Payday loans and bank double standards

Income inequality is mounting in Canada, making an already inexcusable wealth gulf worse.

And with wealth comes privilege — especially in Canadian banking.

Low-income residents of Canada face a significant double standard when it comes to accessing banking services despite urgently wanting them, according to a survey of 268 ACORN Canada members, whose findings were published today by the Canadian Centre for Policy Alternatives’ Ontario office.

The survey results show many have been denied access to very basic banking services — such as cheque cashing or overdraft protection — from traditional banks.

But everyone has to eat. And sleep. So when the banks refuse to offer a bridge over roaring financial water, many low-income people turn to payday lenders to ferry them across. But the toll is steep: astronomical interest rates, some as high as 500 per cent await them on the other side.

Half of the surveyed ACORN members turned to predatory lending storefronts to cash a cheque. One in three went for food money. Another 17 per cent needed cash to pay the rent.

Who are these low-income residents of Canada turning to modern day loan sharks? They’re people you may see every day. Some of them, indeed some of the most vulnerable people in Canadian society, receive fixed incomes such as social assistance, disability payment and/or pensions. Others work — 18.7 per cent of them hold full-time employment and 13.6 per cent toil part-time — and still don’t impress Bay Street enough for the bankers to offer them service.

ACORN’s members say they need credit cards. They say they need chequing and savings accounts. They say they need overdraft protection. Almost half (47.7 per cent) of the survey respondents reported trying to get a line of credit. More than 42 per cent tried to secure a no-fee account.

When rejected by Bay Street, low-income people have little choice but to turn to predatory loan operators. There are about 1,500 payday storefronts in Canada. More than half of them are in Ontario.

The thing is, it’s not as if this is the favoured option for anywhere close to most people with low incomes. Less than five per cent of ACORN’s respondents told the organization they preferred high-interest banking services. More than 60 per cent of respondents told ACORN they believe it is “very important” for banks to offer overdraft protection, small loans, no fee accounts, and lines of credit to low- and moderate-income earners. If such services were offered by a bank or credit union, close to 75 per cent of respondents told ACORN they would switch where they do their banking.

But they can’t. And so, those who sweat and bleed for meagre pay or who are unable to make ends meet are cast off by the Canadian banking industry.

All of this, in an advanced capitalist nation where the average adjusted for inflation income of the top 100 Canadian CEOs has spiked by 89 per cent since 1998, while the average Canadian income has increased by a mere eight per cent.

How much trouble are corporate executives having getting approved for credit when needed? It seems to come down to this: it takes money to get money.

What does it all mean? Firstly, that so many low-income residents, be they receiving a fixed income or working, are unable to make ends meet is an indicator that neither government nor the labour market is adequately compensating people for basic necessities. Secondly, the banks are clearly failing some of this country’s most vulnerable people. These tensions strike at the integrity of the Canadian economy and have deep social implications.

In response to this banking sector double standard, ACORN wants to see the federal government legislate the banks to provide fair access to low-income families; specifically that they should have access to:

  • low-interest credit for emergencies
  • low-interest overdraft protection
  • no-holds on cheques
  • an NSF fee of $10 instead of $45
  • alternatives to payday lenders such as postal banking and credit union

ACORN also wants to see Ottawa implement an anti-predatory lending strategy, a tracking database to halt the rolling over of loans from one company to another, and the lowering of the Criminal Code maximum interest rate on loans to 30 per cent from 60.

Ultimately, this leaves Canada at a fork in the river. Policymakers at both the federal and provincial levels can either move on options to overhaul the banking system so that all residents of Canada get the banking services they deserve, or continue to permit a borrowing double standard that burdens low-income people with a vicious cycle of high-interest debt.

 

Joe Fantauzzi is a Masters candidate in Ryerson University’s Department of Public Policy. He is an intern and research assistant at the Canadian Centre for Policy Alternatives’ Ontario office. Joe is a former newspaper journalist.

One comment

  1. Back in the 1970s, when I was a student, I worked as a teller at the Royal Bank’s “Community Branch” in Toronto. (I recall it as being located near Queen and Carlaw, but – sorry – I’m now fuzzy on the details.) It was one of two “Community” branches – I believe the other was in Montreal – set up to provide access to banking for low-income people who otherwise were unlikely to use (or have access to) banking services. One service it provided, for example, was the manager could provide small, short-term loans to people ($200 for a couple of weeks, for example – and at standard interest rates). The branch manager had a lot of discretion, and worked very hard to connect with the community. (The manager, whom I still remember as a great guy, was actually named Bob Gentleman – and in this case, his last name was thoroughly deserved.)

    Working there was fun, because the other staff were great people, dedicated, and the whole atmosphere was far more informal and “drop in centre” than a traditional bank branch.

    I also recall being told at the time that one of the reasons the Royal undertook this “Community Branch” initiative was that the banks were starting to feel political heat about access by low-income people. I guess the political heat eased, because at some point (late 70s/early 80s?) the experiment was shut down. So far as I know, banks don’t worry about this issue any more – which is one of the reasons that pay-day loan businesses are now so plentiful.

    The last paragraph of the article states the issue very clearly. But it may interest some readers to know that, at least briefly, there was some attempt (whatever the motivations) by one of the major banks to at least look at the problem (or pretend to? – I don’t want to be that cynical). I don’t know the full history, obviously, but I still feel that it’s too bad the initiative was closed down rather than expanded.

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