She is dependable, and has been at her job for three years. During that time she has never been late, with the exception of the odd snowstorm that delayed her bus, and rarely takes a day off.
But this summer I was abruptly introduced to the hidden economy of the working poor, when a young street "punk" moved in on her, and in just two weeks, destroyed years of my daughter's financial prudence.
And she was able to do this so easily because of something called "payday loans". I had heard the term before but never really understood the system. I certainly understand it now.
During that time, this young girl (16-years-old) took my daughter to four of these places, where for 21% on the dollar, she could get a cash advance (the longest term 11 days). All she needed was a chequing account and proof that she had a job.
Using one transaction as an example, she was advanced $118.50 in exchange for a post-dated cheque of $ 150.00 (6 days hence). Since roughly 60% of her income goes to rent, she doesn't have $ 150.00 extra in income, so the cheque bounced.
The bank charged her an NSF fee of $40 and the establishment an NSF fee of $50.00. So the cost to borrow less than $120 dollars for a week was now $240.
I know that the right-wing would automatically denounce the young girl who took advantage of a disabled person, with "soft on crime", "young offenders", because after all, she was the one who walked away with the $118.50. But what of the offenders who "legally" netted $121.50? They are no better than the "little criminal".
In total, this young girl received about $800, and my daughter was left with a debt of almost $2000, because not only did she have exorbitant bank charges, because of returned "payday loans", but her regular monthly bills, like cable and telephone, also bounced, and these companies charged her on their end as well.
I only became aware of what was happening when my daughter called crying that her employer had messed up her paycheque and she had no money for food. Turns out that she received her pay, but all of it went to cover an overdraft.
How Did This Happen?
In October of 2006, Vic Toews, announced with much fanfare that he would be putting measures in place to regulate the Payday Lending Industry.
The Honourable Vic Toews, Q.C., Minister of Justice and Attorney General of Canada, together with the Honourable Maxime Bernier, Minister of Industry, today introduced proposed amendments to the Criminal Code regarding payday lending, to provide provinces and territories with the flexibility to regulate the industry.But hidden behind those words, was the fact that what this "new" government was actually doing, was amending the criminal code (347) that set limits on interest rates. They hailed it as allowing the provinces to regulate the industry themselves, but those provinces could no longer use the criminal code as a guideline.
"As more Canadians make use of payday lending, Canada's New Government is taking steps to ensure that the industry can be properly regulated," said Minister Toews. "We're getting things done for families and taxpayers, by giving provinces and territories the tools they need to protect consumers and deal with questionable business practices."
Given what we know of neoconservatism, that it is a government run by and for the corporate sector, we then ask what motivated this gesture.
The answer: Lobbyists.
Because those pushing for this change to the criminal code was the industry itself. At the time there was a class action lawsuit being brought against them in British Columbia (OK Payday Loans) that threatened to put a stop to this form of legal loan sharking.
The payday loan industry is booming, but the interest they charge is against the law. Now they want the law changed - or they'll be out of business. (October, 2006 report)
Getting this legislation passed is a top priority for Michael Thompson, president of the Canadian Payday Loan Association (CPLA). He says the association wants to "make sure that the legislation gets introduced quickly and passed through Parliament quickly" ... Mr. Thompson gave several reasons for this urgency: the need for "regulatory certainty", payday lending's poor image in the media, and putting a halt to "certain issues in the industry that are potentially hazardous to consumers". However, a recent British Columbian Supreme Court decision against a payday lender has sent shockwaves through the industry and provided a powerful motivation for new laws: without them, payday lenders may not survive.According to the preamble of Toew's legislation:
The expanding presence of payday loan companies suggests that some Canadians are willing (forced?) to pay rates of interest in excess of those permitted under the Criminal Code for their payday loans. Bill C-26 is designed to exempt payday loans from criminal sanctions in order to facilitate provincial regulation of the industry.It was sold as helping consumers, not the industry that is cashing in on the scheme.
By June of 2010, the Globe and Mail was reporting that one of the largest providers of payday loans, had not only been able to remove the bad rap his industry was receiving before Toews came to the rescue, but was now lending legitimacy to this legal loan sharking.
No one knows more about a business than the CEO – except the CEO who owns a lot of the stock. Gordon Reykdal is one. Mr. Reykdal founded and runs Cash Store Financial, a gem of a business. He also owns about a quarter of the stock, and it shows. Talk to him for a few minutes and it soon becomes obvious that he knows every wrinkle about his company, which offers payday loans to a growing base of consumers that big banks want nothing to do with.And the fact that this industry is growing at such an alarming rate, is further testimony to the struggles of Canada's working poor, many of whom might be called 'middle class'. Canada has the highest debt to income ratio in the world, which means that many of these people have probably maxed out their credit cards and traditional borrowing power, so are forced to turn to high rate "payday loans", often to meet the obligations of their credit burden.
And as they get caught in the quagmire of allowing this industry to operate from their payday to their next payday, they see no way out. In fact, "payday loans" are protected from bankruptcy legislation, so that even if forced to take that route, you will still be indebted to the cash stores.
We have been hearing a bit more rumbling lately, but who is going to seriously take any steps to drive these guys out of business? It will end up just more smoke and mirrors.
I read one justification for this, as being a better alternative to having to go to a loan shark. But how many ordinary families know a loan shark? It's not like you can find them in the yellow pages. Whereas, these "cash stores" are on every street corner.
It's like a pimp saying that he gets his girls off the street and gives them a roof over their head, while making it impossible for them to leave.
My daughter's financial mess was temporary. Because of ODSP guidelines, family members cannot give her large amounts of money or she would have to claim it, so though it meant giving up her apartment, moving back home for awhile, and living like a pauper for several months, she was able to clear her debt by herself.
A tough lesson in life.
When she moved into her new apartment in January, she was debt free. Most are not so lucky.