City considers new rules for payday loan companies

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A new licensing system will limit the location and number of payday loan companies in the city.

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The rules, which require final board approval at a meeting on November 19, limit the number of payday loan stores to 10 and prevent them from being within 150 meters of “selective sensitive land uses.” , including crisis residences, gaming establishments, groups homes, medical clinics and offices, and schools.

Money lending companies will also need to have proof of a valid provincial license and have commercial liability insurance in the amount of $ 2 million.

“It’s a step in the right direction,” said Coun. Rick Weaver, who has worked for several years regulating payday lending establishments in the city.

Payday loan outlets are quick and easy places to get money. The borrower is required to repay the loan from their next paycheck, and if they cannot repay the loan on time, they incur additional fees and interest which in turn increases their debt.

The Ontario government reduced the cost of a payday loan from $ 21 to $ 18 per $ 100 in 2017 and reduced it to $ 15 in 2018. Other provinces have made similar changes. And Brantford is one of a number of municipalities, including Hamilton, Kitchener, Kingston, London and Toronto, to crack down on payday lenders further.

“They are making money off the backs of the vulnerable,” said Weaver, who first raised the issue in front of council in 2016. In September 2018, he brought forward a motion for city staff to investigate the issue. changes to regulations governing payday lending companies.

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The city currently has 10 payday lending establishments, five of which are clustered on King George Road, between Powerline Road and Fairview Drive, and five are in and around the city center.

Eight of the 10 sites currently meet the proposed minimum separation distance of 150 meters from sensitive land uses. The other two will benefit from acquired rights, but if these companies change hands, they will have to comply with the new distance regulations.

A report by City Treasurer Catharine Brubacher and Paul Moore, CEO of Community Development, noted a 2010 study from the Center of Community Based Research that documented some of the impacts of payday loans on borrowers.

Many research participants indicated that the high cost of borrowing, the short payback period, the lack of full disclosure of risks and costs, the stress associated with multiple debts, and aggressive collection practices perpetuate the cycle of debt. debt.

Although the use of payday loans is not limited to low-income people, several Ontario municipalities have found that payday lending establishments are concentrated in low-income areas.

“People can end up going there out of desperation,” Weaver said. “You can get a $ 1,000 loan from one business and then get another $ 1,000 loan from another because they don’t talk to each other. It puts people in a hole that is really hard to get out of because of the interest rates they charge.

A national survey conducted by the Financial Consumer Agency of Canada in 2016 found that most payday loan users reported borrowing to cover necessary expenses.

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But Weaver said 13% of users take out loans for discretionary purposes and are able to repay them.

“There is a place for them in our society,” he said.

Weaver said an outright ban on payday loan companies was not the answer as people would be forced to find other ways to get money.

“It’s much better than going to a loan shark or bringing in a criminal element to provide the service.”

Once the new rules are approved by council, city staff will notify business owners of payday loans and work with them to complete their permit applications by March 31, 2020. A new application will cost $ 507 and a renewal , $ 308.

Weaver said additional provincial regulation was needed as many payday loan companies shut down their “brick and mortar” operations in favor of a cheaper online system that is “much more difficult to regulate.” .

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