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Association of Community Organizations for Reform Now, Canada1324 Danforth av. #2 Toronto, Ontario. 416.461.5322

Stopping Predatory Payday Lending

ACORN members have been fighting against predatory payday lending since 2004. During thistime we have talked with numerous payday loan customers, conducted extensive research on theindustry, engaged in discussions with representatives from individual companies, and releasedseveral reports.This experience has given us a deep understanding of payday lending and the predatory practices that are currently used. Now that they have the authority to enact legislation, provinces must take action to address this pressing problem and must do so in a way that protects consumers from abusive practices, while not restricting access to fair credit. Provincescan achieve these goals by enacting the following policies:

The cost of payday loans:

Any legislation must address the outrageously high interestrates that payday lenders currently charge with annual interest rates ranging from 500%to 1,000%. The Canadian Payday Loan Association has recommended legislation thatallows their members to charge an APR of 521%, which is almost 100 points higher thanthe 430% APR that Money Mart, the largest payday lender in Canada, charges.In 2006 ACORN commissioned a study by Chris Robinson, a finance professor andcoordinator of wealth management programs at the Atkinson School of AdministrativeStudies, York University. He analyzed the cost structure of existing payday lenders andthen modeled the profitability under various fee structures in order to determine anappropriate fee schedule that would reduce the very high rates currently being chargedwhile also still allowing some of the existing payday companies to continue to operate.

Professor Robinson recommended that payday lenders be allowed to charge

a fixedfee of $10 plus interest charged at an annual rate no higher than 60%, plus a feethat is a fixed percentage of the dollar amount of the loan no larger than 5%.

On a$300 loan, over a 7 day period this would come out to a fee of $36.85, allowing thelender to make a profit while still representing a significant decrease in cost to theconsumer. Professor Robinson calculated that his proposed fee structure would saveCanadian customers almost $200 million a year.Robinson also recommended that lenders not be allowed to charge more than 60% APR on loans that are in default.

Loan term:

Lenders should give customers a longer period of time to repay the loanthan the two weeks that they ordinarily give now. Legislation should require the loanterm to be no less than two weeks per every $50 loaned and customers should be allowedto pay the loan back in installments rather than in one lump sum. This allows customers a