$280 till payday: The short-term loan industry says it provides a service the (average) Canadian needs, wants and appreciates
- The Vancouver Sun
- Wed 08 Jun 2005
- Page: A21
- Section: Editorial
- Byline: Bob Whitelaw
- Column: Bob Whitelaw
- Source: Special to the Sun
OTTAWA - Thousands of Canadians do it every day in cities and towns across Canada.
They like the personal service and appreciate the customer-friendly hours of operation. They use the service to pay unexpected bills like car repairs or to avoid late charges on a bill or a bounced cheque. They are the customers of Canada’s newest financial service -- the payday loan company.
Canada’s payday loan industry has served between 1.5 million and two million Canadians in the past three years and yet it still appears to be a relatively unknown and poorly understood financial service.
One of the most common misconceptions about our industry is who our customers are and why they use our services. Contrary to the popular stereotype, the demographic profile of payday loan customers is similar to the Canadian population as a whole.
Several studies on payday loan users, including a 2002 study conducted by the Public Interest Advocacy Centre, commissioned and funded by Industry Canada, found their annual household income is the same as the Canadian average; their level of education is the same or higher, and the employment rate is slightly higher.
Every payday loan customer must have an active bank account and a regular source of income to be eligible. That is why you will find our members’ outlets located in downtown and suburban retail malls. That is where our customers live and work.
The Canadian Association of Community Financial Service Providers (CACFS) was formed in early 2004 to raise public awareness and unify the industry. The association represents companies that in total have 750 outlets, or about 75 per cent of the industry, in Canada.
Our members provide consumers with small-sum, short-term credit, a cash advance until payday. The average loan requested by our customers is $280 and the average term for that loan is 10 days. The loans we provide are unsecured, which means we do not require the title to cars, TVs or homes to provide credit.
What do consumers use payday loans for? One U.S. survey, conducted by Cypress Research Group in May 2004, reported that the top three reasons were to take care of unexpected expenses, avoid late charges on bills and avoid bouncing cheques. While many consumers have other sources of credit, the most common reason consumers say they use payday lenders is because branches are open after normal banking hours and they like the personal service they receive.
The vast majority of our customers are satisfied with the services we provide; surveys that have been conducted on the industry show that. In fact, during my four-years as president of the Canadian Council of Better Business Bureaus from 2000 to 2004, not one single complaint about the payday loan industry was brought to my attention.
As part of its mandate, the CACFS is taking steps to ensure association members adhere to national standards of best business practices for the industry.
We developed a code for our members in consultation with government and other stakeholders. This code, which was introduced in November 2004, sets standards of conduct, disclosure and professionalism that association members must abide by when dealing with consumers. We have recently developed, and expanded, a tougher code that will be announced soon.
Our goal is to ensure consumers recognize the CACFS brand on the front door and our Code of Best Business Practices displayed in the store as a sign of a member in good standing. They will also know that they have the full support of a national organization created to unify and improve the industry, and protect consumers.
As an industry, we are committed to continuing our work with credit counselling agencies, consumer groups and government to ensure consumers have a better understanding of the appropriate use and cost of credit. We are working to raise public awareness about the industry and the customers we serve.
Consumer advocates and governments have all acknowledged that there is a need for payday loans. We believe the provision of this product must be governed by a regulatory framework.
To this end, we support regulation and welcome a fair and balanced regulatory environment that allows for a viable industry while providing effective consumer protection.
Bob Whitelaw is president and chief executive officer of the Canadian Association of Community Financial Service Providers in Ottawa.