Thursday, August 3, 2006

A recent article in The Lacombe Globe doesn't necessarily weigh in on either side of the payday loan fight in Canada. It just takes readers inside such a cash advance world.

A payday loan company is a private businesses that lends money without the borrower offering up security. The only thing a client may need is a pay stub from his/her workplace and a need to be employed for a period of six months for example.

Payday advance lenders then allow consumers to write a personal check for immediate cash as long as they have a job and a bank account. The provider holds the customer’s check until their next payday.This is where people can get into trouble.

If you’re having trouble coming up with the small amount of money you get an instant payday loan for, you’ll probably have trouble repaying the loan plus interest, which can be upwards of 60 percent. Often people living week-to-week manage only to pay the interest, and then renew or carry the cash loan over and pay interest on it again.

"For those that can manage them well, it’s not much of an issue but those that struggle with income it can get away on them," said Diane Rennie, Credit Counselling Canada. "The service charges are fairly high and is intended to be a short term product. If you can pay it back in one or two weeks it can be a helpful product but if you really need help on an ongoing basis then it can become very expensive."

The Canadian Payday Loan Association (CPLA) is the governing body for 850 of the 1350 retail lending outfits in Canada. They have a two-part mandate to work with the federal and provincial governments to get regulation in the payday advance industry.

"This would allow the industry to operate viably and to make sure there are strong consumer protection measures in place," said Michael Thompson, president of the CPLA. "We state up front that a payday loan is not to be used as a long-term credit product."

Thompson recommends that if a person defaults on a loan more than once in a year, they be referred to credit counselling.

Payday loans can appeal to people anxious to get money for rent, car repairs, or other desperate situations because they don’t do credit checks. Leo Sorenson opened up his first payday store eight years ago. Today Sorensen’s Loans til Payday has 27 outlets, including one in Lacombe.

"We found a need for it," said Sorensen. "Although, all of a sudden for some reason we turned out to be bad guys that are taking advantage of people."

Thompson said that a couple million Canadians use the services of a fast payday loan lender each year. Sorensen said that 80 percent of his clients are repeat customers. However, a repeat customer in this business means that maybe the client has problems managing their money or they have got themselves into a cycle of debt that is hard to get out of.

"Maybe it’s not good money management which is why we are in business in the first place," said the 72-year-old Sorensen, a veteran of the construction industry. "There are always guys wanting to borrow money. It’s almost like saying prostitution is bad. Are you going to get rid of it? You’re not going to get rid of people borrowing money."

In other words: there is - and always will be - a need for cheap payday loans and he simply fills it.

This entry was posted on Thursday, August 3rd, 2006 at 6:00 am and is filed under Canada.