A dreary scene is unfolding at the Jane and Wilson Money Mart, where five of us are waiting to borrow money.
Unlike the youths clutching wads of cash in the ads on the walls, none of us is smiling. A woman snaps at the clerk behind the counter. "Why do you need all my friends' and family's numbers?"
There's been an explosion of payday loan companies - 1,200 outlets across the country. And some of the biggest players - Cash Money, Stop 'n' Cash and Money Mart, the largest-grossing and best known - are charging outrageous interest rates, in excess of 600 per cent in some cases, for short-term loans to those who can least afford it.
Critics who view the industry practice as legalized loansharking are calling on the province for better regulation. Others are taking the companies to court. Nine class action suits are currently waiting for certification in Ontario alone. Beginning this month, the Consumer Protection Act will require payday lenders to clearly disclose the full cost of loans to their customers.
And not a moment too soon for Ken Mortillaro. In a little over a year, Mortillaro took out some 13 loans worth more than $5,700 from Money Mart. He had trouble paying those off and borrowed more money from both Unicash and Cash Money.
He claims in a suit filed against several lenders that he wasn't given full details about how much interest he'd be charged. "They tortured me," he says. "They phoned me at work. They caused a scene in front of my boss. It was humiliating."
Payday loans are shockingly easy to get. A pay stub, postdated cheque and updated bank statement are all that's needed. Most companies will let you borrow up to 50 per cent of your net pay but require a postdated cheque to cover the loan and interest and any brokerage fees.
Because payday lenders don't hold deposits, the Bank Act doesn't regulate them. There's no licensing process, and the closest category these establishments fall under is loan brokering.
Oddly enough, it's only under Section 347 of the Criminal Code, which was originally created to go after loansharking, not consumer lending, that complainants can pursue claims against payday lenders. This section sets a maximum 60 per cent compounded interest rate.
But according to the Association of Community Organizations for Reform Now (ACORN), interest on loans from many payday lenders can average from 300 to 900 per cent a year.
"Banks have never met the needs for small loans, and payday lenders have jumped into the void," says ACORN Canada executive director John Young. So where can consumers find protection?
Right now, Ontario's Ministry of Consumer and Business Services is working with Industry Canada and other provinces to develop a nationwide policy, says ministry spokesperson Jason Okamura.
"If consumers believe there's been a breach of the Criminal Code, that's obviously a police matter," says Okamura. A spokesperson for the federal government says lowering the maximum allowable interest rate to 37.5 per cent is under consideration.
Nice gestures, says ACORN's Young, "but it won't make people more informed about what they're buying, because most desperately need that loan and won't take the time to read the fine print." He points out that Money Mart made $84.8 million U.S. in Canada last year, at least half of which came from payday loans.
In January, the Canadian Association of Community Financial Service Providers came up with a code of practice aimed at forestalling complaints that they exploit vulnerable payday borrowers. The code covers 90 companies and is supposed to "establish standards in the areas of disclosure of information, business practices and consumer education."
Bob Whitelaw, the president of the lenders association, says that calculating long-term interest rates on short-term loans skews the reality of the situation. "I guess the best example I can give is: I rent a car regularly for $50 a day. Is it useful if the rental car company tells me, 'By the way, that's $18,200 for the year'?"
Money Mart declined a request for an interview but says in a statement to NOW that it "abides by the highest professional standards in providing quality financial products and services to Canadians. Our Fast Cash Advance is among the lowest-priced payday advance products in Canada, with a high level of customer satisfaction."
Stop 'n' Cash also declined a request for an interview and issued a statement that reads, in part, that the company is "not aware of a single payday loan company that has been charged with violating Section 347."
Lawyers, the statement reads, "would have us believe that the business of payday loans is illegitimate. In fact, the payday loan industry [includes] thousands of legitimate small business people who provide a much-needed financial service to ease short-term financial needs."
Laurie Campbell, program manager of the Credit Counselling Service of Toronto, says 20 per cent of the 500 clients she sees each week are in debt trouble with payday lending companies. "We try to negotiate with the payday loan companies through debt repayment plans," says Campbell, "but the interest rates are astronomical."
Right now, the situation's "really a Wild West bonanza," says Young. "It's like the Prohibition era: everyone knew what was going on, everyone knew it was patently illegal, but no one did anything about it. The companies are reaping huge profits."