It has been a rough few weeks for the payday loan industry overseas and just south of the border. We often talk about the industry stigma on the blog, referring to the “predatory lending” practices of many companies. Predatory lending practices, say consumer watch groups and the like, are practices that target those who cannot afford the service and have an APR so astronomically high that borrowers get trapped into a debt cycle. We don’t just call that predatory lending – we call that irresponsible lending.
We have made it a goal to educate our customers on responsible borrowing and what to look for in a responsible lender. We strive to make every practice 100% transparent. The difference between us and companies getting hammered in the United Kingdom and in the USA is simple – regulation is not as tight as it is in Ontario, Canada.
Take the UK as our first example. Google “UK payday lending news” and your feed will explode with very recent and relatively recent articles about customers stuck in massive cycles of debt. One unemployed woman in Wiltshire borrowed a total of £1,700 to get her children gifts for Christmas. She said she started borrowing in the time leading up to Christmas, and borrowed more each time. The problem now? She owes almost double her initial amount. How is this even possible in such a short amount of time?
The problem, as we often see in this industry, is that some companies allow customers to borrow more money before re-paying their current payday loan. In Ontario, this is illegal.
If you come to GoDay.ca for a cash advance for let’s say, $500, you may absolutely not borrow any more until that $500 + fees is paid back in full. Our systems will not even allow an application to be processed with a current loan in existence.
Going south-side, there are many states that offer plenty of examples that are no different than the above story. In 13 states, payday lending is illegal (a bit extreme, but understandable given the history), and in the remaining 37 states, lending is regulated, however there is still much debate over how well-regulated it is, state-by-state, with some APR being well beyond a reasonable cap for the instant service.
However, we can’t be too critical to our friends abroad. Cash Store Financial Inc. made headlines in recent history, and is, to date, still barred from lending in Ontario, showing that unfortunately sometimes even the tightest rules are tested.
With these unfortunate financial circumstances landing on consumers due to lax (or non-existent) rules, it is yet another opportunity for us to drive home the basic rules of short term loan shopping:
1) Find the fees. Are they easy to understand and very clear? Good. You can pass “GO”.
Not clear? Do not pass “GO” and do not collect $500. (Sorry for the Monopoly reference).
2) Is your lender licensed? They need to make that clear (either online during or prior to the application or on the wall in the store).
3) Is your “lender” letting you borrow more before you’ve repaid? Warning bells should be going off.
4) Is your lender of choice a direct or indirect lender? (learn more here)
5) Does the lender charge more than $21 per $100 borrowed? If yes, walk away. Don’t even consider it.
Sources:
Ont. wants to deny new licences for Cash Store following court judgement
Online lender settles New York lawsuit amid crackdown on massive ‘payday’ loans
Mum on benefits left with £3,000 of debt after being given EIGHT payday loans to pay for Christmas
