Payday nightmare

By Sreedha Varanasi & Dawn Gray

 

Windsor currently has over 30 institutions that offer payday loans and some Windsorites feel as though the loans offered can easily become a financial trap.

A payday loan is an amount of money lent to a borrower at a high interest rate, to be paid back at the arrival of the borrower’s next paycheck.

Payday loan establishments charge high interest rates, some of them higher than the legal 60 per cent annual interest allowed. This is possible because federal legislation was introduced in 2006 allowing certain provinces to exempt payday loan lenders from the rule in exchange for other regulatory powers in the industry.

In Ontario, a one-month payday loan has a maximum fee of $21 per $100 borrowed — that’s an annual interest rate of 240 per cent. If borrowers can’t make their payment or need to re-borrow, the cycle can quickly spiral out of control.

Jeff Castenada, a financial planner, has seen this happen first-hand. Prior to becoming a financial planner, he found himself caught in this cycle after he turned to a Money Mart for an emergency payday loan.

“I’ve done it. I’ve gotten a loan from Money Mart once and it became more than once,” said Castenada. “I got stuck in the cycle. I got trapped.”

He was able to eventually pay off the loan but still wonders how these places are allowed to “get away with it.”

Castenada said the problem is that people continue to live beyond their means knowing these places are available to loan money. He recommends to only go to these lenders when in dire circumstances.

“My job is wealth management. Payday loans are not a strategy to build wealth, it’s a strategy to make you poor,” said Castenada. “They target the poor and the middle class. People who are not managing their money properly and living beyond their means, that’s who they are targeting.”

According to Castenada, the best way to avoid finding yourself in need of a payday loan is to simply live within your means and never spend more than you make. He said it’s all about habits and tracking your expenses.

“Track one month. You will be surprised how much you spend on shopping, fast food and coffee. People buy a lot of things they don’t need to buy,” said Castenada.

Many payday loan establishments do not require credit checks to determine eligibility for loans.  Castenada said it’s telling of the demographic that is targeted by payday loan establishments.

Rob Cameron is a Windsorite who became stuck in the cycle of payday loans.

Cameron said in 2013 he took out two loans. The first was for $2,100. The following month, Cameron needed and was approved for another loan of $1,000. Including the interest, insurance on his loans, and the loan amounts themselves, Cameron said his current payment plan leaves him still owing over $5,000.

“My loan payments will end in December of 2018,” said Cameron “I can’t believe the government hasn’t stepped in. Once you get into it, you can never get out unless by a miracle.”

It is extremely difficult to get out of the payday loan cycle. In fact, 93.8 per cent of payday loans are taken by repeat customers, according to the Government of Ontario.

Cameron said to this day he still has to borrow $600 every month from a payday loan lender and has to pay back $726 every month.

According to the Financial Consumer Agency of Canada, knowing the laws surrounding payday loans will help make an informed decision on borrowing money. In Ontario, $21 is the maximum cost for borrowing $100, and the borrower has two business days to change their mind and cancel the loan.

In Ontario, a payday lender cannot extend or renew a loan, a practice which would cost the borrower more interest and borrowing fees. They also cannot ask customers to sign any forms transferring their wages directly to the lender.

Windsorites who are in debt from payday loans or any other loans can turn to certain institutions that can help such as the Windsor Family Credit Union. A representative from the WFCU who asked not to be named said that their institution can and has helped people in the past who have suffered from loan debts.

The FCAC urges citizens to consider other options when in need of money, such as opening a line of credit at a financial institution, overdrafts on bank accounts and credit card cash advances, all of which are cheaper alternatives to payday loans.

Various payday lenders such as Cash Money were contacted for comment, but no response was given.