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TORONTO—Usury
is making a comeback. Since Canada’s
chartered banks pulled out of low-income neighborhoods in the late 1990s,
payday loan companies filled the void.
These
storefront outlets charge borrowing rates as high as 1000 per cent to clients
desperate to avoid eviction, keep bill collectors at bay, or get through
emergencies. The two biggest companies, Money Mart and Rentcash, operate 650 outlets. There are hundreds of
small firms.
It is
illegal to charge more than 60 per cent interest per annum, but the law
is seldom enforced. Moreover, it is full of loopholes that allow a lender
to charge the legal maximum, and then add on processing fees, penalties
and service charges, without breaking any law.
How
much money do they make? Last year a parliamentary research team
estimated that it ranges from $170 million to $1 billion annually. ACORN Canada,
an advocacy group that monitors the financial sector, says the figure is
closer to $2 billion. Roughly a quarter million Canadians use these outlets
to cash checks, borrow money, or get an advance
on their tax refund.
Banks
don’t want high-risk clients with no collateral and little disposable
income. So, when these borrowers can’t repay on time, the payday lender
offers them a rollover, which leads to a new round of fees and charges,
more expensive loans, and ever deepening debt.
Although
the Toronto Dominion Bank and the Royal Bank of Canada
denied any connection to the payday loan operators, ACORN discovered,
after examining filings of bank stock holdings in the U.S.,
that these giants own shares in the paydays.
Since
tarring and feathering may be just a little too good for the likes of
these sharks and their Bay
Street partners, expropriation without
compensation would be their just desserts. Public ownership of the
financial sector would set the stage for service and investment in
neglected communities, and low-interest loans to farmers, small
businesses, workers and needy consumers. And it would definitely put the
sharks out of commission.
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