Interesting Problem
Low income citizens need an alternative to payday-loan companies
Nick Ternette
One of the signs of downtown decay is the disappearance of banks
and financial institutions from the area.
Sure, banks have their main branches at Portage and Main, but
it seems the majority of financial institutions in the downtown
are of the payday loan variety.
How many of these companies would you find in suburbia? None.
So, why do they exist downtown? They exist because of poverty.
Poor people use these companies because they are in desperate
need of short-term loans to make ends meet. People in suburbia,
on the other hand, can drive to their financial institutions and
take out money, apply for a line of credit, etc.
In the Winnipeg Sun recently, Winnipeg Centre MP Pat Martin spoke
out against these companies, saying: “They suck the resources
out of the poor. These people should be dragged into the street
and shot.”
Given Martin’s outspoken position, it’s surprising
that provincial finance minister Greg Selinger wants to control
payday loan companies through legislation but doesn’t want
to put them out of business because they are needed in some communities.
Mr. Selinger might have forgotten what he was like as a young
social worker in the early 1970s. He was hired by the credit-union
movement to be a community-development worker.
At the time, we were facing the scourge of ‘tax discounters’,
which offered people an instant income-tax refund at exorbitant
interest rates. No legislation controlled these companies. It
was Selinger who organized community activists to create alternative
financial institutions to compete with the tax discounters and
lobby the federal government to change usury legislation and drive
these companies out of business.
These efforts resulted in the creation of the Community Income
Tax Service, which provided income tax services to low-income
citizens. It still exists today and primarily provides financial
and debt counselling.
Then the Midland Credit Union was brought into the core area to
provide instant income tax refunds to residents by charging one
per cent interest per month until the refund cheques arrived (about
two months). The alternative financial institution resulted in
$1.5 million being reinvested in the communities.
Legislative changes were made as a result of our efforts —
I went to Ottawa to lobby the federal government on this issue
— and institutions were only allowed to charge up to 15
per cent interest for instant cash from income tax returns. This
ultimately put the tax discounters out of business.
I applaud Finance Minister Selinger’s amendments to the
Manitoba Consumer Protection Act. If made law, they will require
payday loan companies to be licensed and bonded and borrowers
will receive warnings about the high costs of the loans. Selinger
is also requesting an amendment to the federal government’s
criminal code to allow the Public Utilities Board to set the fees
for payday-loan companies.
It might benefit Mr. Selinger to remember that legislation alone
will not wipe out this scourge — but a true financial alternative
will.
Nick Ternette is a community and political activist, freelance
writer and broadcaster. |
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