Evidence of the Canadian Payday Loan Association
Delivered by the Hon. Stan Keyes - President of the CPLA
Delivered on Monday, November 19, 2007 to the Manitoba Public Utilities Board
November 19 2007
Good Morning. Mr. Chairman, members of the Board, thank you for the opportunity to provide comments on the CPLA evidence filed in this proceeding. My name is Stan Keyes. I am President of the Canadian Payday Loan Association, and with me today is Mr. Norm Bishop, Secretary to the CPLA.
Mr. Bishop and I intend to provide you with an overview of CPLA evidence. We also have with us the authors of the various expert evidence that we have provided in this proceeding. Mr. Michael Marzolini - Chairman of Canada's leading public opinion survey company - Pollara. Mr. Dean Schinkel of Deloitte & Touche and Dr. Larry Gould - Professor of Finance at the University of Manitoba. We would like to acknowledge them all and thank them for participating in this proceeding.
It would be appropriate if I provide you with a few words about the Canadian Payday Loan Association. The CPLA represents all sizes of lenders in this vibrant industry - from the smallest to the largest.
We represent 22 companies with 529 retail financial service outlets in rural and urban communities right across Canada. In Manitoba, the CPLA represents five companies with 24 outlets. There are another 11 companies in Manitoba who are non-members.
Our mandate as an Association has been to introduce consumer protection through our Code of Best Business Practices and advocate for balanced regulation of the industry. Our members support regulation that fosters a viable, competitive industry with strong consumer protection in order to provide services to those 2 million Canadians that have used payday loans. We believe in educated, informed consumers making informed decisions about their own money.
What binds our members together is a commitment to voluntarily follow a tough Code of Best Business Practices and submit themselves to independent oversight. It is the most stringent code for payday lenders - anywhere - and we are very proud of it. Our independent commissioner who monitors compliance with our Code conducts regular mystery shopping and has the authority to fine our members up to $30,000 per infraction of our Code.
As you can imagine, there are a number of payday loan companies that have chosen not to join our Association due to these onerous but important conditions of membership.
The CPLA is the only national Association that has worked closely with governments to introduce legislation and rules that protect consumers and make sense for the industry. We have been leading the call for legislation and regulations - not fighting it.
We continue to work closely with the Government of Manitoba and applaud them for their leadership in being the first province in the country to pass consumer protection legislation and launch hearings to set maximum allowable fees.
We acknowledge that the CPLA's Code of Best Business Practices is reflected in the new regulations that have been introduced in Manitoba.
We have filed our Code with the Board as part of our evidence and I would like to highlight five of the 18 specific consumer rights that our members follow.
The first is no rollovers. The second is limitation of default fees. In that regard, CPLA members may not charge a penalty fee or NSF fee that in total exceeds an amount set from time to time by the Association - which is currently $40. Interest on arrears for each $100 of a payday loan in default is not to exceed 90 cents per week for the first 13 weeks and 50 cents per week thereafter.
The third is that our members may not take title to chattels or assets of a borrower for security for repayment of payday loans. Fourth, consumers have the right to rescind a payday loan at no cost before the close of the following business day. We understand that the new regulations in Manitoba will extend this to two business days and we are in support of this right which expands upon our current business practices.
Finally, I would like to bring to your attention the credit counseling services that are available to consumers in Manitoba. Every member must have credit counseling brochures prominently displayed in their lobby. In Manitoba, members have brochures of Community Financial Counseling Services who were a presenter before the Board last week. Pursuant to our code, our members must advise customers who have defaulted twice within one year of credit counseling services and offer to forego accrual of interest if the customer obtains credit counseling.
I mentioned the independent oversight of this Code a few moments ago. The Office of the Independent Ethics and Integrity Commissioner was created close to two years ago to ensure compliance with the Code by our members. The Commissioner has a full-time compliance officer that receives complaints from customers and acts to effect resolution and recommend an investigation where required. This officer also seeks redress of complaints that are received of non-members.
The Commissioner conducts random, nation-wide mystery shops on members to verify compliance with the code. We understand that the Coalition in this proceeding has also attempted to conduct some mystery shopping with respect to information provided to consumers. The mystery shopping conducted by our independent commissioner is done independently by trained individuals who specifically look at the member's business practices to ensure the code of conduct is followed. For your information, some provincial consumer protection offices now refer all complaints they receive regarding payday loans to the Commissioner directly.
We strongly believe in educated consumers and we remain committed to continually increasing consumer awareness of available credit counseling assistance programs, provide standardized information to consumers about their rights, and set fees that are well published.
Let me now be more specific about the payday loan industry here in Manitoba.
In our evidence, we have provided a site map of locations of all payday lenders in the City of Winnipeg. Winnipeg is the home of approximately 52 of the 67 payday loan outlets in Manitoba and they are located in all geographic and economic areas of the city. 77% of Winnipeg outlets are located in areas with average annual household incomes of $35,000 and greater. A majority are located in areas with average annual household incomes higher than $45,000. By comparison, 12% of outlets are located where average annual household incomes are $25,000 or less.
This is consistent with what we will hear from Michael Marzolini.
Our evidence from Pollara clearly indicates that customers are educated, informed and deliberate in choosing the payday loan product. They consciously choose a payday loan even where they have available credit options at banks and credit unions.
Customers want the convenience of borrowing small sums of money for short periods of time - and they pay their loans back on time.
Customers in Winnipeg focus groups didn't appreciate the portrayal of them as poor, uneducated and not aware of what they were getting themselves into. The evidence provided by Pollara is the first-ever statistically relevant data collected on payday loan customers in Manitoba.
I will grant you - quite honestly - that I believe there are examples of payday loan customers that have been badly taken advantage of by unscrupulous and greedy payday loan companies. But this is not the experience for the majority of customers. I understand the attraction for the media and long-time critics of the industry who point to the worst and most abused payday loan customer. But I would ask everyone to closely consider our evidence - including Pollara's groundbreaking survey.
Fee caps that allow strong competition in the industry will allow customers choice in deciding where to obtain payday loans. Competition will likely keep fees below the established cap, with companies openly competing with each other for customers. This is healthy.
There was an opinion last week that competition does not exist in the industry today. That there are only two large players and a handful of mom and pop shops. This is not true. There are several mid-sized firms that are currently expanding. For example, I have spoken to the owners of EZ Cash Advance, Cash Money and Cash 4 You Corp.
EZ Cash Advance has doubled in size in each of the last 3 years - now with 33 locations.
Cash Money has 102 outlets - with 44 build in the last 3 years alone.
Cash 4 You Corp has opened 4 stores in 2006, 6 stores in 2007 and currently has a total of 17 stores.
The CPLA believes that the Board should, as its objective, ensure that the maximum fees it sets allow for a viable, competitive market that fosters competition so that consumers in all areas of Manitoba have access to credit at reasonable rates.
The CPLA has had a position on the issue of a reasonable rate since January of this year. But I do have to say that I'm disappointed to see that all interveners have not yet put their recommended rate on the record. This hearing is too important to waffle on this point.
Let me briefly expand on the CPLA position on rate caps.
The membership of the CPLA got together in January, 2007 to discuss the future of the industry under regulation. After many years, a Bill was finally before the House of Commons to amend Section 347 which would allow for regulation of the industry.
Knowing that rates would be set by provinces, members wanted to discuss what would be a realistic rate that should be set. The Association felt it was very important to have credible input in the rate setting process.
The membership agreed on the position and the press release taking a position on $20 per $100 was the outcome of the meeting.
Since then, the CPLA has had more time to reflect on the important issues of regulation.
We have hired experts in finance to research, analyze and provide us with information on what the actual costs of operation are.
The CPLA advocates for a rate that:
- Allows for a viable competitive market place;
- That will ensure the payday loan product is available for all Manitobans.
We are opposed to a monopoly of one or two large operators and do not believe that is in anyone's interest.
Based on the research of Dr. Gould, the CPLA supports his conclusion that:
"I recommend that the Board set the maximum fee for payday lending in the range of $20-$23 per $100 of a payday loan."
Furthermore, the rate must be increased to incorporate the costs of licensing of $5,500 per outlet, bonding and the cost of the hearings.
In taking our position of $20-$23, we have been deliberate to ensure our smallest members could continue to viably operate under this cap.
Doug Forbes is one of those small members.
He operates one payday loan outlet in Manitoba - and three others in northern Ontario.
Doug called me over this last weekend to get an update on this hearing and during that call he reiterated his support for our position.
I want to quote him directly - with his permission.
Doug said, "$20-$23 strikes the right balance. I can still operate at that level and also sleep at night knowing that I'm charging fees that are fair - but not excessive."
He also said, "any company - especially ones bigger than me - who say that they need a fee cap higher than $20-$23 either don't know how to run a business or are simply driven by pure greed."
In our Association, we have the largest player in the industry - Money Mart. We also have 22 competitors to Money Mart - all small and medium size players. And they concur with the position being advocated by the CPLA in this hearing.
Further to our rate recommendation, we also suggest to the Board that the maximum charge that may be levied on default exclusive of interest should be $40 which is consistent with the maximum charged by the big 5 banks. In relation to the interest rate that may be charged on arrears, we recommend that it remain at 60%. These are the rates which CPLA members have chosen to restrict themselves to by virtue of the membership and organization that is reasonable on default.
On a final point, we believe it is very important that the Board have a full understanding of the product, the industry and consumers. Therefore, I have spoken to my counsel and we would like to offer the Board the opportunity - if the Board believes it is of assistance - to tour one or more of our members' facilities. We believe this would provide the Board with hands on knowledge of the experience of the Manitoba consumers who have come to appreciate dealing with CPLA members. I am advised by my counsel that the Board had the opportunity of visiting a facility in the cheque cashing hearing that was held approximately one year ago with a view to seeing how cheque cashing services are provided. We would like to afford you a similar opportunity to learn more about payday lending.
Thank you, Mr. Chairman and members of the Board for the opportunity to present to you. We look forward to answering your questions.