Ottawa moved step closer towards restricting the high concentration of payday loan outlets in some of Ottawa’s poorest neighbourhoods on Wednesday, following the city council approving Mayor Jim Watson’s motion instructing staff to formulate a new set of rules to govern payday lenders and to control the expanding sector of the high-interest lenders.
Although payday lenders have been around since the 1990’s, it was the financial crash of 2008, that saw a boom in their use. Banks were forced to tighten up their lending policies which made it harder for those with poor credit, lack of security or income verification, to obtain lines of credit. The increased reliance on payday lenders and merchant cash advance loans, combined with the lack of governance and regulation, led to a number of horror stories throughout Canada, of people being taken advantage of. After reports of people being made to pay back $10,000 after borrowing $1400 and how a $200 payday loan turned into a $31,000 debt, new rules were enacted in Ontario in January 2017, restricting payday lenders to charging a maximum of $18 for every $100 that is borrowed.
However, the payday outlets which Mayor Jim Watson described as “prey on the poor and the vulnerable,” have grown considerably over the last few years, highly concentrated in the low-income neighbourhoods, most notably along Bank Street in Centretown and Montreal Road in Vanier.
The Ontario Municipal Act was recently passed, enabling cities to restrict the amount of physical payday lender outlets. Before this can be achieved, municipalities must change their zoning laws after consultation with the public.
City employees are looking at methods of at limiting the quantity of payday loan outlets, imposing costly licensing rules and even placing restrictions on the minimum distance permittable between payday loan outlets. The recommendations are expected to made to the council early next year.
Making it more costly and difficult for the payday loans to operate is something currently being mused over by the city of Toronto. Earlier this month, a report released by the city’s Municipal Licensing and Standards department, recommended that Toronto start licensing payday loan outlets, as well as capping the number of payday stores operating in Toronto to a maximum of 207.
Councillor Joe Mihevc, the city council’s poverty reduction advocate, called the whole payday industry a “predatory industry,” citing the number of outlets as a big problem. “We all know that it’s usually very desperate people who go to these payday loan locations,” Mihevc said. “And the way they situate themselves is in areas where there is increasing poverty.”
However, there appears to be a slight battle ensuing with Tony Irwin, the president and CEO of the Canadian Consumer Finance Association, saying the proposed city regulations could be “overly burdensome” to payday loan outlets which provide a popular and needed service.
“Our members provide credit to people who can’t get it from anywhere else,” Irwin said.
Debt consolidation is big business and not just in Canada. Similar restrictions over what could be charged and how pay day lenders operated in the UK, saw leading payday lenders, report huge losses after restrictions were applied.