Ontario payday loan reforms a drop in the bucket – Behind the Numbers

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Ontario payday loan reforms a drop in the bucket - Behind the Numbers

We did the Math

Ontario payday loan reforms: a drop in the bucket

The Ontario government has announced some modest reforms to lower the shocking interest rates charged to customers of payday loan companies.

Many people who rely on payday loans have no other place to turn in a financial emergency and over the past 20 years, the payday loan industry has been only too impatient to prey on desperation.

There are more than 800 payday lending outlets in Ontario and every year inbetween $1.1 and $1.Five billion in payday loans are issued to 400,000 people in this province.

Through a regulatory switch, the Ontario government is eventually planning to amend the Payday Loan Act and reduce the total cost of borrowing from $21 to $Legal on every $100 in payday loans, kicking off January 1, 2018. It would further reduce the amount to $15 on every $100 on January 1, 2018.

Will the announced switches make a difference for people fighting to escape the cycle of strenuous debt inflicted by predatory lending?

Consider this: While a $21 fee on $100 of borrowed money may seem like a manageable sum, loans are provided for a very limited time period — usually two weeks is the maximum term of the loan.

When annualized, the interest rates these payday lenders are charging is actually closer to 550 per cent. Many customers fall hundreds, even thousands of dollars in debt to payday lenders before they know what hit them.

Even with the proposed reduction in fees in Ontario, payday loan companies will still be able to charge customers what will amount to a whopping 391 per cent annualized rate of interest.

This is made possible thanks to switches to the Criminal Code of Canada in 2007, which enabled companies to exceed the criminal rate of interest (set at 60 per cent annually).

For almost two decades the payday loan industry has prospered under provincial jurisdiction in a vacuum of lax government oversight. As a result, borrowers of loans have been left fighting to manage debt and hold their lives together.

The business model of the payday lending industry is predicated on customers returning time and time again as they become ensnarled in a cycle of borrowing and repaying high-interest loans.

Other jurisdictions have taken a much tougher stance against predatory lenders. The province of Quebec thresholds annual interest rates for all lenders to 35 per cent annually. This has severely limited the growth of payday lending locations.

In the United States, several state governments, including Fresh York and Fresh Jersey, have put in place rough limitations to make payday lending unprofitable. In Georgia, they’ve gone further: payday lending is explicitly prohibited and a disturbance of anti-racketeering laws.

While the payday loan industry might argue that if their brand of financial services were not suggested customers would turn underground, ample evidence from places where payday lending is banned would demonstrate that is simply not the case.

Lower interest rates are a step in the right direction, but much more needs to be done.

Ontario can demonstrate leadership by banning this predatory industry and ensuring residents have an chance to access financial services. Credit Unions and postal banking could be critical solutions.

Ontario residents will have until September 29 th to let the government know if they think the switches go far enough.

Tom Cooper is director of the Hamilton Roundtable for Poverty Reduction and coordinator of the Ontario Living Wage Network.

We did the Math

Ontario payday loan reforms: a drop in the bucket

The Ontario government has announced some modest reforms to lower the shocking interest rates charged to customers of payday loan companies.

Many people who rely on payday loans have no other place to turn in a financial emergency and over the past 20 years, the payday loan industry has been only too impatient to prey on desperation.

There are more than 800 payday lending outlets in Ontario and every year inbetween $1.1 and $1.Five billion in payday loans are issued to 400,000 people in this province.

Through a regulatory switch, the Ontario government is ultimately planning to amend the Payday Loan Act and reduce the total cost of borrowing from $21 to $Eighteen on every $100 in payday loans, kicking off January 1, 2018. It would further reduce the amount to $15 on every $100 on January 1, 2018.

Will the announced switches make a difference for people fighting to escape the cycle of strong debt inflicted by predatory lending?

Consider this: While a $21 fee on $100 of borrowed money may seem like a manageable sum, loans are provided for a very limited time period — usually two weeks is the maximum term of the loan.

When annualized, the interest rates these payday lenders are charging is actually closer to 550 per cent. Many customers fall hundreds, even thousands of dollars in debt to payday lenders before they know what hit them.

Even with the proposed reduction in fees in Ontario, payday loan companies will still be able to charge customers what will amount to a whopping 391 per cent annualized rate of interest.

This is made possible thanks to switches to the Criminal Code of Canada in 2007, which enabled companies to exceed the criminal rate of interest (set at 60 per cent annually).

For almost two decades the payday loan industry has prospered under provincial jurisdiction in a vacuum of lax government oversight. As a result, borrowers of loans have been left fighting to manage debt and hold their lives together.

The business model of the payday lending industry is predicated on customers returning time and time again as they become ensnarled in a cycle of borrowing and repaying high-interest loans.

Other jurisdictions have taken a much tougher stance against predatory lenders. The province of Quebec thresholds annual interest rates for all lenders to 35 per cent annually. This has severely limited the growth of payday lending locations.

In the United States, several state governments, including Fresh York and Fresh Jersey, have put in place harsh confinements to make payday lending unprofitable. In Georgia, they’ve gone further: payday lending is explicitly prohibited and a disturbance of anti-racketeering laws.

While the payday loan industry might argue that if their brand of financial services were not suggested customers would turn underground, ample evidence from places where payday lending is banned would demonstrate that is simply not the case.

Lower interest rates are a step in the right direction, but much more needs to be done.

Ontario can demonstrate leadership by banning this predatory industry and ensuring residents have an chance to access financial services. Credit Unions and postal banking could be critical solutions.

Ontario residents will have until September 29 th to let the government know if they think the switches go far enough.

Tom Cooper is director of the Hamilton Roundtable for Poverty Reduction and coordinator of the Ontario Living Wage Network.

We did the Math

Ontario payday loan reforms: a drop in the bucket

The Ontario government has announced some modest reforms to lower the shocking interest rates charged to customers of payday loan companies.

Many people who rely on payday loans have no other place to turn in a financial emergency and over the past 20 years, the payday loan industry has been only too antsy to prey on desperation.

There are more than 800 payday lending outlets in Ontario and every year inbetween $1.1 and $1.Five billion in payday loans are issued to 400,000 people in this province.

Through a regulatory switch, the Ontario government is eventually planning to amend the Payday Loan Act and reduce the total cost of borrowing from $21 to $Eighteen on every $100 in payday loans, beginning January 1, 2018. It would further reduce the amount to $15 on every $100 on January 1, 2018.

Will the announced switches make a difference for people fighting to escape the cycle of intense debt inflicted by predatory lending?

Consider this: While a $21 fee on $100 of borrowed money may seem like a manageable sum, loans are provided for a very limited time period — usually two weeks is the maximum term of the loan.

When annualized, the interest rates these payday lenders are charging is actually closer to 550 per cent. Many customers fall hundreds, even thousands of dollars in debt to payday lenders before they know what hit them.

Even with the proposed reduction in fees in Ontario, payday loan companies will still be able to charge customers what will amount to a whopping 391 per cent annualized rate of interest.

This is made possible thanks to switches to the Criminal Code of Canada in 2007, which enabled companies to exceed the criminal rate of interest (set at 60 per cent annually).

For almost two decades the payday loan industry has prospered under provincial jurisdiction in a vacuum of lax government oversight. As a result, borrowers of loans have been left fighting to manage debt and hold their lives together.

The business model of the payday lending industry is predicated on customers returning time and time again as they become ensnarled in a cycle of borrowing and repaying high-interest loans.

Other jurisdictions have taken a much tougher stance against predatory lenders. The province of Quebec boundaries annual interest rates for all lenders to 35 per cent annually. This has severely limited the growth of payday lending locations.

In the United States, several state governments, including Fresh York and Fresh Jersey, have put in place raunchy confinements to make payday lending unprofitable. In Georgia, they’ve gone further: payday lending is explicitly prohibited and a disturbance of anti-racketeering laws.

While the payday loan industry might argue that if their brand of financial services were not suggested customers would turn underground, ample evidence from places where payday lending is banned would demonstrate that is simply not the case.

Lower interest rates are a step in the right direction, but much more needs to be done.

Ontario can display leadership by banning this predatory industry and ensuring residents have an chance to access financial services. Credit Unions and postal banking could be critical solutions.

Ontario residents will have until September 29 th to let the government know if they think the switches go far enough.

Tom Cooper is director of the Hamilton Roundtable for Poverty Reduction and coordinator of the Ontario Living Wage Network.

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