While banks slash their rates on loans, many payday lenders are still charging as much as they can
Jodi Dean has seen first hand what a debt spiral can do to a family: stress, uncertainty, and a dependence on high-interest loans that can stretch out for years.
Now, as the COVID-19 crisis leaves one million Canadians jobless, Dean has an inkling about where some of the most vulnerable will turn to pay their bills.
"I guarantee you, if you go out at the first of month, you will see them lined up at the payday lenders," she said.
"This is going to be horrible."
Amid the pandemic, payday lenders across Toronto are still open - designated an essential service for those in need of fast cash. Faced with growing economic uncertainty that will diminish borrowers' ability to repay, some payday lenders are implementing stricter limits on their services.
Others are expanding them.
"Here's the reality - the people that are using payday loans are our most vulnerable people," said Dean, who has spent the past six years helping her sister deal with payday debts that consume up to 80 per cent of her income.
"That can be our working poor who don't have credit, who can't go to the bank, who don't have resources to get their bills paid."
Payday loans are the most expensive form of credit available, with annual interest rates of up to 390 per cent. In its COVID-19 related online consumer advice, the federal government warns that a "payday loan should be your absolute last resort."
But in the absence of financial services that cater to low-earners, payday loans may feel like the "only reasonable option," said Tom Cooper, director of the Hamilton Roundtable on Poverty Reduction.
"That's how they trap you in the payday loan cycle."
The Star called six payday lenders across the city to ask about services being offered amid the pandemic. Storefronts are still open, albeit with reduced hours.
Aside from promotional offerings for new borrowers, all but one of the lenders were still charging the maximum allowable amount. In simplest terms, that works out to $15 worth of interest on a $100 loan. A teller at It's Payday said its rate was $14 on a $100 loan.
Major banks have slashed interest rates by half on credit cards - a move welcomed by many Canadians, but unhelpful to low-earners who often can't access traditional banking services.
A 2016 survey of ACORN Canada members who are made up of low and moderate-income Canadians, some 45 per cent reported not having a credit card.
"Over the last 20 years we've seen bank branches disappear from neighbourhoods due to efficiency. And the payday loan shops have set up in their place," said Cooper.
"Banks aren't offering financial products to low income people very easily."
According to two tellers at two lenders, It's Payday and MoneyMart, the COVID-19 outbreak hasn't changed its policies; It's Payday, for example, doesn't lend to laid-off individuals.
"Right now, it's mostly health care and grocery store (workers)," a teller said of current borrowers.
Some outfits said they are limiting their offerings: at CashMax and Ca$h4you, tellers said their lines of credit - loans that are larger and more open-ended than short-term payday advances - were temporarily unavailable.
Meanwhile, a teller at CashMoney said payday loan repayments can now be deferred for an extra week because of the pandemic; its line of credit loan is still available at an annual interest rate of 46.93 per cent - the legal maximum for such loans.
Melissa Soper, CashMoney's vice-president of public affairs, said the company had "adjusted its credit underwriting models to tighten approval rates and enhance its employment and income verification practices for both the store and online lending platforms" in response to COVID-19.
At PAY2DAY, a teller said those relying on "government income" are usually ineligible for loans; that's now changed because of COVID-19.
"PAY2DAY is accepting EI during this time as proof of income as we understand that those people will be back at work in the near future," the outfit's founder and CEO Wayne Barker told the Star.
"There are definitely some valid concerns out there that certain companies are taking advantage of these circumstances by increasing prices and doing other unthinkable things just like it. However PAY2DAY has not expanded its services," he said.
Instead, Barker said the company had "reduced our fees during these difficult times for all new clients, as the clients can now get a $300 loan with no fees."
Barker and Soper were the only spokespeople to return the Star's request for comment. The Canadian Consumer Finance Association, which represents the payday lending industry, did not respond to an interview request.
Ken Whitehurst, executive director of the Consumers Council of Canada, said for some, payday lenders may feel like a more dignified alternative to traditional banks: the prospect of rejection is lower, and borrowers can access money quickly without judgment or leaning on family and friends.
In reality, especially during an economic crisis of unknown duration, the practice is predatory, he said.
"Our anecdotal observation is that counter to what the federal government has been requesting at this time of federally-regulated lenders - which is that they provide loan relief - it appears this industry is responding by offering more credit."
That stands in contrast to places like the United Kingdom, where in addition to tightening lending criteria, some payday lenders are suspending new loans entirely.
But in Canada, lenders say there's no evidence the pandemic is generating extra business. Soper said CashMoney had "seen a meaningful decline in applications and loan approvals and expect that trend to continue until the public health crisis abates."
Barker said business at PAY2DAY also dropped by 25 per cent in March.
"As things get back to normal people will be trying to catch up as things are getting financially more difficult and they may need a few extra bucks to get them by and that's where services like ours can make a big difference," he said.
"I think any critic of this industry right now is simply trying to further a false perception of this industry or are completely ignorant to the value these businesses offer and especially during tough times like these," he added.
Payday lenders cluster in Toronto's lowest-income neighbourhoods, a 2015 study by St. Michael's Hospital shows. Since then, the City of Toronto has implemented stricter regulations on payday loan outfits. As of 2018, they must have a licence to operate; late last year, the City announced it would stop handing out new licences.
"I think there has to be additional regulation put in place," said Councillor Frances Nunziata (Ward 5 York South Weston).
"In my opinion they should be closed completely."
In an emailed statement to the Star, a spokesperson for the ministry of government and consumer services, which regulates payday lending, said the province "continues to evaluate a variety of options to reduce the burden of debt on Ontarians during this challenging time."
While the City of Toronto has moved to cap the number of payday lending storefronts, many lenders also now offer online services - a trend before COVID-19 related social distancing encouraged it.
"In terms of the dangers moving ahead, it's going to be difficult to regulate the online payday loan industry. It allows companies to take money directly out of your account," Cooper said, leading to borrowers being hit with non-sufficient funds charges.
On top of shorter-term payday loans, newer services offered by many payday lending outfits - like instalment loans - can be especially confusing for borrowers, said Whitehurst.
The federally-funded report, based on 93 audits of Canadian lenders offering instalment loans, found that at least one lender exceeded the Criminal Code's interest limit. Others wrapped in opaque service charges to their lending costs.
"It's very hard to understand what the government's position is on what constitutes criminal lending and what doesn't," he said.
"There hasn't been a lot of scrutiny or evidence of proactive government enforcement. What was concerning to us then and what is concerning in the current moment is that these forms of revolving credit are becoming more and more mainstream," added Whitehurst.
And with it, increasingly slick advertising and promotional offerings.
"They present with all the polish in some cases of major financial institutions," he said.
That, says Dean, is what scares her - having watched a loved one lean more and more on payday loans.
"She just got into this really vicious cycle and there was no real way out of it," she said.
"The people behind the glass, it's always encouragement."
At one payday lending shop the Star called this week, the teller offered a $25 referral credit for bringing a friend; paperwork showing employment income wasn't necessary as long online banking records were available, she said.
At another, new clients are being offered a "$300 loan for $20" - or half the normal rate, the teller said.
"Express approval," she added.