The other Scott Gilmore and the cruelty of payday loans
The payday loan industry benefits the poor and bleeds users dry. And it took a case of mistaken identity to drive Scott Gilmore crazy about it.
A month ago, a troubleshooting company started emailing me. I ignored them, assuming it was just spam. When they kept coming, I thought it was a phishing attempt trying to trick me into giving out personal details. I deleted them. They continued.
I then feared that someone had stolen my identity to borrow money. I called the company. A woman listened to me patiently. She told me that “my” account would be reviewed.
Shortly after, a sternly worded email arrived. “We regret to inform you that your request to delete your personal information cannot be honored. And the payment was due.
Alarmed, I clicked the link in their email and logged into “my” account. I discovered that another Scott Gilmore had borrowed money and inadvertently entered my email address.
It is strange to scrutinize the life of your double. This Scott is younger. He works in a barbecue restaurant. He is single. He earns $ 500 a week. I found his Facebook page. In his profile picture, he is holding a young son in his arms.
But when I saw the terms of the loan that led to this strange encounter, my curiosity turned to shock. Scott had borrowed $ 300, to be repaid over four months, at 400% interest.
I am familiar with the exorbitant practices of the payday loan industry. I casually knew that it benefits the poor. But I must have bumped into someone with my name who was getting ripped off for money they didn’t have, before I got mad.
There are over 1,400 points of sale across the country. They mainly target people with low to moderate incomes and without assets. Almost two million Canadians took out a payday loan last year. They are respectable people whose jobs are facing an unexpected car repair or who are too short of back-to-school supplies. People like you and me, a little less fortunate this month.
Canadian usury laws prohibit more than 60% interest on loans, but in 2006 the federal Conservatives passed a law exempting payday lenders from criminal penalties and effectively removing the interest limit. Since then, the industry has metastasized.
Regulations vary. Manitoba limits prices to $ 17 for every $ 100 borrowed. In Ontario, it’s $ 21. Sounds reasonable, but it’s an annual percentage of over 540% – double the traditional strength charged by loan sharks. Stan Keyes, former federal cabinet minister and now president of the Canadian Payday Loans Association, argues that it’s unfair to calculate the interest rate this way, since loans typically only last two weeks. However, he concedes that many borrowers take out multiple loans during the year.
It’s getting worse. A quarter of the loans are initially in default. Lenders really want this. For an additional fee, they are happy to extend the loan for another two weeks. Week after week, borrowers are slowly bled dry, often paying back several times more than what they borrowed. What other businesses benefit from keeping their customers away? Is there a more morally bankrupt industry?
The impact is immense. When people fall behind in their payments, the costs add up, creating a painful financial drain on those who can least afford it. The stress this creates is immense. A recent study from St. Michael’s Hospital in Toronto found a relationship between the number of payday lenders in a neighborhood and premature mortality.
The industry maintains that it is simply responding to market demand. Keyes told me. “It is blatant paternalism to prevent low-income people from borrowing money when they need it.” But it really is a market failure. Their customers can always find better deals at a fraction of the cost at credit unions or traditional banks. But payday lenders hide their ruinous interest charges, take advantage of financial illiteracy, and create a path of least resistance to their plexiglass cubicles.
There is hope. Banks have made credit cheap, and payday lenders have made it easy to obtain. New startups, like Toronto-based Borrowell, are trying to beat the two by offering cheap and easy credit. It only takes a minute to apply for a loan on their website which is even faster than going to the check cashing store. What about their interest rates? A relatively human 13% on average. They have already received over $ 100 million in claims to date.
Keyes complained to me, “The media like to demonize short-term loans and perpetuate stereotypes that people who take these loans are helpless and stupid. May be. I wouldn’t say the other Scott Gilmore is either of those things. Nonetheless, his lender is taking advantage of the fact that he does not know of other cheaper options.
At the end of our interview, I asked Mr. Keyes if he had ever taken out a payday loan himself. In an unexpectedly frank moment, he replied, “No. I was lucky. I have financial literacy.