Toronto City Council to consider zoning restrictions on payday loan outlets

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In 2019, Shelly-Ann Allan’s bank refused to lend her the money she needed to help pay for her father’s funeral, so she had to turn to a payday loan company.

But what he did not take into account was the death of his stepfather shortly after. She had to take out another payday loan on top of the one that still had a balance of $1,500.

“Interest rates [have] built and built on me, and that’s where it’s affecting me right now,” said Allan, who lives near Jane and Finch, an area of ​​town that has a disproportionately large number of payday loan companies.

Critics say the concentration of these types of businesses in low-income communities helps perpetuate the cycle of poverty. That’s why the Toronto City Council is discussing a recommendation this week from its Housing and Planning Committee that would prohibit new payday loan outlets from being set up within 500 meters of social services offices, housing social clubs, liquor stores, casinos and pawn shops.

Shelly-Ann Allan says it’s been hard to get out of debt after signing up for a high-interest loan to help pay for two funerals. (Submitted by Shelly-Ann Allan)

According to Allan’s contract with payday loan firm easyfinancial, his accrued interest rate is now 47 percent and he now owes $24,000. She says that where she lives, people need more than zoning restrictions to restrict payday lenders, they also need financial institutions that will lend them money at reasonable interest rates.

“People like me … the bank wouldn’t look at me to lend, because they said I couldn’t pay that money back,” Allan said.

Zoning limitations

Currently, lenders in Ontario cannot charge more than $15 in interest for every $100 borrowed.

Despite that, University of Toronto finance professor Andreas Park says APRs can reach more than 400 percent for short-term payday loans, and additional interest may apply if the loan is not paid at the end of the term, according to Payday Loans. Act.

A 2021 report by city staff says the zoning restrictions would only apply to new establishments and could not be applied retroactively to existing ones.

In 2018, the city limited the number of payday loan licenses and locations. The city says this has contributed to a more than 20 percent decline in such establishments, from 212 to 165 as of January 26. But a new supplementary report released days before this week’s city council meeting shows there has been limited movement by the remaining payday outlets, with just three movements since the city introduced those restrictions.

The staff recommended finding “improvements in consumer protection and access to low-cost financial services” as a way to regulate the industry.

Count Anthony Perruzza, who represents District 7, Humber River-Black Creek, says that’s all part of the city’s Poverty Reduction Initiative.

“But that plan is still in the works, and it’s still a few years in the making.”

The City of Toronto’s most recent payday loan location map shows clusters of locations in certain low-income neighborhoods. (City of Toronto)

Andreas Park, a finance professor at the University of Toronto, says zoning restrictions against businesses are limited in their ability to address the heart of the problem.

“It’s pretty amazing that these payday lenders are so prevalent in poor neighborhoods and they don’t provide better service,” said Park, who agrees that people in those neighborhoods need better access to lower-rate loans. reasonable interest.

“Why don’t we have systems in place to help them overcome some of the challenges they face?”

ACORN Toronto, an advocacy organization for low- and middle-income groups, says that while it welcomes the reduction in payday loan outlets, the city should follow the lead of Ottawa and Hamilton, which already have implemented zoning restrictions.

“The more frequently residents see these businesses, the more likely they are to consider accessing high compound interest loans,” wrote Donna Borden, director of East York ACORN, in a letter to the city.

“We believe this is not about planning logic, this is about fairness, human rights and fair banking.”

The city needs federal and provincial help

The last time the council discussed the issue was in December 2020, when it made numerous requests to the federal government to increase predatory lending enforcement and to the province to provide cheaper lending options for consumers.

The Ontario government told CBC News that it is reviewing feedback from a 2021 consultation with stakeholders and the public on ways to address the issue.

Additionally, the federal Finance Ministry said in an emailed statement that the government is considering cracking down on predatory lenders by lowering the criminal interest rate, which is now pegged at 60 percent. However, payday lenders are exempt from this provision in provinces that have their own system of financial regulation, such as Ontario.

Perruzza says that COVID-19 has added more urgency to the discussion and warns that change from all levels of government cannot come fast enough.

“A lot of the people … are people who don’t get support from the federal government,” he said.

“They don’t get support with the traditional programs that are out there, and they’re trying to … make ends meet and then fall victim to predatory lenders even more,” he said.

“We really need to convince the federal and provincial governments that this is a big problem, and they need to use the legislative tools that they have at their disposal.”

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