In 2019, Shelly-Ann Allan’s bank refused to lend her the money she needed to pay for her father’s funeral, so she had to turn to a payday loan company.
But what she didn’t take into account was the death of her stepfather shortly afterwards. She had to take out another payday loan in addition to the one that still had a balance of $1,500.
“Interest rates [have] built and built on me, and that’s where it’s affecting me right now,” said Allan, who lives near Jane and Finch, an area of the city that has a disproportionate number of payday loan companies.
Critics say the concentration of these companies in low-income communities helps perpetuate the cycle of poverty. That’s why Toronto City Council is discussing a recommendation from its housing and planning committee this week that would ban new payday lending establishments from locating within 500 meters of social services offices, public housing, liquor stores, casinos and pawnshops.
According to Allan’s contract with payday loan company easyfinancial, her cumulative interest rate is now 47% and she now owes $24,000. She says people where she lives need more than just zoning restrictions to restrict payday lenders, they also need financial institutions that will lend them money at reasonable interest rates.
“People like me…the bank wouldn’t look at me to lend, because they said I wouldn’t be able to pay that money back,” Allan said.
Currently, lenders in Ontario cannot charge more than $15 in interest for every $100 borrowed.
Despite this, Andreas Park, a professor of finance at the University of Toronto, says annual percentage rates can reach over 400% for short-term payday loans, and additional interest can be charged if the loan fails. is not repaid at the end of the term, according to the Payday Loans Act.
A 2021 report by city staff indicates that the zoning restrictions would only apply to new establishments and could not apply retroactively to existing establishments.
In 2018, the city capped the number of payday loan licenses and locations. The city says this contributed to a decrease of more than 20% of these establishments, from 212 to 165 as of January 26. But a new supplementary report released days before the city council meeting this week shows that the remaining movements of payday outlets have been limited, with only three movements since the city introduced these restrictions.
Staff recommended finding “improvements in consumer protection and access to low-cost financial services” as a way to regulate the industry.
Com. Anthony Perruzza, who represents Ward 7, Humber River-Black Creek, says it’s all part of the city’s Poverty Reduction Initiative.
“But that plan is still being worked on, and there are still a few years to work out.”
Park says zoning restrictions against businesses are limited in their ability to get to the heart of the problem.
“It’s quite striking that these payday lenders are so prevalent in poor neighborhoods and there isn’t a better service on offer,” said Park, who agrees that vulnerable groups need better access to loans at reasonable interest rates.
“Why haven’t we put systems in place that help them overcome some of the challenges they face? »
ACORN Toronto, an advocacy organization for low- and middle-income groups, says that while it welcomes the reduction in payday loan points, the city should follow Ottawa and Hamilton, who have already put restrictions in place. zoning.
“The more frequently residents see these businesses, the more likely they are to consider accessing the high compound interest loans,” wrote Donna Borden, director of East York ACORN, in a letter to the city.
“We think it’s not about planning logic, but about equity, human rights and fair banking.”
The City needs federal and provincial help
The last time the council discussed this topic was in December 2020, where it made numerous requests to the federal government to strengthen enforcement against predatory lending and to the province to provide options for cheaper loans to consumers.
The Ontario government told CBC News it is considering feedback from a 2021 consultation with stakeholders and the public on ways to address the issue.
Additionally, the Federal Department of Finance said in an emailed statement that the government is considering cracking down on predatory lenders by lowering the criminal interest rate, which is now set at 60%. However, payday lenders are exempt from this provision in provinces that have their own financial regulatory system, such as Ontario.
Perruzza says these lenders are predatory and need to be regulated at all levels of government, especially in the wake of COVID-19.
“We really need to impress upon the federal and provincial governments that this is a huge problem and that they need to use their legislative tools at their disposal.”