In April of this year the Ontario government floated a proposal to cut the interest rate Payday loan companies can charge clients from the current 21% to 19% or 17% or 15% over the short term of the loan. Currently, by the time you add in fees and interest for a year, the rate of borrowing can be as high as 500% per annum.
These short-term, high interest loans are driving many people into a debt that is impossible to pay back. They target precarious workers who have no where else to turn for the money they need to get to the endof the month. More and more of us are having to work at jobs that pay minimum wage and provide no benefits.
The evidence is clear: too many of us cannot earn enough to feed, clothe and house our families on minimum wage. The impact of this economy is now well documented: rising levels of homelessness or people waiting for subsidized housing; increasing levels of poor health; decreasing revenue for governments at all levels; stagnating economies, especially in rural areas like Bruce-Grey-Owen Sound.
Payday loan companies are not helping the situation – they are contributing to it.
We note that the Alberta NDP government has just passed legislation reducing the interest rate that such companies can charge to 15% over the term of the loan. And they are telling the loan companies that their borrowers can pay back in installments. It is timely legislation given the sharp down-turn in that province's economy.
However, we think more can be done. We think more should be done. In our May 19th submission to Ontario we recommended:
That the Ontario government abandon its minimum wage for a living wage; and
Authorize certain institutions to offer temporary loans of fixed periods at a reasonable rate of return (certainly under 10%).
The full text of our short submission follows below. We would like to hear from folks in Bruce-Grey about their own experiences with Payday loan companies so we can push this issue further. We invite people to email us in confidence at [email protected].
Payday Loan Cost of Borrowing Review
Consumer Policy and Liaison Branch
Ministry of Government and Consumer Services
5th Floor, 777 Bay Street, Toronto ON, M7A 2J3
The New Democratic Party Riding Association for Bruce-Grey-Owen Sound wishes to respond to the Ontario government's consultation paper on lowering the interest rate charged by Payday loan companies. We believe that, on the evidence, this will not have the desired effect of reducing either poverty or the indebtedness of people to these predatory lenders. There are better ways of doing both: raise the minimum wage in Ontario to a living wage and mandate certain corporations to offer short term loans at rates that people can afford to pay back.
Bruce-Grey-Owen Sound has been especially hard hit by the economic downturn since the Great Recession of 2008. Manufacturing jobs have all but left the area and the economy has sunk into a malaise of precarious service jobs. We estimate that the portion of area residents in precarious jobs to be more than that of many city cores – at 50% – and much higher in areas of the region that rely on tourism, such as the whole of the Bruce Peninsula.
Regional rates of substance abuse, admissions to emergency rooms for injuries, and obesity are all above the Provincial norms. These are indicators of a population under stress, as studies in the US are pointing out.
A January 2015 study on precarious work by the local citizens' group Peace and Justice Grey Bruce demonstrates that precarious work in this area not only leads to poor health outcomes (and therefore higher costs to governments), but contributes mightily to social and economic isolation. It quotes work done by the Grey Bruce Health Unit on the social causes of poor health and the United Way of Bruce Grey's calculation of a living wage for this area: now more than $15/hr for both Owen Sound and surrounds.
The Report also makes an economic case for paying a living wage, for there is a huge economic cost to keeping the current minimum wage.
If people don't have enough money to live on, they cannot shop in local stores – the gap-toothed appearance of many of our main streets is testament to that. If people don't have enough for decent shelter, the tax base of municipalities erodes – housing starts in Bruce-Grey-Owen Sound are dismal. If companies shun an economically depressed area, they will not provide jobs for our citizens. People are forced to cobble two or three badly paying jobs together in order to live, and the spiral of working poverty continues, a situation Payday loan companies only help to perpetuate in a very vicious circle.
And yet, the precarious worker is exactly the kind of client Payday loan companies target.
If someone must borrow $300 dollars to get to the end of the month at the rate these companies charge, they may well be paying close to $3000 by year's end. Then it becomes a case of lending even more money on the pretense that the person will ever be able to pay it back.
On the other hand, if everyone in Bruce-Grey-Owen Sound earned a living wage, over $20 million would be returned to the local economy.
Payday loan companies do not serve a need; they create a need that they then feed off. Unfortunately, regulation of any kind – even to reduce their usurious rates to something less onerous – has the perverse effect of giving such a practice the colour of right. It also has the effect of delaying serious change – the kind of change that's needed if we ever hope to close the growing gap of inequality and return some measure of fair pay for a fair day's work.
For these reasons – improving health outcomes, enhancing participation in the social and economic life of our communities, reducing the cost to governments of poverty, and returning dignity to working people, we recommend:
1. That the Ontario government abandon its minimum wage for a living wage; and
2. Authorize certain institutions to offer temporary loans of fixed periods at a reasonable rate of return (certainly under 10%).
