Response Letter to Editor: Payday loans can be responsible

  • Letter to the Editor
  • RESPONSE LETTER
  • PUBLICATION: The Hamilton Spectator
  • DATE: Friday, July 17, 2009

Re: Repeat business on payday loans (July 10, 2009)

The findings cited from the U.S. study referred to in this article leave readers with the impression that responsible use of payday loans just isn’t possible. On behalf of the 22 companies that are members of the Canadian Payday Loan Association – and their customers – we wholeheartedly disagree.

There are a number of things that bear noting. First and foremost, the payday loan product is seen as a legitimate financial option for consumers in Canada – with eight provinces having moved so far to regulate the product. Ontario’s own regulations came into effect on July 1st, with a package of measures designed to protect consumers and ensure there is an industry there to serve them.

It’s also important to note that the vast majority of payday loan customers pay their loans back on time. The product doesn’t trap them in debt – on the contrary, it provides a convenient source of credit to those who need it, when they need it. We don’t dictate to consumers about how often they should make a credit card purchase, or tap into their line of credit – so why single out the responsible use of payday loans if that’s what the consumer has decided is best for them?

Moreover, the suggestion that a customer has to “sign over” their paycheque in order in exchange for cash is simply false. To qualify for a payday loan, a customer must be employed and have a bank account – and provide a post-date cheque intended to cover off the cost of the loan on their next payday. It’s that simple.

One other item of note: the article doesn’t mention that alternatives such as default or NSF fees charged by banks and credit unions can be quite costly. In fact, in 2005 the Centre for Responsible Lending estimated that U.S. consumers were paying at least $10 billion per year or as much as $22.7 billion just for overdraft loans – calling them a “huge and growing expense for banking customers”.

This says a lot about providing a wide range of options for consumers and allowing them to choose.

Stan Keyes, President, Canadian Payday Loan Association, Hamilton



Original article
Repeat business on payday loans
The Hamilton Spectator
July 10, 2009
NANCY TREJOS (WASHINGTON POST)

A new study by the Center for Responsible Lending has found that a majority of United States borrowers who take out payday loans have to seek a new loan shortly after paying back the original debt because repayment left them with inadequate funds for other needs.

Payday loans require borrowers to sign over their next paycheque in exchange for a cash advance of a few hundred dollars with an interest rate as high as 400 per cent.

The release of yesterday's report examined the loan activity of the more than 80 per cent of borrowers who take out more than one payday loan a year. The borrowers generally opened new loans soon after repaying the old one, with 87 per cent of all new loans occurring during the next pay period.

Nearly 59 million loans totalling more than $20 billion US fit this pattern, accounting for three-quarters of all payday loan volume, the study found. The loans resulted in $3.5 billion worth of fees each year.