Creating a postal bank would be in the best interest of low-income workers in Canada
Your car breaks down. Your dentist tells you bad news. Your daughter is on a school trip and you receive an invoice by mail. Holiday purchases have dried up your bank account. Your credit rating is not good, and the big banks refuse to give you a loan. When money is lacking, who do you talk to?
More and more people are asking this question. For some, this difficult situation represents a golden business opportunity. Twenty years ago, payday lenders sprouted like mushrooms on the main arteries of cities and on the Internet. In Canada, there are more payday lenders than there are McDonald’s restaurants. The interest rates of these companies vary from province to province, but all of them require huge rates. In Ontario, for every $ 100 loan to be repaid in 15 days, payday lenders charge $ 21 of interest; in British Columbia and Alberta, they charge up to $ 23 in interest. This is an annual interest rate that is between 547% and 599%, far higher than any other form of credit. In other words, the usurious lenders of today are the gangsters of the time of the Great Depression.
In Canada, short-term lenders have millions of customers, who often have no choice but to do business with them over and over again. The average borrower uses a large portion of his salary to repay his last loan. To make ends meet, he must take out a second loan. Interest accumulates, and in less time than it takes, it is stuck in a spiral of indebtedness.
There are two ways to counter the payday loan. First, there is regulation. Prohibiting usurious interest rates would certainly not do any harm. Alarmed by the debt crisis, which is a growing crisis, some provinces and communities have taken steps to address it. In Québec, thanks to a cap of 35% on annual interest rates, check cashing companies have largely stopped offering payday loans
Increased regulation can ease the worst symptoms of the crisis, but it will not solve the situation. Why do companies like Money Mart and his peers have no trouble finding new customers? Because vulnerable people are hardest hit by the current economic difficulties. A recent study indicates that 47% of Canadians said they were living from one paycheck to another and that they would be in trouble if their pay was paid to them just a week late.
Even if this sector of activity disappeared overnight, the end of the month would always be difficult, and the banks would still reject vulnerable people. For people on a fixed income, taking a single payday loan may put them in a trap that will take years to get out of, and ultimately, pay back the amount they borrow.
Despite the economic setbacks experienced by Canada last year, many of our major banks posted record profits, with some offering their expertise in tax havens to the richest 1%. Meanwhile, outside the cozy environment of the wealthiest, ordinary people have resorted to payday lenders. A recent study by St. Michael’s Hospital shows that payday lenders are replacing banks in poor neighborhoods, where traditional financial institutions do not meet the needs of the population.
As Stan Keyes, former Liberal minister, now president of the Canadian Payday Loan Association, once said, “Do borrowers have other options? “.
There is, however, a solution, but we are careful not to publicize it. Two innovative reports, one commissioned by Canada Post and the other by the Library of Parliament, recommend the creation of a postal bank. These two reports, however, were forgotten during the reign of Stephen Harper. Low-cost, everyday banking services provided across the country would be beneficial to the general population. For low-income people, such services could save their lives.
If Justin Trudeau takes the fight against poverty seriously, he should take the example of France, the United Kingdom and New Zealand. Putting an end to the rapid expansion of the payday loan sector should be on the priority list of the government. Our message is simple: Stop extortion. Give us a bank for all, present in every post office in the country.