Paul Faulkenham was desperate and needed to make payment for his car, but he had no idea that a $ 300 payday loan would eventually push him into a spiral of debt and nearly cost him his house.
“The people who go to these payday loan outlets are desperate and most of them don’t know they are walking right into a debt trap,” Faulkenham said.
“This is what happened to me. I was in a financial bind, my guaranteed monthly income supplement was late, I had no credit because I was bankrupt and had no credit. savings, I couldn’t get a bank loan so I was stuck, so I went to Money Mart.
The Ellershouse resident managed to pay off his car payment, but he was also dragged into what turned out to be a two-and-a-half-year debt cycle. This $ 300 loan had $ 66 in borrowing costs ($ 22 per $ 100), an insurmountable amount for a senior living on a meager $ 1,400 per month (Canada Pension Plan) without saving.
Payday loans are big business in the province. From July 2017 to June 2018, in Nova Scotia, over 200,000 payday loans were issued, for a total value of over $ 100 million.
A payday loan currently costs $ 22 for every $ 100 borrowed, which over a two-week repayment period equates to an annual interest rate of over 500%. Compare that to a typical line of credit with an annual interest rate of 7%, or overdraft protection on a bank account at an annual interest rate of 19%. A cash advance on a credit card typically charges 21 percent annual interest.
But Faulkenham did not qualify for any of those options, nor did many of the 24,050 Nova Scotians who used more than one payday loan in 2017. There are currently 42 payday loan outlets in Nova Scotia. -Scotland.
A month after his first payday loan, Faulkenham borrowed an additional $ 400. In no time at all he was in serious trouble, defaulting on his loan a month later. This comes with an automatic default fee of $ 40 and 60% interest on money owed. It was then that his partner, Bernice Carr, fell into the same trap. To make up for her partner’s shortfall, she borrowed $ 500 from Money Mart.
Each month, they managed to raise enough money to pay the mortgage, car and insurance payments. The two ended up borrowing from three different payday loan outlets. In the meantime, their electricity bill climbed to $ 1,500 and they barely had enough to cover the monthly food.
More and more of their fixed income went to interest and borrowing costs. What saved them was the settlement of Carr’s injury last summer following a fall. In September, she paid off both debts. Carr calculated that $ 2,500 was spent on paying loan fees and interest.
“If it hadn’t been for the settlement, we would still be with them and it would only be a matter of time before we would have lost everything: our car, our home,” Carr said. ” It’s a vicious circle. We both had to borrow more money to make up for what was not happening and it snowballed for a few years.
Both say payday loan outlets are preying on the poor and the provincial government must do something to protect some of Nova Scotia’s most vulnerable residents.
“When people are desperate, they don’t look at the fine print what these loans are going to cost them in the end,” Faulkenham said. “All they want is money. Then they get caught and they can’t get out.
Vince Calderhead, a Halifax-based poverty law lawyer, agrees.
“If you had to profile who their clientele is, it would be pretty clear, with the odd exception of someone with a gambling problem or a drug problem, that their clientele is generally low-income, people living in poverty, ”Calderhead said.
“In a way, the province is supporting payday lenders by reducing social assistance rates to what a recent report says are the lowest in Canada.
Calderhead takes direct action against the Department of Community Services and Minister Kelly Regan for creating “good business” conditions.
“If I owned a payday lender, I think I would send a bottle of rum to the province to thank them for keeping welfare rates so low. People are being pushed to terrible efforts to try to get out of this. “
He says part of the solution lies in the province’s decision to raise rates to an acceptable level and raise the minimum wage to $ 15 an hour.
“It is not the total response, but it is a response under the total control of the government. If the province were honestly concerned about Nova Scotians who depend on payday lenders, it could help them by making them unnecessary. “
Shannon Kerr, a spokesperson for the Department of Community Services, said the province is currently in the second year of a four-year, $ 20 million government initiative to develop the Nova Scotia Master Plan for poverty reduction. She stopped before saying that income assistance rates are expected to increase.
Payday loan outlets saw a decline last month following the decision by the Nova Scotia Public Services and Review Board to reduce referral fees from $ 22 per $ 100 to $ 19 . As in previous UARB reviews, it showed that repeat borrowing remains a systemic concern in the province. In Nova Scotia in 2017, 56% of loans were repurchased for 8,795 borrowers. Almost a third of repeat borrowers had eight or more loans.
The council called on the province to place restrictions on repeat or concurrent loans from multiple lenders and that borrowers be given more time to repay a loan. Service Nova Scotia, the provincial ministry that governs payday lending operations in the province, said it was reviewing the recommendations but could not say whether it would implement any of them.
“We would like to hear from our stakeholders and other jurisdictions before implementing any changes,” said spokesperson Marla MacInnis.
As for Faulkenham, payday lenders should never have been licensed in the province. “How do you allow evil companies like these guys to take advantage of the backs of the poor?” Said Faulkenham. “It’s absolutely disgusting.”