The last thing one would expect to find in affluent Oakville is a booming market for payday loans.
But demand for the service is high in this posh little Toronto bedroom community of nearly 200,000 people. In fact, Oakville has eight payday loan outlets.
Preying on the poor?
Much has been written about the the usurious nature of payday loan companies. Painted as legal “loan sharks”, these businesses are consistently attacked for lending money at outrageous levels of interest to desperate people who have no other option.
Borrowers are charged 21 per cent interest for a two-week loan. At an annualized rate, the customer is being charged 546 per cent.
Despite the controversy, the Ontario government allows these companies to operate and through the Payday Loans Act, sanctions the fees. The reason lies in the fact that payday loan companies provide a service to the public that would otherwise be unavailable.
When people need quick access to a short-term loan and can’t borrow from a bank, they often turn to a cash advance company for assistance.
What are payday loans and who uses them?
Small loans of a few hundred dollars are typically issued for a period of two weeks. The fees for tapping this source of cash make the loans expensive – normally $21 for every $100 borrowed – but many people in Oakville still use the service.
Making ends meet
“Most people live paycheque to paycheque and once in a while they get caught short,” said the clerk at Cash4You, one of four payday loan companies located within a five-minute walk of the corner of Kerr and Speers in central Oakville. She asked to remain anonymous.
Borrowers come from all walks of life and have a variety of reasons for borrowing cash. The outlet is open seven days a week and gives customers extended-hour access to the money.
If local residents have a cash crunch on the weekend and they need to pay a bill, or fix their car before Monday, the easiest way to access the cash is to use this service.
Any person with a job and a bank account can borrow up to $1500 in a matter of minutes. The customer writes a post-dated cheque for the amount borrowed plus the service fee. When the borrower’s payday arrives, the company cashes the cheque.
Cash4You offers a range of other services such as immediate bill payments, cheque cashing, pre-paid VISA cards, and Western Union money transfers. All come with a hefty fee, but customers like the convenience and immediate service.
One customer, who asked not to be identified, uses the services on a regular basis. He works close to the payday stores and pops in to pay his bills or cash a cheque during his break. The service is fast, reliable and without judgment.
A friendly face
In fact, some of the customers claim they feel a sense of friendship with the staff.
“Sometimes, if things aren’t too busy, they’ll chat with me for ten or fifteen minutes – sometimes half an hour,” said Marina Petrova, general manager at CashMart, on Oakville’s Kerr St.
Petrova’s customers also come from all levels of Oakville’s socio-economic ranks. She estimates that 60 per cent are low income, 35 per cent are middle class and five per cent are high income.
Some are single parents who need to buy groceries or pay for a school trip for their kids. Others are looking for secrecy and don’t want their spouses to know about an expense. A few have substance abuse problems.
“Rent is another popular reason,” Petrova said.
The dark side of payday loans
Customers who default on the loan are part of the reason for the exorbitant fees.
Many are honest people who just can’t come up with the funds, but fraud is also an issue.
Roughly a third of CashMart’s customers bounce the cheque and Petrova spends a lot of time chasing people down for the money they owe her. She writes them letters, drives to their houses, calls their family members and even shows up at their places of employment.
Sometimes she takes them to court. “If they owe me more than $1000 it is worth the trouble to go to court,” she said.
In January she won three cases. Because she is diligent, Petrova manages to recoup the money from a third of the delinquent customers. So, roughly 20 per cent of the customers disappear without ever paying.
In rare cases, fraud is carefully planned. Customers will set up accounts, have paycheques deposited to build a history, take payday loans from all the stores and then close the account and disappear.
Petrova feels the government should provide more protection for the payday loan companies.
That doesn’t appear likely anytime soon.
In fact, the industry has been under intense political scrutiny over the past year as the Ontario government implements tighter restrictions.
Breaking the rules
Cash Store Financial Services, located just one door down from CashMart, has over 200 locations in Ontario and has been in trouble with the government for allegedly breaking the rules outlined in the 2008 Ontario Payday Loans Act.
On Feb. 4, 2013 the Ontario Registrar of Payday Loans issued a proposal to revoke the payday lender licences issued to Cash Store Financial Services. The government alleged Cash Store charged customers more than the maximum $21 for every $100 borrowed.
To by-pass the Ontario Payday Loans Act, Cash Store began offering small lines of credit, which the company claimed are exempt from the Act.
In December 2013, the government amended the Ontario Payday Loans Act to include small lines of credit. Cash Store responded by saying it would comply. The new rules take effect on Feb. 15, 2014.
The employee at Oakville’s Cash Store would not comment on the issue.
Photos, video and interactive graphic: Andrew Scott Walker