Thank you for allowing me to speak to you here. I am a member of ACORN Canada. We're an organization of low- and moderate-income people. We're a membership-based organization and have 80,000 members all over Canada.
The discussion paper, “Canada Post in the Digital Age”, misses the mark when it comes to financial inclusion and the need for postal banking as an alternative to payday loans.
Recent surveys of 250 ACORN members show that 67% use payday installment loans. The problem with financial inclusion in Canada in terms of the use of payday lenders isn't that people don't have bank accounts. In fact, to get the payday loan, companies require that you have a bank account. The problem is that the low- and moderate-income people don't have access to short-term loans for people who are in crisis.
Another major problem is the predatory nature of the payday lending products in getting people caught up in back-to-back loans at high interest—400% to 600% in Canada—in short payback periods.
The idea of postal banking providing an alternative payday lending product is to provide people with a low-cost option in a time of crisis. For individuals who are using payday lenders, the demand for money is non-elastic. This means that the individual will pay a high price for the short-term loan, hence the Canadian Banking Association's comment that the CBA is of the view that providing additional credit to customers who have exhausted other credit lines is not helpful. It's not logical. The point is to provide an alternative to people who are already accessing the high-interest products.
It is true that credit unions are increasingly offering low-cost, low-amount loans to members; however, their reach is low. This is why postal banking could fill this gap and should be structured similar to that model. In fact, it is false that banks offer any low-cost short-term loans to low-income people who are using payday loans. The recent study by ACORN shows that because the banks deny people overdraft protection, lines of credit, and credit cards, that often forces people to use payday loans.
Further, “Canada Post in the Digital Age” quotes the Canadian Banking Association as saying that “many users of payday loan lenders choose the service because of the relative anonymity it affords”. First, people use payday loans because they are in need of basic necessities: food, rent, car repairs, and necessities such as those. Secondly, why the government would quote in their review an organization that represents the biggest corporations—banks—as understanding why people use payday loans, but not consumer groups, is ludicrous.
On the profitability of payday loans, Vancity offers product at 20%, with a much lower payback. This is a model that we would suggest for postal banking. Even in Alberta, with $15 for $100 for a payday loan, in two weeks it's approximately 390%.
Note that Money Mart, the largest payday lender in Canada, is owned by Lone Star, which is owned by John Grayken, who has assets of $64 billion, according to Forbes Magazine. This business model is getting people trapped in back-to-back loans.
Data from British Columbia shows that the average number of loans per payday borrower in 2014 was 4.3, and the number of people taking out 15 or more loans increased by one-third. In Nova Scotia, in a one-year period, 40% of the loans were from repeat borrowers, and 22.3% of the borrowers took out eight or more loans.
People need to have fair-interest and short-term alternatives available across the country, and we think postal banking will provide this desperately needed alternative.