Surprising Results of Payday Loan Customer Survey
*Customers are well educated and deliberate in choosing payday loans*
- PUBLICATION: The Toronto Star
- DATE: Monday, November 26, 2007
The editorial pages of the Toronto Star have raised valid questions about the options for some Ontarians who find themselves short of money between pay days.
We know from previous research that upwards of 2 million Canadians have taken out a payday loan to make ends meet between pay cheques.
The Canadian Payday Loan Association (CPLA) represents a group of companies in the industry who are serious about doing what's right and working with government to balance tough consumer measures with a viable industry. Members of the Association voluntarily shun bad practices and submit themselves to stiff fines for breaking established rules. But we've always said that only government regulation will clean up the whole industry - including the majority of companies who don't play by our own strict rules to protect consumers.
Before I accepted the job as President of the Canadian Payday Loan Association a year ago, my opinion of payday loan operations was pretty low. As a former federal Minister of Revenue and Member of Parliament in Hamilton for 16 years, all I really knew about these companies was what I read in newspapers.
Take last week's editorial in the Toronto Star (Cap Rates Charged by Payday Lenders) for example. It would appear that payday loan companies, "target Canadians who live cheque to cheque,"…"leading to a vicious cycle of debt." We're led to believe that payday lenders "prey on those who can least afford it," and routinely "rely on customer's inability to pay back loans." Sounds pretty bad until you look beyond the headlines.
I did my own homework before joining the CPLA and made it clear that I wanted independent research done on why anyone would use a payday loan. We hired Pollara - one of Canada's leading polling companies and had them conduct the first-ever survey of payday loan customers in Ontario.
Pollara pollster Michael Marzolini has been polling for more than 25 years - including for some of Canada's biggest financial institutions. And as Michael told the media this week, "I'm amazed at what we heard. This new data is important and carries more weight than the usual anecdotes, 'gut hunches' and speculation we see around this industry."
We saw some things we expected. The average payday loan customer has about $23,500 in debt with banks and credit card companies - not including their mortgage. And compared to other financial products, customers know that payday loans are more expensive.
But after that, the responses of payday loan customers began to frame a very important and untold story of "WHO" a typical customer is and "WHY" they would use a payday loan over a cheaper alternative.
Customers deliberately choose payday loans over products available at banks or credit unions because payday loan outlets have better hours of operation, are more convenient, easier to use and offer better customer service. Customers only rate banks higher than payday loan companies on the issue of "good value".
Recent focus groups with customers shone more light on the findings. They said that they often only need a small amount of money until their next payday (2/3 of customers typically borrow less than $300) and neither banks or credit unions offer small-sum loans.
Unlike what you would expect, 78% of customers have always paid back their loan on time, with another 17% saying they have paid back "almost" all their loans on time. 96% have bank accounts. 60% have savings accounts. 57% have car loans. 55% have personal loans with banks or credit unions. 52% have major credit cards. 42% have overdraft protection. These are customers with many credit options.
More than half have completed university education and their household incomes almost exactly mirror the average Ontario household when you compare Pollara's data with Statistics Canada.
This doesn't sound like a poor, uneducated person who doesn't know what they're getting into. In fact, the average payday loan customer is an average Ontarian - educated - and deliberate in choosing a payday loan over other available products.
Now, there is no doubt that horror stories exist. Some unscrupulous players need to be reigned in. That's why the CPLA has been calling for government regulation and is working closely with the Ontario government to set regulations and fees that balance consumer protection with a viable, competitive industry.
We commissioned studies by Ernst and Young and Deloitte and Touche to help determine what reasonable fees would be. These companies examined the hard costs of doing business. Both came to the independent conclusions that there is a high cost of running a business that deals in small sum, short-term loans. They have identified the COST of providing a loan as high as $26 per $100 lent.
Some people - even the Toronto Star - have called for a 36% rate cap. On a $100 loan for a week, this would add up to about 69 cents - far below even the low-end of costs identified by Ernst and Young. Other jurisdictions in Canada and the U.S. are setting rates as a simply understood $ per $100. With mandatory signage in stores, this will allow consumers to shop comparatively between stores and compare apples to apples.
The CPLA is working closely with the Ontario government to ensure rates are set a level that protect consumers but allow the industry to provide this legitimate, mainstream convenience financial service. This follows examples of responsible legislation introduced by provincial governments in Manitoba, Saskatchewan, British Columbia and Nova Scotia. And the CPLA will continue to publish new data - like our new survey of payday loan customers - to shine new light on this misunderstood and important industry.