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Are banks doing enough to serve the poor?
Shawna Reid believes her family’s financial situation would be better if she could do more business with her bank.
As the head of a household with a tight income, the Burnaby mom bakes bread, buys in bulk, watches for sales and grows a veggie garden in summer.
She’s on disability due to an anxiety disorder. Her husband was employed as a computer programmer, but has been out of work since crushing a vertebrae in his neck from a fall. A year ago he underwent surgery, from which he is still recovering.
“His whole career line has been shut down for him,” says the Burnaby woman.
“I’m lucky I’m in BC Housing or I’d be so screwed in this city.”
With her disability pension and social services top-up for her kids, she receives just over $1,000 a month to live on.
At this point they receive no disability payments for her husband.
She’s had a bank account with BMO since she was 17 and a TD account for the last 10 years, but neither bank will give her an overdraft.
“It’s not that I have bad credit,” she says, adding she avoids credit cards because of the fees involved.
“It’s just that I don’t have any credit.”
Reid takes payday loans from time to time, and most recently turned to them to cover cab fare to get her husband to hospital visits, as riding the bus was too painful. Social services didn’t reimburse the money immediately, and Reid had two kids to feed so she took out a loan.
Once she gets a payday loan, she says it takes about three months to break free of it.
“When I need a payday loan, it hurts me, because we’re so tight to the wire already.”
Can banks and credit unions do more?
Jerry Buckland believes banks and credit unions shouldn’t abandon people with low incomes to the payday lending industry.
When low income people pay more for financial services, it reinforces social inequality, he says, and this isn’t good for anyone.
“The banks need to play a more significant role in the solution,” says Buckland, a University of Winnipeg professor and author of Hard Choices: Financial Exclusion, Fringe Banks and Urban Poverty in Canada.
While credit unions have taken steps to address the issue of financial exclusion, “the big six banks need to play a bigger role.”
He’d like to see more branches in low-income neighbourhoods, better advertising of banks’ low-fee accounts and more staff training to prepare them to work with low-income people better, and understand that their financial service needs can be just as complex as people with higher incomes.
A few years ago, Buckland conducted a “mystery shop” study in which a low-income person and a middle income person individually visited 64 banks, credit unions and payday lenders.
Overwhelmingly, at the banks the middle income person was given more time and information, and more effort was made to set appointments for future services. One bank stood out as being much more receptive to the low-income person, which “shows it can be done,” he says.
“They’re quite profitable,” Buckland said.
“It’s quite hard for foreign banks to break into the Canadian market… They’re in a pretty nice position. Should they not, as a result, have to provide banking services to all Canadians?”
Vancity says it will do more
Credit unions have traditionally done a better job.
In the Downtown Eastside, Vancity partnered with the Portland Hotel Society to open Pigeon Park Savings, offering basic banking services for people who might not otherwise qualify due to various barriers, such as lack of proper ID, stable housing or a credit history.
But people who use payday loans tend to fall into a different category, says Catherine Ludgate, the credit union’s manager of community investment. They’re not the poorest of the poor, they tend to be the working poor.
“They’re not necessarily ‘unbanked,’ ” Ludgate said. “They may be underbanked.”
Although Vancity hasn’t addressed the issue yet, Ludgate says serving this group is a priority.
To that end, Vancity recently hired someone whose sole job is to look at how they might serve people who are otherwise turning to fringe banks.
“As a community credit union, how can we serve that working Joe? I do think by later this year we will have some solutions on that.”
Stan Keyes of the Canadian Payday Loan Association (CPLA) believes the solution is strong regulation for the payday loan industry, which balances consumer protection with a viable, competitive industry.
The rates charged today in B.C. are only enough to allow a well-run business to profit, but not exorbitantly, he says. Set the rates too low, he adds, and licenced law-abiding operations will shut, leaving people to turn to unscrupulous, unregulated lenders.
Scott Hannah of the Credit Counselling Society of B.C. says the laws in B.C. have gone a long way to improving the situation, as it’s better to have a well-regulated industry rather than forcing lenders underground.
“The one thing that you can’t address through regulations are people’s habits,” Hannah said, adding that financial literacy is the most important thing they emphasize. “In a perfect world this industry wouldn’t exist.”
Payday loan companies may be filling consumer demand, but Shawna Reid wishes they didn’t have to.
If banks would offer her the full range of their services, including credit at a fair rate, she believes she’d be much better off.
“Money Mart would never see me again.”
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B.C.’s rules for payday loans
By law, payday lenders:
• Must not charge fees totaling more than 23 per cent of the amount borrowed.
• Must not charge for cash cards.
• Must publicly display loan rates for easy comparison to other lending institutions.
• Must provide a payday loan agreement, outlining all charges and terms and conditions for every transaction.
• Must phase repayment of the loan over two or three pay periods, if a borrower is taking their third loan in a two-month period.
• Must not engage in practices that encourage continued debt and dependence or other unfair practices. For example, payday lenders
• May not issue more than one loan to a borrower at the same time;
• May not roll over one loan into another loan with new charges; and
• May not issue a loan for more than 50 per cent of the borrower’s pay cheque or net income to be received during the term of the loan.
Source: Consumer Protection BC
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