Pay Advance Rant
Posted by Gail | Filed under Debt Traps
As I work with my last family of the season, I am reminded of just how deeply people can get into trouble, and just how unconscious they can be of what it’s costing them. Here’s a couple that despite making over $6,000 a month net can’t keep their credit cards in their pockets. So when they found themselves overextended at Christmas last year, they made the decision to head off to a pay advance store to get the money to have a happy holiday!
He borrowed $1000 and two weeks later had to pay back $1500. Yup, you read right. That’s $500 in fees, interest and other charges, which is the equivalent of a 1200% interest rate! Hey, Gail, don’t sweat your socks! It was for 2 weeks. No biggie!
Except it wasn’t. It was for seven months. They found themselves shorter and shorter every two weeks and kept up the rotating pay advance loan so that by the time I got to them six months in they had paid $6,000 on a $1000 loan.
Then I received this photo from a reader:
OMG! The pay advance industry is the first to pop out the platitudes about helping people who can’t borrow elsewhere, but this is a clear example of parasitic lending and it’s time the law-makers and enforcers did SOMETHING!
The credit lines are blurry. Lenders are allowed to do whatever they want (pretty much) as long as they don’t go over the “Usury” rules: they can’t charge more than 59% interest. But that does not include what they can charge for fees and services. Which is how we end up with credit cards charging over-balance fees and must-pay credit insurance, which amount to an effective interest rate of 68%.
When the payday advance thing was being tossed around the last time – CBC did a big story on it – the Feds reacted by saying, “Hmm, seems to be a big deal” (said in a deep, thoughtful voice). But the potato was too hot to handle and the Feds passed it on to the provinces by making it a provincial issue. So instead of one government coming up with rules to reign in these predatory lenders, each province must now enact it’s own legislation. And because the pay advance loan business is such a hugely profitable enterprise – really, what a surprise! – no one is stemming the tide. Sure, they’re paying lip service protecting The Little Man, but clearly whatever it is they are doing isn’t working.
Everyone wants to put it down to “personal responsibility.” Hey, if personal responsibility actually worked, we wouldn’t need drug laws, gun laws, or any kind of laws for that matter. “Guns don’t kill people; people kill people,” is a popular mantra among gun lobbyists. Ya know what? It’s a lot harder to shoot someone dead without a gun. And it would be a lot harder to get yourself into hock with a bunch of loan-sharks if they didn’t have a sign on every corner offering quick money.
I’m all for people taking personal responsibility. But I also think that the pay advance business is predatory. If you want to “help” people, you don’t charge between 700% and 1200% in interest and fees. At least the rapacious credit card companies aren’t couching themselves in the cloak of “providing an essential service to the poor.” Oh please do bite me! They’re in it for the profit and they make no bones about it.
In all likelihood the pay advance phenomenon is here to stay. Apathy and stupidity are best friends to social injustice. And all the people who purport to be defenders of “the little man” — where are the consumer advocates? – don’t have the guts to take on this Goliath. So an industry that bottom-feeds on the most socially vulnerable won’t have a lot of knights on white horses to battle. After all, who cares about the people who are stupid enough to go into a pay advance store.
N0-BODY!
July 24, 2009 at 7:03 am
Welll said and right on!!!!!!!!!!!!!!!!…Pay advance places are loan sharks and should be against the law…grrrrr…they boil my blood just thinking about them!!!!!!!!!!!!!!!!!!!!!………..that goes for buy now pay later “deals” as well!!!!!!!!!!!!!
July 24, 2009 at 7:21 am
I think these places should either be outlawed or strickly regulated. If they want to act like a bank – they should be regulated and be inspected like one. Since when was extortion and loansharking legal?
July 24, 2009 at 7:30 am
Amen, Gail, Amen!!
July 24, 2009 at 8:39 am
I just found out that a friend of mine took out a loan at one of these places and did it against his car title. He did it knowing that the interest rate was 1000%. I kid you not. And now he is laid off again *sigh*
This guy is a good guy but can not handle his money in any way shape or form. The only way you can control his spending is to not allow him access to his paycheque.
I admit that I have made mistakes from time to time on financial decisions but I don’t get how one can get into such deep doo-doo, acknowledge you are in deep doo-doo and then continue on like you aren’t in deep doo-doo.
July 24, 2009 at 9:01 am
What timing for this post Gail. I’m working with a client (who is extremely vulnerable for numerous reasons) who has been sucked in by these places. His treatment team worked with him to clean up the mess and helped him to “sign out” of two establishments to help protect him to some extent, but not a week later, one of the establishments gave him another loan. So, clearly, although you can tell them not to honour your requests (kind of like signing yourself out of the casino) the one store still did so. I’m not at all surprised at this total lack of ethics, but I find it appalling. I know someone will say this guy needs to take some personal responsibility, but honestly, his illness does not allow this to occur. It’s so very maddening that these places make it even harder for vulnerable people to survive.
July 24, 2009 at 9:56 am
Wow! I sense some hostility – and rightly placed at these foolish enterprises that offer their ‘help’ to those in need. Advancing on EI! Seriously!
July 24, 2009 at 10:18 am
KUDOS GAIL!
Your words could not have been better spoken!
I’m sitting here waiting with baited breath…just how long until casinos try this “We’ll Advance Your Pay Loans”, you know, just for a little “fun”?
OMG, I can hear the ranting starting already, so I’ll be the first one.
I have certain family, that gave us a hard time about banking 30% of our kids birthday money (they get to spend 70%). Is this wrong? My kids, aged 9 and 13 (after some lengthy discussion) completely accept it. Babsitting money, allowance, birthday money, etc…30% goes into the bank…no exceptions.
So…when my certain family members FLIPPED OUT about “the kids should spend their money, ALL their money, no matter what”…I HAD ISSUES!
Here’s why: they are the type to use these stupid “Pay Day” institutions to “further their fun” at the casino, no matter the risks. And guess who bails them out? US.
So, forgive me if I want to teach “MY” kids the value of a dollar and the responsibility that comes with it. My opinion is it can’t start early enough.
Polite feedback would be welcomed.
Gail, I’d love to hear your imput on this.
Thanks All!
Lorri
July 24, 2009 at 10:21 am
Oh my goodness ! My sentiments exactly !!! Pay Day Loan companies are nothing more than legalized loan sharking.
As for the couple that ended up paying $6000 interest on a $1000 loan so that they may enjoy the holiday season… they need to go back to basics. It is not the size or number of presents under the tree that defines a merry Christmas, it is the time spent with family and friends that warms the heart, and makes the season bright. IMO
July 24, 2009 at 10:31 am
Lorri, I think you are doing your kids a great service and are preparing them now for the real world. Many high fives to you.
I wanted a sleeping bag when I was eight for sleepovers at friends’ houses and my mum made me pay for it out of the my allowance money. I grew up with this sort of message my whole life.
My folks never spent our family allowance money either except a little in the summer for school clothes and perhaps a bit for new shoes.
I am still a saver. I still understand the value of a dollar. I am grateful for that upbringing.
Contrast that to a friend who doesn’t want her teenaged kids babysitting or getting part time jobs because “school is their job” yet she complains about them hounding her for money all the time. Does she give them an allowance for doing chores? No, because chores are a necessary part of being in a family and nobody pays her for the cooking or cleaning she does. Does she give in to their hounding? Sometimes. But there is no rhyme or reason to when she gives in to it, so they just keep at her until she buckles. How does this teach money management?! I’m baffled by some people’s logic.
July 24, 2009 at 10:44 am
Thanks Chris…that makes me feel even more grounded in our decision regarding the kids’ money.
I was brought up much like you…we didn’t suffer for money, always had hot meals and warm clothes, but we worked for what we “wanted”.
If I wanted candy store money, I vacuumed the entire house. If I wanted those jeans I saw at the store, I worked for a month solid tending the garden, cutting grass, etc.
I may make silly mistakes with money (I just bought a purse that I so didn’t need, lol). However, leaving the house for work at 6:15am and getting home at 8pm a couple days this week, I felt like “rewarding” myself. Yes…I feel so guilty doing it, but hubby says “Hey, you like NEVER do that, so suck it up and enjoy it”. Ahhhh, God Bless Him, lol
I believe the key to monetary responsibility is “balance”. That’s the key to everything really…weight loss, health, alcohol, family/work time.
If anyone ever figures out how to get to that “balance point” sooner, please let me know! LOL
July 24, 2009 at 10:45 am
Colleen, I couldn’t have said it better myself!
At the end of the day, family and friends are the basis f any holiday
July 24, 2009 at 11:11 am
Chris, my parents did the exact same thing as the friend you’re talking about, and here I am, still trying to fix my money issues. Kudos to your parents! I definitely plan on teaching my kids (just twenty-two months and six months old right now) like your parents taught you.
I once had a boyfriend who got onto the payday loan treadmill. He was making over 3000 a month with just $800/mo of expenses (if that…he still ate at his parent’s place most of the time) including rent and vehicle expenses, but he always “needed” the money for more booze and cigarettes. And then he had the nerve to blame me for his overspending (“I’m always taking you out…” Riiiight…taking your girlfriend to your parent’s place for dinner does NOT count as taking her out). He had NO idea how much of his money was going to these legal loan sharks until one day I asked for a printout of their terms and conditions and tallied up all their fees. I’ve been a dunce with my money, but at least I had enough sense to do that (and to break up with that loser).
July 24, 2009 at 11:17 am
You’re right, we need to stop this.
We all need to write a letter to our MPP, Member of Provicial Parliament. If they get enough letters the theory is they will do something about it. We need to exercise democracy here, people!
Here’s a link to find your current MPP:
http://www.ontla.on.ca/web/members/members_current.do?locale=en
July 24, 2009 at 11:24 am
Lorri:
). Two different messages. Make sure things are clear to your kids.
I don’t see anything wrong with teaching your kids the proper way to handle money. We were raised in the mindframe that rainy days happen. HOWEVER! I question the message you send your kids when you bail out people from their financial obligations (they have a word for that…
July 24, 2009 at 11:29 am
Here’s a copy of the letter I’m sending:
Pay-day advance loans are a detriment to society. These “businesses” are legalized loan sharks. The practice of lending money with exorbitant fees and interest is only hurting those in society who have no other options, which tend to be the poor and the unemployed.
These stores should be shut down. They are always located in the poorest districts of cities and towns and are preying on those in society who have little economic clout or political voice. It is a blight on Canada’s human rights record that these businesses are even allowed to operate.
Thank you for your time.
July 24, 2009 at 12:05 pm
Pay Day loan companies make me ill. They are totally predatory and what they do should be illegal. Yes, people ought to take personal responsibility. But that doesn’t absolve us of societal responsibility to say, “That’s not OK.”
The saddest part, for me, is seeing how the PayDay loan shops seem to multiply in down and out areas. They’re really going after the people who can least afford it.
July 24, 2009 at 12:09 pm
Does anyone have any insight as to why this wouldn’t be a federal issue rather than a provincial one?
July 24, 2009 at 12:32 pm
Winkwink: it SHOULD be a federal issue. The Feds simply passed the buck.
The Office of the Superintendent of Financial Institutions (OSFI) is a
federal agency established in 1987 under the Office of the Superintendent of
Financial Institutions Act to regulate and supervise federal financial
institutions and private pension plans.
OSFI regulates more than 450 financial institutions and 1200 pension plans in
Canada, including the following:
Deposit-taking institutions
• banks, including
domestic banks
foreign banks
full-service foreign bank branches, and
foreign bank branches that provide only lending services
• trust companies
• loan companies
• cooperative credit associations
• cooperative retail associations.
Foreign bank representative offices in Canada
Insurance companies
• life insurance companies
• fraternal benefit societies
• property and casualty insurance companies.
Private pension plans
Specifically, federally regulated private pension plans organized and
administered primarily for the benefit of employees and former employees of
organizations designated to be of federal jurisdiction.
When the Feds passed the buck to the provinces on Pay Advance Loans, they were just being weenies!
July 24, 2009 at 1:06 pm
The one and only really bad thing that we did not do while getting ourselves into deep doodoo debt was to go to a Pay-day Advance crook. We did do everything else stupid and irresponsible that it is possible for people to do. The only reason we did not do the Pay-day advance thing is because we had the bank of Mom and Pop to go to when we were desperate. Some say that we were lucky and at the time we were relieved but in actual fact having such loving parents just made us even more flighty.
We have friends who have been on the pay-day advance merry-go round for over 5 years now. Their parents said no. They got into this situation in much the same way as Gail’s last family except that the advance was for a vacation. They make over $8000 net per month. I am not judging them because I have been just as fiscally guilty – put an entire vacation on a brand new credit card without a moment’s hesitation.
I used to feel very bad for our friends but I now know that they have chosen to keep going on and on with this terrible debt. They have not yet decided to change. This year they got a tax refund large enough to pay off the advances and put them back on track. They went to France and Italy on vacation instead. Am I jealous? Surprisingly not. Just four short years ago I would have been green and desperately filling out new credit card applications. Now I prefer the sense of peace and security that a debt free life provides and I am saving for Europe. Should get there before 2035.
I was also wondering if anyone else has heard the same rumour that I picked up from a girlfriend who works for a bank. The banks, with the interest I have paid on my credit cards, have gotten more than a pound of flesh off of me (sadly none of it off of my wobbly bits) so I have been enjoying getting my revenge by using our no-fee -dividend card but paying it off in full very month. Right now when I use my card it costs me absolutely nothing to do so and I get money back at the end of the year. The rumour (and swear you won’t tell anyone else!) is that the credit card companies will soon be charging a transaction fee for every transaction we make on the card. Right now the businesses pay these fees and we the customers don’t. My bank charges fifty cents for every transaction on my debit card if you don’t have a fee plan. If they start doing the same on my credit card it will cost me an average of 20 x $.50 = $10 a month or $120 a year. Actually my husband said that he is amazed that the credit card companies haven’t been doing this already.
July 24, 2009 at 1:19 pm
Lori , Good for you in getting your kids to save money, I myself get my daughter to save 50% of her money after all it teaches her what is really important in life. I also do a comparison pricing with her as in how many weeks alowance an item will cost. This is showing value for money. My girl is only 9 so its a great start.
July 24, 2009 at 1:30 pm
Maureen, I have no idea if it is in the works but they would be double dipping. Credit card companies are already charging the stores a fee for your purchases so the store passes it on to you in the cost of goods. As a rule, I use cash, partially because I spend too much when I carry a credit card but also out of consideration for the small, independent stores because I know they get heavily dinged by the credit card companies.
When I was just out of college and desperate, my partner and I almost went to one of those payday companies. Fortunately, at the time I was so disorganized that I couldn’t find the two paystubs they needed for proof of income so we had to muscle through until payday. Then we never had the need again. It was partially my disorganization that got me into the mess but here is a case where it actually saved me from myself for once! haha
July 24, 2009 at 1:33 pm
I agree that if it acts like a bank, it should be regulated like a bank. Same rules, same game for all of them. There is generally a good reason that a bank or “legitimate” financial institution won’t lend money to certain people. The fact that these people are the market for cash advance companies is what makes them so sickening. They prey on individuals at a desperate time, when logic may not lead the way over immediate need. I have my doubts that it was genuine desperation that led your recent couple to the door of the cash advance company. Hopefully they have learned a lesson that they will share with other people.
July 24, 2009 at 2:04 pm
Can’t the banks offer something more user friendly?
I think the reason the pay-advance places are so successful is because the banks will not service their needs. It’s a viscious cirlce for transients, and couch-surfing youths… without an address you don’t get an account, and you are turned away (even with a real paycheck in-hand). My brother in law had this experience in his youth when he had a few contract jobs, but no way to cash the checks without going to the high-fee sharks! He was terribly angry at the loss of such a big chunk of his hard-earned money to these scammers!
Maybe if banks offered a new product? Pay-day-loans are secured aren’t they? The rates and fees could still be much higher than normal bank fees and still be nowhere near what the sharks are asking!
July 24, 2009 at 2:31 pm
Hi Pol: Another friend (gosh! I never knew anything about our friend’s financial affairs until I started talking about ‘Til Debt to them and since then the flood gates have opened and what a relief it is to be able to talk about things that actually affect all of us) uses her overdraft protection as her pay day advance. She makes a very good income but is always broke by the third week of the month. She has $3000 in ODP which costs her about $3 a month plus the interest that she pays when she dips into it. Not the greatest way to handle your finances but better than going to a Pay-day Advance shark and it will keep her afloat until she decides to make changes.
Hi Lexi: Double dipping is right! And possibly triple dipping if you have the kind of credit card that charges you a yearly fee. However unless there is an actual law to stop “the rumour” I can very well see it happening. Can you imagine how much money the banks would make if everyone even used their cards a few times a month? I can honestly say that I have never thought about how my use of a credit card at a small business costs them. Worth thinking about as I am sure that they pass the costs on to us. We used to use cash (the jar system only I used plastic ziplock bags) but now we use our card to buy groceries, gas, pet food and prescriptions in order to get the dividend at the end of the year – but we do pay it off in full every month and never go over the amounts set in the budget. I do not use the card for small purchases but was recently with my neighbour when she purchased some mints using her credit card. The store charged her a fee because the cost was under $2. I told her that I thought this was illegal but she just laughed. I know that there are many small businesses in our town that will not take small purchases on credit.
July 24, 2009 at 4:19 pm
*pol,
I believe one could take their paycheck to any bank branch that the employer has written the paycheque from and cash it even without having a personal account there. One would just need ID to prove that they are the person entitled to cash the paycheque.
July 24, 2009 at 5:26 pm
Maureen — until you read it in a credible source, take what you hear about banks with more than a grain of salt. It seems unlikely that a bank would charge users to use a card, that they charge vendors to use – though stranger things have happened, I’d wait for confirmation. And then switch cards. And banks.
July 24, 2009 at 5:46 pm
We have 5 of these places within a few blocks of my home, in fact 2 across the street, in different directions. Even though the law has come down on some of these places, they still seem to be doing the same thing, over charge interest in excess of 59% which is loan sharking. I don’t know anyone on ODSP who could afford to use this service, but they will provide you an advance. Go figure that they would dangle a carrot to encourage people to over extend themselves.
July 24, 2009 at 6:43 pm
I know of someone here in my hometown who is on ODSP, for valid reasons, single, raising two teenage young ladies. For whatever reasons, she chose to use one of these Payday advance places for some extra cash until her Child Tax credit came in. Suffice it to say, she would repay the ‘loan’, then immediately reborrow to get her through until the 20th, or the end of the month. At one point, she had borrowed, and reborrowed, until she finally asked me to help her read through the fine print. When she realised that over the course of the year, she had given them enough in interest to have paid her rent for the year, she decided to stop. Unfortunately, she was too far in hock, had lost her apartment, and had to stay in a shelter. Yet the Payday ‘loan’ place had to have their money.It took her 3 months of paying off her debt to them while living in a shelter in order to get back on track. I wish I could say that she stopped using their services, but I can’t.
The silly part is, even though I make somewhere in the neighborhood of $30k/year, the mere fact that I am self-employed with no GUARNTEED income, does not qualify me to use their services. But they will loan to someone on O.W. or ODSP. Hmmm.
I guess I should be thankful that when we were facing tough times, my non-guaranteed income kept my hard earned money out of their hands.
July 24, 2009 at 9:03 pm
I’ve made some bad decisions and done some foolish things in life but I am so thankful that I have never set foot in the door of one of these places.
July 24, 2009 at 9:23 pm
Crystal
Pol is right, having worked in a bank, even if the cheque was written from that bank we were not permitted to cash the cheque. A person must have an address and proper id to open an account and the cheque had to be deposited before cashing. It does make it difficult for some.
The Payday Loans is a terrible treadmill to get on and can be so difficult to get off because of the fees and fine print. There should be Federal Regulations that these institutions are accountable to.
Gail, you are providing a very valuable and free service with your daily blogs and your show. The education we receive from this and the discussions are very much appreciated. Thank you. Our family no longer views the money discussion as “taboo” and through your show and blog I am able to provide information for my teenage sons, one heading off to college. He will be aware of these places and hopefully share this informaiton too with his new found friends out on their own for the first time.
July 25, 2009 at 12:26 am
In (vague) defence of payday loans, they really do fill a niche.
I got stuck in a situation once where I WISHED there was a payday loan system… although given the interest fees, etc. I’m glad I made it through.
While in university, I moved up North to take a job for the summer. Had some emergency sushion, but not a whole lot. Turns out the company the Governemnt of Ontario had contracted out to for paying its employees was a known fiasco, and lost all of my financial info (and never admitted it).
So here I was 19 years old, stuck in the middle of nowhere, with no cash, and no way to get it. It was going to be another 1-2 months before they got around to paying me. No one accepted credit cards in such a remote area, and the one bank in the area (my own actually!) wouldn’t do such a short-term loan- all I really needed was a loan until my paycheque came through.
Now, their practices, are usurious and need serious reform. But I don’t think they should be abolished entirely.
July 25, 2009 at 2:07 am
Thanks Linda,
I had no idea the rules had changed as it has been many years since I’ve cashed a cheque in branch that way. Good to know!
July 25, 2009 at 7:39 am
Crsytal, Linda, Pol
I still work in a bank…25 years now:)…and I’ve seen alot of changes in that time…you can cash a cheque without having an account BUT you must have 2 pieces of valid i.d. and the cheque must be drawn on that branch so we can verify the signature of the person that wrote the cheque…you must have 2 pieces of valid i/d to open an account…and you can be living in a shelter or hotel…I always try to offer a solution for the individual that does NOT include going to these cheq cashing places…and when they come in asking for the direct debit form on their account to give to one of these places I always make it clear what they are doing by giving them this form…they are giving them PERMISSION to debit them for what they owe which is not neccessarily the same amount as what they borrow…so if they borrow 500.00 and are debited back 700.00 they are on the hook for it because they have agreed to their terms and conditions…not one person has ever let that information stop them from going ahead, then when the funds are not there for the debit they are dinged 42.50 in NSF fees each time they try to put the debit through…one big vicious cycle…
July 25, 2009 at 10:29 am
I’ve made my kids swear to me they will never enter a Payday loan store!
July 25, 2009 at 9:37 pm
Here’s a cautionary tale for everyone, something I found myself in. When I moved to the big city (Toronto) over eight years ago, I was living off of savings but working a low paying retail job, and staying in a less than cheap part of town (of which there are many). So I started out and got a payday loan at a store next to where I live, one of the big “chains”. I thought to myself, it’s just this once, what could it hurt. I paid it off the next payday and a few days later, found myself a little shorter than what I needed (or thought I needed). It’s like a switch in my brain had already factored a payday loan as part of my normal household expenses. Well, everyone knows how this story goes, the chain began and 9 times out of 10, I re-advanced the same day.
It’s funny, even when I got gifts of cash from family, enough to make a dent and break the chain, it would soon start again. Eventually it got to the point where I began the payday double-dip. I went to a different company to get a payday loan, to cover the difference I didn’t have in my account to cover the fees and loan from company A. So for a long stretch, I was doing the two-step and advancing from one to pay the other. I thought it was smart that I took the lower amount with the company that charged lower fees….That didn’t last.
The low point was when I had reduced my hours and for a short period, was dancing between THREE payday companies. This is how it worked. I went to Company C, got a loan where they put it on a debit card of theirs. I withdrew the money and paid off Company B which held my cheque, re-advanced, then deposited the money into my account, so that the cheque I left with Company A would clear the next day and, you guessed it, I re-advanced from Company A.
Eventually through luck and a higher paying job, I broke the chain, over three pay periods. When I paid off Company A, I did not re-advance, and just danced the lowest amount I dared for expenses between Company B and Company C. When I paid off Company C (it worked out easier this way), I didn’t re-advance. And this is the funniest thing that hit home. When I did not re-advance from Company C, the gentleman said, and I kid you not, “Congratulations, you have just broken the payday chain.” That was an eye opener.
I’m basically done now, but without a tight control on my budget, there is a danger I may fall back into the temptation (which I have done, but this time I go for as little as I dare, and only one company).
I tell this very true story as a cautionary tale for anyone who has ever been tempted to do so. If you do think about it, make sure you have a budget and see how it fits, and you may think twice.
July 26, 2009 at 9:54 am
Donna, you are another amazing mom who is doing your kid a huge service. Tallying up the number of allowances it’s going to take to buy that item is an awesome way to help her learn. Not only that, but if the price of the item goes up after her many weeks of saving and finally having the money to pay for it, there’s a lesson in inflation right there. Kudos to you!
July 26, 2009 at 12:50 pm
You don’t even want to see what I see everyday….if you don’t pay…they will take everything!!
July 26, 2009 at 7:10 pm
Thanks Gail, for yet another excellent post. Your line: “Apathy and stupidity are best friends to social injustice.” resonated for me and can be applied in so many different contexts!
Great Post!
July 27, 2009 at 12:02 am
OMG!!!
July 27, 2009 at 12:22 pm
Great pic, and a crazy situation. Adding another item to my list of “things to teach my kids about money.”