on customer service over the last decade or so. You’ve seen big changes in branches. … It’s not just a line of tellers any more.”

But Tamara Griffith, Financial Advocacy and Problem Solving Program Coordinator at Toronto’s West Neighbourhood House, says there are still barriers in place – including something as basic as photo ID, the lack of which can limit what a person can do with a bank account.

She and her colleagues will often accompany people when helping them open an account, she said, to help demystify the process and ensure they get what they need.

“Because we know once you walk in, you’re being sold a whole bunch of things,” she said.

“You just want a bank account: You don’t need an overdraft, you don’t need a line of credit, you don’t need a credit card. And every time, it’s the same pitch. And we say, ‘Okay, no we just need a bank account.’”

Many of the people Griffith works with are using credit cards to supplement their income, she said – not for luxuries, but just to get by. They pay the minimum payment as long as they can until the accruing interest becomes financially ruinous.

Vancouver’s VanCity established a short-term loan program for its members as an alternative to payday loans.

Photo by Daniel Paperny for Global News

Vancouver’s Vancity credit union took matters into its own hands a couple of years ago, says Linda Morris, the bank’s Senior Vice President of Business Development, Member and Community Engagement.

“We’d been seeing studies coming out of the States, but also Canada, about people who’d be underserved, or not served at all, by conventional banking,” she said.

So they did their own research – and found even some of the credit union’s own members reported using payday lenders of cheque-cashing facilities.

“That concerned us greatly, because we know the cycle of debt people can get into. … We have people come in who have three different payday lenders they owe money to.”

At the same time,” she added, “when you take a loan with a payday loan, you’re really not developing a credit history. And that’s really important also.”

Last April, VanCity launched its Fair and Fast loan program – essentially, small-scale loans, available within an hour. In July, they added a cheque-cashing component.

“We’re seeing very little delinquency. So far, people are paying back their loans. It seems to be working.

“The larger question, of course, is will we break the cycle.”

San Francisco issued a moratorium on new payday lenders and cheque-cashing locations in 2005.

Anna Mehler Paperny/Global News

San Francisco is asking itself the same question.

In 2005, the city enacted a moratorium on new cheque-cashers and payday lenders.

“We felt at the time we were pretty saturated with those types of organizations,” said Leigh Phillips, director of the city’s Office of Financial Empowerment.

“Our regulatory authority is very, very limited – these are companies that are regulated by the states,” She said. But “we wanted to do something.”

Other cities followed suit with legislation of their own, she said – Los Angeles, San Diego and San Jose among them.

That tackled one part of the problem. It’s still trying to measure how it’s doing on the other half – meeting the need that was driving the growth of these types of businesses in the first place.

The city also launched a Bank on San Francisco program, partnering with existing financial institutions to offer accessible, low-cost accounts.

In many cases, Phillips said, these were “second chance” banking products – for people with poor credit histories or who’d had bad experiences with banks in the past. They also addressed barriers ranging from identification requirements to often-incapacitating overdraft fees.

But while they surpassed their initial goal of getting accounts for 10,000 people in their first year, the program has been tougher to track since then. Phillips said it “looked like” about 80 per cent of those new clients kept their accounts open, which is good.

Just as importantly, she adds, “it’s made financial management a more concrete part of the anti-poverty conversation.”

‘That endless cycle … will drive you insane’

Jillanne Mignon got out of her payday loan debt – ‘painfully.’

Anna Mehler Paperny/Global News

Among the many things on Mignon’s to-do list once she graduates from her community economic development program at Toronto’s Centennial College is work with micro-loans.

“I like the model of microloans because it opens the lending market ot people who are normally shut out,” she said. “People who normally go to these, I call them loan sharks, these payday loan places these pawn shops, to get these monies and then they get caught in these ridiculous circles of high interest rates. …

“I know that endless cycle. It will drive you insane.”

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