Thank you.
I'm a member of ACORN Canada, and our main focus has been on the low- to moderate-income families in Canada.
We are very much supportive of postal banking, but one of the major points we want to focus on is how to compete with, if not get rid of, things like payday loans.
As people know, payday loans in Nova Scotia are $22 for every $100, which actually equals up to a 572% interest rate. We think that postal banking will be able to help low-income families by giving out loans at a low to moderate interest rate to those who need them for emergencies between pays, such as family emergencies, etc.
Right now, if you take a payday loan, you have two weeks to pay it off. That's it. We have records of people who have taken out up to 15 loans, mostly just trying to pay back the prior loan, because some people don't have paycheques and it doesn't line up with when they actually get money, so they have to take out loans just to keep it rolling, while being taxed at that interest rate.
Postal banking could modernize that and actually make a payment plan with low-income families to try to get them to pay it off in a set period of time, instead of slapping a two-week due date on it.
Right now, companies for payday loans are all focused on low-income areas. Sometimes you see two if not three buildings all clumped up together in one area. You don't see them in high society areas or anything like that. These loans are increasing poverty in low-income neighbourhoods and escalating problems such as crime and violence.
The idea of postal banking providing an alternative payday lending product is to provide people with low-cost options in times of crisis. It's true that credit unions are increasingly offering low costs on low-amount loans to their members. However, their reach is very low, which is why postal banking could help fill in these gaps.
A recent study by ACORN shows that people use payday loans because they are being denied credit at the banks. It is often because banks deny people overdraft protection, lines of credit, and credit cards, so people use payday loans. Furthermore, “Canada Post in the Digital Age” quotes the Canadian Bankers Association, “who have indicated 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 such as food, rent, and car repairs, or for family emergencies, etc. On the profitability of payday loans, Vancity, which is in B.C., offers a product at 20%, which is a much longer payback than what payday loans provide. This is the model we would suggest for postal banking. People need a low-interest, fair-terms, short-term loan product alternative that is available across the country, and this is something we believe postal banking could do.
That's pretty much how ACORN sees it for postal banking.