It's about time! I know in Saskatchewan and Quebec, there are tighter provincial regulations on these loansharks, but not enough elsewhere.

Low income people are in a lose lose situation and chartered banks are leaving their neighbourhoods which gives them no choice really.

I noticed this is in the Federal NDP's policy platform for the upcoming Fed election campaign and I am happy to see it.

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CBC St John's story

Payday loan companies sued
WebPosted Mar 23 2004 04:11 PM NST
ST. JOHN'S  —  Ches Crosbie, a St. John's lawyer, has filed class-action lawsuits against two money-lending companies.

At a news conference Tuesday, Crosbie announced he's begun the actions against Money Mart and Quik Cash Ltd, both of which provide short-term loans or advances against pay cheques.

Randy Bellows is the lead client under which the claims have been filed. He says he borrowed money from both companies during 2002 and 2003 and ended up paying exorbitant interest rates.

Bellows says he needed cash to buy a suit for his father's funeral, so he went to Quick Cash. He started out with a $200 loan.

He says in order to repay the loan, interest and service charges, he borrowed from Money Mart.

Within a few months, Bellows says he owed $700 on $400 in loans.

Financial nightmare

"It was a complete nightmare, it was nothing but a constant worry, it was a stress," Bellows says.

"It affected my personal relationships with people – always worrying about money, always worrying about the repercussions from these companies."

Crosbie says the actions filed by Bellows are on behalf of everyone in the province who has taken out a loan from one of the companies and paid more than the 60 per cent annual rate of interest allowed under the Criminal Code.

Al Antle, a personal credit counsellor, says the additional fees charged by payday loan companies often push the interest rate above the legal limit.

So far, Bellows is the only person who has joined the class actions.

He wants both companies to pay back the interest charges. Crosbie is also asking the Supreme Court to stop the companies from charging what he says can amount to 1,000-per cent in interest and fees.

Money Mart is part of an international company based in the United States. Quik Cash has its headquarters in Newfoundland.

How much does it cost?

Payday loans are $20 to $30 per hundred dollars borrowed until your payday, depending on individual circumstances and locale.

wanna do the math

[ 24 March 2004: Message edited by: redshift ]

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He says in order to repay the loan, interest and service charges, he borrowed from Money Mart.

Within a few months, Bellows says he owed $700 on $400 in loans.

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I think that Money Mart makes it pretty clear that they're in the short term loan business. In fact their basic services seem to be cheque cashing (at a modest 3% for official cheques and 8% for personal, plus service fees) and payday advances.

If you don't know when, or even if, you'll be able to repay your advance, you're better off not using the service. And I'm sorry, but borrowing from another short term loan service to pay off part of your original loan is only going to make it worse.
I think that outfits like Money Mart aren't out of line to charge significantly more than a bank might. After all, they're basically cashing personal cheques for people who just walk in off the street. They're assuming the risks that banks won't.

However, I wonder how realistic this lawsuit is. If you use the services don't you sign something that explains what you have agreed to? They are moneysucking loan sharks, no better than a character in the Sopranos but then if you go there you get burned, can you claim ignorance?

[ 24 March 2004: Message edited by: kuba ]

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Money Mart preys on poor people who are having trouble making it from payday to payday. Look at what the guy bought a suit for his Dad's funeral!

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An example almost too good to be true. But do you genuinely believe that Money Mart makes most of it's profit skimming from people buying crutches for Tiny Tim and medicine for their poor sick granny?

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But do you genuinely believe that Money Mart makes most of it's profit skimming from people buying crutches for Tiny Tim and medicine for their poor sick granny?

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This occurs to me after noticing a sign in the window of a social service agency in a church I pass on my way to work. The sign advertises voicemail for people without a phone. They pay $3 per month to have 5 voicemail boxes that they can give to prospective employers, government agencies, friends and relatives, etc.

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Here's a question: why don't social service agencies provide this kind of service, but without the fees and interest?

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It's not like they're actually spending the money... it goes out and comes back and goes out and comes back.

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to pretend to borrow $150 until next payday in 2 weeks, the total of fees and interest was about $24. That's not so bad

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That's how interest is calculated for the purposes of lending money, whether it be for a loan or a bank account. Don't be fooled by the fact that the loan sharks are choosing to state their interest rates in a deliberately confusing manner.

Im thinking that the money marts (something I never remember seeing except in the last few years) are the looters of today. They take advantage of the fact that people live paycheck to paycheck or benefit check to benefit check and sometimes the timing of a bill does not coincide with the paycheck (happens to me frequently).

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What interest rate do you receive from a savings account?

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Let's assume a fairly generous 2% (I checked RBC.com, but couldn't find anything more accurate) and do the math the other way then.

If Money Mart lent you $150 for 2 weeks at 2%/annum, you'd owe Money Mart $150.12 at the end of the two weeks.

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Originally posted by Mr. Magoo:
Here's a question: why don't social service agencies provide this kind of service, but without the fees and interest?

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Originally posted by Bacchus:
Um I dont think you can compare it to a yearly loan since it is not a yearly loan. The interest rate for the contracted time period was 16%. presumably if he needed a longer time period for a loan, he would contact a financial institution that handled long term loans. Lets make sure we are looking at apples and apples not apples and oranges

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Doesn't matter. The law says you cannot charge more than 60% on an annual basis. Period.

It doesn't matter how the interest rate is stated, whether in terms of a flat fee per $100 or in terms of a daily rate. If it annualizes to more than 60%, it's illegal.

[ 24 March 2004: Message edited by: DrConway ]

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Here's a question: why don't social service agencies provide this kind of service, but without the fees and interest?

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Erm because people would NEVER pay the government back. Seriously, the government has a hard enough time recovering overpayments of social programs, and it is very expensive and time consuming.

People abuse programs enough as it is, sorry to have to say.

The utter lack of interest in giving welfare and disability recipients the skills they need beyond just admonitions to lie on one's resume (BC's Social Services people used to tell people to claim grade 12 graduation even if they dropped out), and to take the first shitty low-wage job that comes along, is endemic in social service agencies in Canada, and it's particularly grating when people use this kind of circular circumstance^(*) as a reason to infantilize and demean welfare recipients by grudgingly slapping a check in their hands once a month and refusing to shield them from the depredations of payday loan companies and/or check cashing companies.

^(*) That is, the lack of real skills training coupled with the obvious budgeting difficulties these people have.

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PS. I have my own beef with Money Mart. If you cash a Money Mart money order at a Money Mart the fucking bastards still clip you a buck-forty-nine plus the 3% fee for cashing a check.

[ 24 March 2004: Message edited by: DrConway ]

A system of borrowing in advance of a welfare check could easily work like this:

Welfare recipient urgently needs $X in advance. Social services gives $X to recipient, and then deducts it off the regular welfare check.

And they spent two months of Social Assistance on one hit? And now they have to go to the food bank and they get evicted because they can't pay rent?

[edited to add:]

Also, advances on a welfare cheque are limited to $20 a month, for food. This can create interesting situations when a recipient enters the system out of phase with check cutoffs and issue dates. I remember going to tribunal a couple of times over this.

[ 24 March 2004: Message edited by: verbatim ]

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Magoo, that is a false analagy, no financial institution lends and borrows at the same rate, of course there is a spread.

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I was responding to a poster above me.

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The same service can be profitable at a much lower rate, their rates are disgusting.

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Let's look at the math again, using more appropriate numbers. Having found that 2% over two weeks would yield a profit of 12 cents for Money Mart, further math should be easy.

A rate of 20%, comparable to your credit card, would see Money Mart pocket a profit of $1.20 for your two week loan of $150. If only one person in a hundred does not pay back the loan then they will have eaten up all profit from the other 99 and then some.

A rate of 40% would yield profits of $2.40, and now if one out of every hundred borrowers absconds with the cash, Money Mart will still show some profit, but whether it's enough to pay the light bill is another story. If one out of every 50 borrowers is a bad risk, they're back to being in the red.

A rate of 60%, at the cusp of legality, would return a whopping $3.60 in profit for every borrower who repaid. Still, if even 1/30th of the borrowers turn out to be bad risks, the profit's gone.

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The good news being that you'll never have to pay $20 to borrow $150 again! The bad news being that even if you really, really need that $150, tough luck.

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Magoo, try to stay in character. These people will have to tighten their belts, suck it up, get off their lazy behinds and go get jobs.

Using your example of $24 cost on a $150 transaction, if you assume a fee of $12 and interest of $12 still results in an effective annual interest rate of over 200%. At a $5 fee and 25% interest rate the cost would be $6.44/transaction (assuming a 2 week period), therefore there would have to be a default rate of over 1/4 to result in negative gross margin.

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For a society devoted to fairness and nondiscrimination--as well as the quintessentially American goal of homeownership--the prices, terms, and overall economic impact that we see in predatory home mortgage loans cannot be justified. They are just plain wrong. And, quite apart from the values issue, it is difficult to imagine a less rational, less efficient economic practice than lending of this sort. At the micro-level, it results in a gross misallocation of costs--imposing higher costs than the market requires on those least able to bear them. At the macro-level, it denies lower-cost capital to whole classes of persons who would otherwise qualify for it and to neighborhoods whose economic vitality depends on it. In these circumstances, government must step in to curb predatory lending and encourage the flow of fairly priced capital to sectors where it is needed and will be well-used.

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Using your example of $24 cost on a $150 transaction, if you assume a fee of $12 and interest of $12 still results in an effective
annual interest rate of over 200%. At a $5 fee and 25% interest rate the cost would be $6.44/transaction (assuming a 2 week period), therefore there would have to be a default rate of over 1/4 to result in negative gross margin.

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Well, if jerrymandering is permitted under the law, they could also institute a $23 "fee", claim a dollar in interest, and still pull in $24 for a $150 transaction.

And if the profit to MM were $6.44 on a $150 loan then only 1 in 25 people would have to default in order to eat up any profitability.

$6.44 profit X 24 = $154.56 profit

$154.56 - $156.44 default = $1.88 in the hole.

Now I recall vaguely of my mathematics of finance class that there's a way to factor in such a rate, but I forget how.

If 25 people borrow $150 from Money Mart, and if Money Mart charges fees and interest such that each pays back the principal, as well as $6.44, then Money Mart stands to profit by ($6.44 X 25), which works out to $161.00 exactly.

If, on the other hand, one of those 25 skips off with the $150, and the $6.44, then Money Mart's profit is ($161 - $6.44) = $154.56, but of course they just lost $150 of their capital too, so their profit is effectively shot.

As well, Magoo, I said that $6.44 was cost to the consumer and gross margin not profit. Gross margin is calculated before costs.

I had a similar question to above, and I asked it once already. At Money Mart, do you sign an agreement? If so, its a legal document... isn't it? Is the onus on the M.M. customer to know what they are signing?

That being said, I still think Money Mart prey on the poor and disadvantaged.

Why does everyone want to make this a social services issue?

Does no one remember the days when the motherraping Chartered Banks used to provide customer services?

Like cashing gawddamned cheques that have their own gawdamned logos on them?

It is the fact that they've been allowed to abdicate their obligations (you know, the ones we as a society impose upon them for the right to function under our charters) that has allowed the bottomfeeders like Money Mart to thrive.

While the major Canadian banks have thrived by supporting the likes of Enron, instead of Canadian industry.

Read a history book.

The law says 60%, which is beyond argument, way to high to begin with. And if you think Pawn Shops, Money Mart or Quick Cash are bad, do the math on a "Rent to Own" deal.

The only time I wouldn't piss on these entrepeneurs is if they were on fire.

For the record, I am having to fork out dollars to defend against a money-grab lawsuit targetted at the industry. The suit is very poorly organized , and in order to find someone - anyone - who could help them get this certified they apparently scoured small claims court databases to find people. So they're trying to introduce a matter that's already been decided by the Court and use it as "evidence" the other way in another suit. We'll see how that plays out. But it's obvious to everyone (I hope) that this isn't about protecting the world from high interest. It's about lawyers trying to get their name in print and spooking corporations into settling the suits, and the lawyers would come out of any settlement with far more money than anyone. Of course the industry is defending itself vigorously, and rightfully so.

Obviously my own opinion is that there are no laws being broken whatsoever.

As for the socialist aspects, I have helped far more people get the money for car repairs or saved them from getting a utility shut off than I have people who get themselves into a situation where they continue to roll-over the loan endlessly.

There is much talk about regulating of the industry (government officials met in Winnipeg in January to discuss it), and there is a new association being formed headed by Money Mart, The Cash Store, Instaloans and UniCash that will represent us as an industry on all fronts - including helping the government in their regulation of the industry. Their initial meeting was March 11th in Vancouver.

I'm all for regulation aside from the fact that whenever government officials put their pointy little heads together and come up with a plan it has a tendency to do more harm than good. But we need to protect consumers and our businesses, so formal government regulations about payday lending are welcome by 90% of payday lenders that I've spoken to.

I'm not really sure where all the disdain comes from about our business.. yes the interest is high but we specifically state verbally, in writing, and every way we can that these loans are for emergency purposes only. If someone wants to get a loan to have extra spending money for their trip to Cuba (and believe me some have) well, from my point of view, they're adults and they can make that decision if they want to.

Lastly, I would like to completely scoff at the notion that we prey on the poor. At my company, we don't even offer loans to people who make less than $2k/mo at their jobs. We require employment, and a chequing account. And for those who do get "trapped" into the loan we give every incentive we can to help them pay it off as quickly as possible.

In summarizing everything I've read, some of your concerns are valid.. and some are just completely misinformed.

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Originally posted by lmnop:
There is much talk about regulating of the industry (government officials met in Winnipeg in January to discuss it), and there is a new association being formed headed by Money Mart, The Cash Store, Instaloans and UniCash that will represent us as an industry on all fronts - including helping the government in their regulation of the industry. Their initial meeting was March 11th in Vancouver.

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You should be saying that the industry will "help" the government write the regulations as loosely as possible.

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Lastly, I would like to completely scoff at the notion that we prey on the poor. At my company, we don't even offer loans to people who make less than $2k/mo at their jobs. We require employment, and a chequing account. And for those who do get "trapped" into the loan we give every incentive we can to help them pay it off as quickly as possible.

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I'm having a hard time deciding what's worse:

Stiffing people who need to borrow the money and will have the ability to repay it, just because they're not quite good enough,

OR

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Originally posted by DrConway:

You should be saying that the industry will "help" the government write the regulations as loosely as possible.

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I'm having a hard time deciding what's worse:

Stiffing people who need to borrow the money and will have the ability to repay it, just because they're not quite good enough,

OR

Lending the money anyway and happily piling on all the late charges and interest that comes when one out of every twenty unfortunate $1500/month souls can't quite come up with the dough fast enough.

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The association will be helping the government by giving the industry's point of view.. ultimately it will be up to the various governments to write the regulations..

And I really don't see it as "stiffing" anyone or being "good enough".. it's simply establishing lending criteria..

Looking at that article at the beginning of the thread, that gentleman had no problem accepting the money when he needed it to buy a suit and no one else would help.. but he balks at having to honour the agreement he made and gets in touch with an attorney..

Morally, it'd be like if he sold his bike for $300 to buy the suit, even though he knows it was worth more than that. He tried to get more, but no one would pay more than $300 at that time. He was stuck and really needed the money for this suit, so he relents and says "okay" and makes the agreement to sell the bike. Then after his emergency is over and he is allright, he hires a lawyer to sue because he's upset only got $300 for his bike.

Anyway I am just trying to provide a perspective from the other side of the table.