What do You Think about Payday Loans?
Over a year ago we published a piece about whether payday loans should be criminalized or not, and the erroneous fees and interest they can often charge, putting borrowers in a vicious cycle of borrowing only to use their next paycheque almost entirely for paying those costs back. When they once again find themselves short of funds because their last cheque was eaten up before they even really had it, they need to withdraw a payday loan again. And again. And again. Seeing as how it’s been awhile since we posed the question, we thought we’d revisit the issue once again and ask, what do you think about payday loans?
It is largely the fees that people take issue with when it comes to payday loans, sometimes charging as much as 60% of the borrowed amount in the repayment terms. The payday loan company that runs the stores InstaLoans and The Cash Store, Cash Store Financial Services, has recently come under fire from the Ontario Ministry of Consumer Services for charging too much in fees, violating the Ontario’s Payday Loans Act.
While cases such as this don’t exactly arise all the time, they’re not exactly uncommon either. Several companies in Manitoba have also come under fire for the exact same thing.
The obvious solution for many seems to be a calling to shut these companies down completely, to prevent these borrowers from being taken such advantage of by them. But recently, Sean Silcoff of the Globe and Mail stated that this could be disastrous to low-income borrowers. The exact group that needs these loans the most, because they have no credit to borrow from anywhere else.
“Like them or not, payday lenders do play an important function in society,” Silcoff writes. “[They are a] nice, legitimate providers of credit to people with credit challenges (loans are typically approved only to people with a source of income, and many of those earn middle-class incomes) and as a quick and convenient source of moderate amounts of cash.”
What do you think? Are payday loans simply there to prey on the most vulnerable? Or are they providing a valuable service to those who need it the most? Have you personally ever used a payday loan? What was your experience?