I have been looking into the payday loan business. It intrigues me both as an entrepreneur but even more so on the ethics side. There is a serious stigma associated with payday loan businesses that they are evil and help to ruin lives.
This is a broadcast about our local city Burnaby showing the same thing: that we must unite against these vicious sharks… yet… I couldn’t help but notice how they didn’t have any of them on this panel to express their perspective. Here is a summary about the rally
You hear comments about this kind of business like: “I want to see them out of business” and ‘This is unconscionable’ or, “Let’s run these birds out of town” and even compare them to the likes of a sketchy massage parlour.
But then you hear comments by the same people a few breaths later about the customers of payday loan businesses like, “They don’t think about how they are going to pay back their loan when they get it” and, “They have marginal financial literacy skills”. The people interviewed like to call them ‘these people’ or ‘these folks’ as if to distance themselves. First they offer scathing insults to the business followed by belittling comments about its customers. I don’t see a lot of love here. But it gets better.
My favourite part is when the interviewer asked “Won’t these people have to go to loan sharks on the street if they can’t go to payday loan businesses?” One of the ‘solutions’ offered was to make more institutions like Pigeon Park Savings . Don’t get me wrong, Pigeon Park Savings looks great and is just what the doctor ordered for the neighbourhood where it is but to compare a customer of this service to a payday loan business is a shocking display of missing information. I understand completely because I had the same general perception about payday loan businesses until I spent some time behind the counter at one. The first thing you will notice is that customers at regular payday loan businesses are normal. They have jobs (hence the word payday), they dress normal if not nicely, they drive cars, etc. The members at Pigeon Park are not customers. They are members. It is a service, not a business.
Then it was suggested that ‘more credit unions should be doing this [Pigeon Park style]’ but then a breath later they admit that no one does it because it’s expensive. And that brings us to our next topic.
Loans are very simple actually. The rate of interest goes up in proportion with the amount of risk taken on by the lender. If you have botched up your credit history for whatever reason, the banks will kiss you goodbye. You can now go to a place like a payday loan company and borrow money at high rates.
I also think it’s quite amusing that no one ever compares Visa or Mastercard in the same light as payday loan businesses. Their rates are a couple of percentage points lower but equally if not more dangerous. With a payday loan company you can only go so far but with credit cards you can go much deeper. Although I have not yet done the research first hand, I was told that after declaring personal bankruptcy Visa and MC are still legally allowed to come after you somehow. If that’s true you should look very dimly at these two ‘well branded’ companies.
Now let’s look at a mortgage. Articles like the ones I mentioned above about how they are worried that people are getting sucked into the ‘get it now, pay the consequences later’ mentality. What do you call a mortgage? It’s a house you can’t afford now, loaned to you by a payday loan business called a ‘bank’. If you stop paying them on the promised cycle (same as payday loan business) they will take your house. I’m struggling to see why they are less ‘evil’.
So, who really wants to get rid of payday loan businesses? Have you ever tried to start a bank account at a bank so you can run your payday loan company? I dare you to try. Tell them that you are starting a payday loan and cheque cashing business and you would like to open a bank account. They will tell you to take a long walk off a short dock, most likely. Why? You are competing against them, of course. You are starting your own ‘bank’. They don’t like this at all but they let it slide because it’s better that someone else deal with ‘these people’ than them. It’s better to appear ‘clean’ and ‘civilized’ and not loan money to ‘these people’. They will cover that by telling you that it’s related to money laundering legislation – but then ask them how Money Mart gets their cash.
Through all these articles, though, the one thing that everyone agrees upon is that the customers are making what is viewed as a bad financial decision. It could probably be quickly proven that the customers are indeed lacking in financial literacy. So the root of the ‘problem’ is a lack of financial education.
Where, people, can we point the fingers for that one? I’ve got a good idea. How about *schools*? Tell me when the Burnaby School Board implemented mandatory financial education courses? If we go and check the requirements for graduation, of all those courses, how many of them involve money? I’m too lazy to check but I bet the number is zero. So we’ve got our scapegoat: the education system. Let’s move on.
Let’s say everyone agrees that payday loan businesses are ‘bad’. Now the question is, should we allow them to exist? The fine gentleman in the broadcast above would ‘run these birds out of town’. Is alcohol bad? Are there people who, even though they received proper education about alcohol, can’t control their drinking? Yes. So, let’s get rid of alcohol. From now on, no more liquor stores, or alcohol to be served anywhere because these people can’t control their drinking. I’m game. Let’s do it. And while we are at it, I’ve noticed that government-endorsed casinos are popping up like popcorn. Mr. Councillor, I didn’t hear you mention anything about those. Should we run those birds out of town, too? I’m thinking the tax dollars from those slot machines are probably not hurting your salary. I’m guessing you aren’t going to be raising a large stink about those institutions. What is your solution for gambling problems? I think I saw it on a bus stop “When gambling isn’t fun any more, call us.”
So, how about instead of wasting your time trying to destroy an industry that is getting people out of short term jams (ie. to put gas in their tank so they can get to their job) without going to back alley loan sharks, that you create financial literacy courses in school and support programs for those who are lost in debt? Isn’t that the Canadian way?
I’m just saying.
… I’m just saying.
Further Unflattering Reading on Payday Loans
- Mobile apps make ‘the problem’ worse
- Ontario files suit against payday loan operator
- Wonga downplays 5,853% interest rate
- more? Send em in the comments. Positive ones would be cool, too.