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Pay Day Loan Reflective Discussion Questions

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And please avoid getting any sort of pay day loan.

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Website#1 - Your Rights - Ontario Government

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Website#1 - Your Rights - Ontario Government

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This is a more recent detailing of our rights concerning pay day loans from the Ontario government. This was updated as of January 1st 2018. It thankfully shows the laws that protect us from pay day loan companies abusing their power including not allowing "rollover" loans, not allowing additional services to be charged on top of the pay day loan,  and you can't be charged more than $15 more for every $100 you borrow. The website also details knowing wear to file a complaint, finding a licensed pay day lone lender, and common questions to help inform those that are considering a pay day loan.

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As of January 1, 2018, the maximum cost of a payday loan has been lowered.

On July 1, 2018, new rules come into effect affecting both payday lenders and borrowers. Here's what you need to know.

How it works

A payday loan is:

usually a small value loan taken out for a short time, typically until your next payday

loaned at a retail store or online

the most expensive form of consumer loan in Ontario

an unsecured loan (you cannot put any property as collateral or guarantee for the loan, you need to provide the lender with a post-dated cheque or a pre-authorized debit)

Most lenders do not do credit checks before issuing payday loans. They usually ask borrowers to:

prove 3 months of continuous employment

give proof of address (e.g., they can ask to see a utility bill)

have a chequing account

Costs

Payday loans are an expensive form of credit. Before getting a payday loan, you should consider other ways to borrow money ( e.g., from family or friends, a bank or credit union or your credit card).

As of January 1, 2018, the maximum cost of borrowing a payday loan is $15 for every $100 that you borrow. This means:

The law

The Payday Loans Act, 2008 helps protect people who take out payday loans.

Under the act:

you can't be charged more than $15 for every $100 that you borrow

you can't be sold or offered any goods or services in connection with the payday loan

you have two business days to cancel a contract for a payday loan without any penalty (e.g., without paying a fee) and without having to give a reason

"rollover" loans are not allowed (this means you can't roll what you owe on a payday loan into a second payday loan. This is because you can't get another payday loan from the same lender before paying your first loan in full)

Rules for payday lenders

Payday lenders must:

be licensed with the Government of Ontario and follow the rules set by the Payday Loans Act, 2008

include specific information on the first page of your contract

the amount you are borrowing

the number of days that your loan is for

what you will pay to borrow the money

never ask for or accept payment by automatic deduction from your paycheck (assignment of wages)

display a poster and give out a flyer that explain the cost of taking out a payday loan over time

If you have not met the terms of your loan agreement (e.g. haven't paid), a lender can't:

contact you more than 3 times a week (not including regular mail) or on holidays

contact your spouse, family, household members, relatives, friends, neighbours, or acquaintances at any time

process a post-dated cheque or pre-authorized debit more than once if it will result in your financial institution charging you any fees, like overdraft or fees for insufficient funds (if a lender does this, you are entitled to recover these fees from the lender and would not be required to pay the cost of borrowing the loan)

use threatening or intimidating language

use excessive or unreasonable pressure

Starting on July 1, 2018:

lenders cannot lend you more than 50% of your net income per loan

lenders must show the cost of borrowing a payday loan as an annual percentage rate in advertising or agreements

the maximum fee that cheque cashing services can charge for government-issued cheques is $2 plus 1%of the face value of the cheque, or $10 - whichever is less

Extended payment plan

Beginning July 1, 2018, lenders must give you the option of an extended payment plan if you take out three loans within a 63-day period.

If you enter into an extended payment plan, you can:

make prepayments at any time without any additional fee or penalty

exit the extended payment plan at any time without any additional fee or penalty

You have the option to pay back your loan in equal instalments over multiple pay periods. The amount you pay back per instalment will depend on how frequently you are paid.

If you are paid weekly, bi-weekly, semi-monthly or more frequently:

your instalments must be spread out over at least three pay periods

the maximum amount of each instalment is 35% of the combined total of the loan and cost of borrowing

If you are paid monthly or less frequently than semi-monthly:

your instalments must be spread out over at least two pay periods

the maximum amount of each instalment is 50% of the combined total of the loan and cost of borrowing

File a complaint

If you believe that a payday lender has broken the rules, you can file a complaint with us.

Find a licensed lender

Before you get a payday loan:

always check that a lender is licensed (don't take out a loan unless you see an Ontario licence number, even if borrowing from retail stores or online lenders)

be aware that there are companies that pose as online payday lenders but are actually "lead generators" that collect personal information from people looking to get a payday loan and then sell it to an actual payday lender (sharing this kind of information can put you at risk of identity theft)

Check if a payday lender is licensed
Ask the right questions

Before you get a pay day loan, you should:

plan to have enough money in your account to repay the loan and on the day it is due

understand how much you will pay for the loan if it's overdue

ask how much will it cost me to borrow this money?

ask how much will I be charged if I don't pay the loan back on time?

ask is this payday lender licensed and in good standing?

ask am I being charged more than $15 for every $100 that I'm borrowing?

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As of January 1, 2018, the maximum cost of a payday loan has been lowered. On July 1, 2018, new rules come into effect affecting both payday lenders and borrowers. Here's what you need to know.

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Website #2 - Global News - Payday Loans Report

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Website #2 - Global News - Payday Loans Report

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This site documents a 1500 person survey of pay day loan users to find out why people were taking out pay day loans. The results found 27%of people chose to pursue a payday loan as the bank or credit union denied their loans while 15% said they had no time to take out a loan with their bank as they required the money immediately. Only 43% correctly stated pay day loans were more expensive than other loan options. This brings forward the devilish nature of pay day loans as it relies on creating an option for those desperate for immediate payments of their other outstanding debts through them but also tacking on an equivalent of a 500-600% interest rate.

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More Canadians are turning to payday lenders and many people don't understand the costs of this form of credit, according to a new report by the Financial Consumer Agency of Canada.

The agency calculated that 1.9 per cent of Canadians had used payday loans in 2009, and that number more than doubled to 4.3 per cent in 2014.

"We are a bit concerned about the number of people using these," said Jane Rooney, financial literacy leader for the Financial Consumer Agency of Canada. That's part of the reason why the agency surveyed 1,500 payday loan users, looking at why they took out their loans.

"What the survey findings showed is that people really don't know the cost of these compared to a cash advance on a credit card, a line of credit or overdraft protection," she said. Only 43 per cent of respondents correctly said that payday loans were more expensive than these other options.
READ MORE: 'They like having people in debt' - Your payday loan stories
For a $300, 14-day payday loan, consumers can expect to pay an additional $63 in costs, according to the agency. That's much more than a cash advance on a credit card for the same amount ($7.42 in additional charges), overdraft protection on a bank account ($7.19) or borrowing from a line of credit ($5.81).
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"If people really understood payday loans, they would say, 'Why would I take out a loan that has the equivalent interest rate of 500-600 per cent?' That's crazy. They wouldn't do it," said Scott Hannah, president and CEO of the Credit Counselling Society, a non-profit credit counselling agency.

But many of the people who take out payday loans say that they don't have access to cheaper alternatives. Twenty-seven per cent of respondents said that a bank or credit union wouldn't lend them money, and 15 per cent said they didn't have time to arrange a loan from a bank. Only 35 per cent said they had access to a credit card.

"It's tough for a lot of people if they've had a hiccup," said Hannah. "Perhaps they're unemployed or they have an injury and their income took a hit. Perhaps they fell behind on conventional credit. Unfortunately it's going to remain on their credit report for a number of years, which makes it difficult for an individual to qualify for that form of credit until their credit rating improves."

These people, particularly lower-income people, don't have savings to draw on in the case of an emergency, and can't access conventional credit, said Hannah. He thinks this is a gap in the market.

"There really isn't access to a lower rate small loan."

And most of the loans are small - according to the survey, 55 per cent of loans were for less than $500. They were mostly used for unavoidable, unexpected expenses.

"I think our financial institutions have the resources to assist some of these individuals without taking on too much risk," said Hannah.

Paying it back

Rooney would like to see people prepare in advance for financial emergencies, like a car breaking down, so that they don't need to turn to credit in the first place.

"The average payday loan is $500. If someone is able to set aside even $1.50 a day, that adds up to about $550 over the year so they would actually be able to avoid using that payday loan," she said.

She also thinks that people need to understand how expensive these loans are.

"We really want people to shop around for and understand better the costs of these products versus alternatives."

Hannah believes that while there may be some cases where a payday loan makes sense, people need to have a repayment plan when they take one out, or risk falling into continuous debt. "If you were short $300 for this paycheque, what things are going to change that you can manage with $300 less next paycheque? The reality is probably nothing is going to change dramatically. And that's the trap that people get themselves into."
READ MORE: How to survive a financial emergency
When faced with a financial emergency, he suggests talking to someone you trust before making any decisions. "The first thing is don't panic," he said. "If you're the person who's got the financial crisis, you're reacting to it emotionally rather than thinking it with your head."

There are a number of alternatives to explore before taking out a payday loan, such as asking for an advance on your paycheque, or arranging to defer payment on some bills, he said.

But both Hannah and Rooney believe that financial literacy is key. "We need to do a way better job about educating kids about managing money effectively," said Hannah.
Have you ever used a payday lender? Why? Tell us about your experience using the form below. Editor's note: An earlier version of this story stated that 35 per cent of respondents reported not having access to a credit card. In fact, only 35 per cent do have a credit card, according to the report. We regret the error.
Note: We may use your response in this or other stories. While we may contact you to follow up we won't publish your contact info.

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More Canadians using payday loans, most don't understand costs: report

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More Canadians are turning to payday lenders and many people don't understand the costs of this form of credit, according to a new report by the Financial Consumer Agency of Canada. The agency calculated that 1.9 per cent of Canadians had used payday loans in 2009, and that number more than doubled to 4.3 per cent in 2014.

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This is the full breakdown of the market trends for Pay Day Loans described in the CIBC news report in Video #1. The government of Canada lists numerous findings from their 1500 participant sample including demographics, size of loans, repayment of loans, reasons for loans, number of loans, household savings and several other factors for understanding the reasoning behind why so many people get pay day loans. The numbers reveal a very bleak situation for many of the participants. While a majority paid back their loans with their following pay cheques, rounding up the other methods lenders paid back their loans, including taking money from savings accounts, taking new payday loans from other lender, taking out loans from friends or family, and using bank account overdrafts, 55% confessed to doing these acts to pay off their pay day loan. The document details that irony that the lenders could have used any of these means to pay off their current debt instead but couldn't identify a core reason why they would instead take out a pay day loan. Only theorizing again that most pay day loan lenders don't understand the high interest on these specific loans they need to pay back in a short period of time.

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personal finance; credit; regulations; consumer protection; loans; debt; interest rates; debtors; borrowers

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FCAC conducted a national survey of 1,500 Canadian payday loan users to inform the Agency's approach to educating consumers.

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Website #4 - Statistics Canada - Perspectives on Labour and Income

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Website #4 - Statistics Canada - Perspectives on Labour and Income

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An archived statistics page from the government of Canada, this site details the early rising of the pay day loan industry in Canada and how it was already beginning to amass massive debt from its young lenders. Detailing in its closing summary a definite need to regulate the industry due to its extremely high interest rates with young families being three times more likely to be using pay day loans due to the industry cornering the alternative credit union market at the time. Seeing the early days of the government trying to understand this alternative market is very interesting but shows how these companies manipulated a need from the masses for quick money to alleviate their woes and created their business model to profit off their debt.

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consumer goods earnings economic conditions employment income labor labour force labour market salaries and wages trends pension plans retirement income investment

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Perspectives on Labour and Income - Payday loans

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This quarterly publication brings together and analyzes a wide range of labour and income data

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Picture #1 - Infographic - Pay Day Loans Market Trends

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Picture #1 - Infographic - Pay Day Loans Market Trends

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This an infographic breakdown from the Financial Consumer Agency of Canada detailing the market trends for Pay Day Loans in Canada. It breaks down the many reasons why payday loans have become the most expensive form of money lending in Canada and urges consumers by the end to “stop the debt cycle.” To see the growth of payday loans increasing from 1.9% in 2009 to 4.3% in 2014 makes me very worried for the consumers of the current 2019 as debt will just keep piling up as necessities in our lives continue to grow in expense.

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Video #1 - CBC News - Payday Loans On The Rise

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Video #1 - CBC News - Payday Loans On The Rise

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CBC details the growing problem of pay day loan debt within Canada bringing on the founder of Hoyes, Michalos and Associates to discuss it further. With an average interest rate of $15 per $100 on loans, pay day loans as of 2018 were involved in nearly 1/3 of the bankruptcy cases that approached Hoyes. But the bankrupt victims weren't necessarily poor people. Average earners making on average $4000 a month were known more for taking out pay day loans. The report details this is due to more people holding larger amounts of debt for longer periods of time and a downward trend of reduced Income. So some people end up using their pay day loans to pay off other existing debt creating a cycle of ever growing debt. It is a fact that there is a fewer number of loans taken out but the loans that are taken out are for higher values, on average $1000. It was stressed in the video though the pay day loan companies aren't a cause of issue but a symptom of our societies' living wages decreasing as the years go on. I'd definitely agree with Hoyes that consideration should be made by business owners and more to provide a living wage to their workers to begin to slowly remedy this issue. Until we can do anything like that people will continue to be desperate to escape from debt by digging themselves further into debt.

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Video #2 - Money Mart Pay Day Loans Informational Video

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Video #2 - Money Mart Pay Day Loans Informational Video

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This is an infomercial from Money Mart's direct youtube channel detailing what is necessary to apply for a pay day loan at their locations. Unlike the videos, images and sites above from Money Mart's perspective they are selling an easy hassle free means to pay off debt in between pay cheques. The actors make sure to consistently reiterate the key words of ease of the pay day loan to make them enticing for customers to get them. I notice they mention how the customer receives their money quick and fast multiple times but never mention the reality that these quick easy loans will need to be paid back. It could be chalked up to it be stating the obvious or more likely mentioning that process would yield negative responses. All the information on the high interest rates and such is still apparent with all pay day loan companies, Money Mart may make it easy to get money but they also make it easy to receive more money from their clients that they help.

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Picture #2 - Mr. Payday - Payday Loan Ad

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Picture #2 - Mr. Payday - Payday Loan Ad

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An ad from a pay day loan company called Mr. Payday, exhibiting a colourful and seemingly helpful business model. No matter your credit or history this company has a 99% guarantee that they can give you cash up to $1500 for you to pay off your loans or payments. It's a case of too good to be true as it neglects that a pay day loans business model directly profits off people not being able to fully pay back their loans so companies like Mr. Payday make money off just the interest that they take off their customers, taking it out of their wages. If an offer sounds this good, do not believe in it. Research it. Then truly decide if you want to do a pay day loan or get a loan from literally anywhere else.

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Video #3 - The Trouble with Payday Loans

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Video #3 - The Trouble with Payday Loans

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A segment from CIBC Amanda Lang's The Exchange, reporting on the pay day loan industry from 2015. During the time of the footage much more of the industry was regulated on a province by province basis with little done to avoid the worst possible outcomes that have been remedied in 2017 with Canada's new laws protecting lenders from such abuse. The segment documents the pay day long regulations being drafted in the United States as a means to draw a parallel between both the US and Canadian Pay Day Loan companies and their underhanded practices that require regulation. Including median loans being dwarfed by the median fees that customers had to pay back to these companies. Thankfully many of the current regulations limit the abuse pay day loan companies can get away with but lenders should still be wary

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Consolidated Credit Counseling Services of Canada

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The Trouble with Payday Loans | Consolidated Credit Canada

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A video that clearly details how a lender can calculate the interest on their pay day loans. Considering nearly half of pay day lenders didn't understand the actual costs of their loan this is definitely a wonderful tool for those considering to borrow. The video defines the pay day loan for their calculations as under $1500 with a payment period of 62 days or less.

The calculations can be done like this to find out what interest rate you are paying.
For this example, our lender is borrowing $300 for 2 weeks for $69.
Then you plug those numbers into this equation.

(Cost of Borrowing) Divided By (Amount Borrowed) = (Interest rate of Loan for period of Time)

$69 / $300 = 23% For 2 Weeks

Then you multiply the interest rate by the number of weeks in a year also taking into account leap years which is done through calculating 365 Days divided by Two Weeks or 14 Days which equals 26.0714.

So you finally calculate (Interest rate) X (# of Weeks) = (Annual Percentage Rate)

or 23% X 26.0714 = 599.64%

Doing these simple calculations shows plain as day the astronomical interest rates that pay day loan companies are proposing to its customers and makes it clear why so many people get trapped in a cycle of debt.

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A Pay Day loan is a quick high interest loan that you (the lender) promise to pay back from your next pay cheque. Hence it being called a Pay Day loan. It's an industry famous for helping those who are in desperate needs to pay off immediate bills and necessities and then trapping those same people in a cycle of unending debt.

I was introduced to the concept of Pay Day loans by a comedian named John Oliver, who did an exposé on the industry and its underhanded practices. My topic was about listing the pros and cons of Pay Day Loans but really the major pro of the business is people are able to get quick financial relief if they desperately need it.

But apart from that one scenario where lenders are able to pay off there small less than $1500 loans, pay day loans are filled with many pit falls for lenders that leads to more debt in the end. Now I shall focus on the strictly Canadian aspect of the industry so I present to you my findings for pay day loans in Canada.