by Marnie Schaetti
When yet another payday lender was slated to open on Calgary’s 17th Avenue SE, the residents began to mobilize. It seemed to them that the neighbourhood was already adequately served with the existing six payday lenders on that stretch of the Avenue. These residents understood that payday loans, which are excessively expensive, are predominantly targeted at the working poor—people who often have no other access to credit. They wanted to find a way to offer alternatives.
The residents formed alliances with local organizations and businesses, a financial institution, social workers and researchers. Together, they established the Rise of the Cash Store committee. Its goal was to slow the spread of such businesses and develop alternative services. Momentum was happy to put our public policy expertise to work on the problem.
Meanwhile, the Enough for All strategy—an initiative driven and developed by Calgarians to reduce poverty in our city—was before City Council for approval. One of the things the strategy advocates is the development of safe, affordable and accessible financial products and services. Those are precisely the services that the Rise of the Cash Store committee wants to see in their community.
In the fall of 2013, Enough for All was unanimously approved by Calgary City Council, bringing scale and broader political purpose to the work of the Rise of the Cash Store committee and others around the city. We at Momentum are proud to contribute to moving this work forward and are grateful for the support of City Council.
As part of these initiatives, Timothy Afolayan and Mike Brown have worked together to fight payday lending practices. Timothy is a Momentum Participant Ambassador and a graduate of the Fair Gains matched-savings program. Mike is the Public Policy Coordinator at Momentum.
What is your experience of payday loans?
Mike Brown: I’d seen the ads on TV, of course, but I’d never been in a spot where I needed one myself. I’ve learned about them much more since Momentum took them up as a policy issue.
Timothy Afolayan: For me, it was much more personal. I came to Canada on a scholarship. Just as the scholarship ended, my parents’ situation at home in Nigeria changed and they could no longer afford to help me.
I was working but I couldn’t afford rent so I was homeless for a while. When I got a better job, I thought I would be okay. But I was living paycheque to paycheque, spending too much and not saving at all.
Then my mother got very sick. I needed to send money home for her hospital expenses but I had no credit. Banks wouldn’t help me. So I had to borrow $600 from a payday lender.
How did the loan work?
Timothy: Well, that loan felt like a real life saver at the time. But it didn’t turn out that way. I had to pay $20 for every $100 I borrowed, so I owed $120 on the $600.
But you can’t just pay back a portion. You have to pay back the whole thing. So I took out a $600 loan, and two weeks later, I had to pay back $720.
Mike: They’re called payday loans because they’re designed to be paid back when your next paycheque comes in.
But the reality is that people resort to payday lenders because they can’t make ends meet. That pattern doesn’t change between taking out the loan and the next paycheque.
The loan may help at first but it ends up trapping you. It’s a vicious cycle of debt and re-borrowing. In fact, the average borrower ends up taking out eight loans before being able to break the cycle.
Timothy: My paycheque was about $900, so there was no way I could pay back $720. I had no choice but to borrow the $600 again so I could pay
my rent and buy groceries. This went on for 10 months.
Every month, I was paying $240 in fees and borrowing $600 again. In the space of 10 months, I had to pay $2,400 in fees on a $600 loan.
How do you break the cycle?
Timothy: All I can say is thank goodness for income tax refunds! But, you know, I’d probably still be in trouble if I hadn’t learned how to handle my money.
Momentum’s programs helped me understand how money works. I learned to save and I’m still saving. I’ve opened RESPs for my two girls.
Mike: Most of the people who resort to payday loans are working, they have families. They’re borrowing money for necessities. They’re not doing it on a whim.
People living on low incomes are definitely the target market for payday lenders.
There are 86 payday-loan locations in Calgary, and 85 percent of them are in neighbourhoods with above average rates of poverty.
At Momentum we’re working with our community partners to promote policy options at all levels of government. And we’re working with financial institutions to create alternatives that are quick, safe, fair and affordable. We don’t just want to get rid of people’s last option; we want to give them better ones.
Timothy: As for me, I’m speaking out. I want other people to know what I know now without having to learn it the hard way!
Check out other stories from Perspectives: the 2014 year in review.