Payday loans are making headlines in Hamilton, ON, which also happens to be the city that HQ’s the Canadian Payday Loan Association.
Hamilton is making the news recently as it could become the very first city in Ontario to regulate payday loan retail stores at a municipal level. The reason? City councillors think that there are too many. If new city-level legislation was brought in, it could form a precedent for other municipalities to follow.
As we discussed a few weeks back, payday loans are making news all over Ontario this summer as the Ministry of Consumer Services opened up a forum to stakeholders, consumers and businesses to find a way to build more or improve upon already existing payday loan legislation in the province.
Of course, we are keeping an eye on what is happening in Hamilton out of curiosity, though GoDay.ca does not operate any store-front lenders at all. The debate, thus far, has gone as expected, and there are more than just two sides of the coin.
There are the citizens who are fighting for legislation, or outright banning, of payday lending. These citizens often either have never had to take out a short term loan or they have, but were unfortunately affected by bad practices.
However, those who have never taken out a payday loan don’t seem to realize that those who need it often don’t have any other choice, nor do they realize that lenders are taking an enormous risk on someone they don’t know – banks have way more protections in place (and deeper pockets) to mitigate risk. Short term lenders don’t have either.
Additionally, just because some companies may have “behaved badly” does not mean banning payday loans all together will solve the problem. That is a “throwing the baby out with the bathwater ” approach that never works in any circumstance. The demand will not just disappear overnight if payday lenders are banned.
Over-legislating is also a bad idea. One needs to only look at what is happening in the United Kingdom right now to see evidence of that (up to 80% of those who used to get payday loans are now being rejected under the new rules in the U.K, and 8% have gone to truly illegal lending – yes, real loan sharks – for their financial needs). Do we believe that regulations needed to be tightened across the pond? Absolutely. But now we see what happens when it goes too far.
There are also those who misrepresent the facts, or, are only showing one side of the story. The facts being represented in news articles about the ongoing’s in Hamilton present them in a generalized way. How Money Mart operates, for example, is not the same way as Wonga operates, which is not the same way as GoDay.ca operates. You get the point.
While some lenders may lend money to those with existing payday loans with another company, some don’t. While some lenders may provide loans to those who make less than $30,000 a year, some do not.
If there is going to be a truly open and honest discussion about the state of payday loans, whether on the retail front or not, then facts need to be presented accurately within their right context. Sweeping generalizations do not solve anything.
And while suggestions of “fixing the system” so consumers don’t have to depend on short term lending sound good, the same argument could be made to fix the system enough so we don’t need credit cards or mortgages. For now, there is a demand for cash that traditional banks are not meeting, and perhaps that is for a reason.
We hope, moving forward, that all stakeholders in the payday loan situation in Hamilton will come to an agreement that benefits all; protects the consumer while also allowing a business to operate that meets a clear demand.