Paul Faulkenham was desperate and needed to make his car payment but he had no idea taking out a $300 payday loan would eventually push him into a debt spiral and nearly cost him his home.
“The people that go to these payday loan outlets are desperate and most of them don’t know they’re walking right into a debt trap,” said Faulkenham.
“That’s what happened to me. I was in a financial bind, my monthly guaranteed income supplement was late, I didn’t have any credit because I was going through a bankruptcy and I had no savings, couldn’t get a bank loan so I was stuck. So I went to Money Mart.”
The Ellershouse resident managed to meet his car payment but he was also sucked into what turned out to be a two-and-half-year debt cycle. That $300 loan carried $66 in borrowing fees ($22 per $100), an insurmountable amount for a senior living on a meagre $1,400 per month (Canada Pension Plan) with zero savings.
Payday loans are big business in the province. From July 2017 to June 2018 in Nova Scotia there were over 200,000 payday loans issued, with a total value of over $100 million.
A payday loan currently costs $22 per $100 borrowed, which over a two-week payback period amounts to an annual interest rate of more than 500 per cent. Compare that to a typical line of credit with a seven per cent annual interest rate, or overdraft protection on a bank account at 19 per cent annual interest. A cash advance on a credit card generally charges 21 per cent annual interest.
But Faulkenham qualified for none of those options, nor do many of the 24,050 Nova Scotians who resorted to taking out more than one payday loan in 2017. There are currently 42 payday loan outlets in Nova Scotia.
A month after his first payday loan, Faulkenham borrowed another $400. In no time he was in serious trouble, defaulting on his loan a month later. That comes with an automatic $40 default fee and 60 per cent interest charged on money owed. That’s when 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 scrape up enough money to pay the mortgage, car and insurance payments. Both ended up borrowing from three different payday loan outlets. In the meantime, their power bill grew to $1,500 and they barely had enough to cover food for the month.
More and more of their fixed income was going to interest and borrowing fees. What saved them was Carr’s injury settlement last summer following a fall. In September she paid off both debts. Carr calculated $2,500 went to paying borrowing fees and interest.
“If it wasn’t for the settlement we’d still be with them and it would be just a matter of time before we would have lost everything: our car, our home,” said Carr. “It’s a vicious cycle. We both had to borrow more money to make up for what wasn’t coming in and it snowballed for a couple of years.”
Both say payday loan outlets prey on the poor and the provincial government needs to do something to protect some of Nova Scotia’s most vulnerable residents.
“When people are desperate they’re not looking at the fine print of what these loans are going to cost them in the end,” said Faulkenham. “All they want is the money. Then they’re caught and they can’t get out.”
Vince Calderhead, a Halifax-based poverty law lawyer, agrees.
“If you were to do a profile on who their clientele are it would be pretty clear, with the odd exception of someone with a gambling problem or a drug problem, that by and large their clientele are low income people, people living in poverty,” said Calderhead.
“In a way the province supports the payday lenders by suppressing social assistance rates to what a recent report says are the lowest in Canada.”
Calderhead points directly at the Department of Community Services and Minister Kelly Regan for making conditions “great for business.”
“If I were an owner of a payday lender I think I’d be sending a bottle of rum to the province thanking them for keeping social assistance rates so dramatically low. People are driven to terrible lengths to try to get by.”
He says part of the solution rests with the province making the move to increase rates to a liveable standard and raising the minimum wage to $15 an hour.
“It’s not the total answer but it’s an answer within total control of government. If the province was honestly concerned about those Nova Scotians reliant on payday lenders they could help by making them unnecessary.”
Shannon Kerr, spokeswoman for the Department of Community Services, says the province is currently in year two of a four-year $20 million government initiative to develop Nova Scotia’s Blueprint for Poverty Reduction. She stopped short of saying an increase of income assistance rates is planned.
Payday loan outlets were hit with a cut last month following the Nova Scotia Utility and Review Board’s decision to reduce the benchmark charge 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 per cent of loans were repeats for 8,795 borrowers. Nearly a third of repeat borrowers had eight or more loans.
The board called for the province to impose restrictions on repeat or concurrent loans from multiple lenders and that borrowers be allowed more time to repay a loan. Service Nova Scotia, the provincial department that governs payday loan operations in the province, says it’s reviewing the recommendations but couldn’t say whether it would implement any of them.
“We would want to hear from our stakeholders, and other jurisdictions, before implementing any changes,” said spokeswoman Marla MacInnis.
As far as Faulkenham is concerned, payday lenders should never have been allowed in the province. “How do you let businesses as evil as these guys get away from profiting on the backs of the poor?” said Faulkenham. “It’s absolutely disgusting.”
