Skip to main content
SpringerLink
Log in

Introduction

  • Chapter
  • First Online:
Payday Lending in Canada in a Global Context

Abstract

This chapter begins by discussing some of the reasons that payday lending has attracted so much attention in that it is a convenient and expensive source of small loans primarily for people with limited budgets and credit options. The chapter includes a summary of each of the contributions to this edited volume. This chapter summarizes the extensive literature related to payday loans and lending, with an emphasis on the literature from the United States and Canada. The industry has grown over the last 20 years but its growth more recently has slowed. Its origin is in Anglo-American nations, but there is evidence that it has expanded beyond these borders, for example, South Africa and Poland. The literature has investigated if customers benefit from these loans, why do they use payday loans, and particularly important, why do some borrow repeatedly. More recently, behavioral studies have added another angle to understanding borrowers’ behavior. Finally, this chapter summarizes what the literature says about payday regulations.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 159.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    “Fringe financial services” is one of many terms used to describe this category of business. Other common terms include alternative financial services, fringe banking, and high-cost/interest financial services.

  2. 2.

    All references to dollars ($) are in the currency of the country in the context. References to US companies, statistics and regulations are in US$ unless stated otherwise. References to Canadian companies, statistics and regulations are in CD$.

  3. 3.

    Cash Store Financial was originally called Rentcash and included also a rent-to-own division. The rent-to-own division was spun off as a separate company, Easyhome, and the payday lender was renamed.

  4. 4.

    No other provinces have reported data on payday lending and it does not appear that they are collecting the information that Nova Scotia and BC collect.

  5. 5.

    The Pew Charitable Trusts research project consists of four separate reports on different aspects of payday lending : borrower characteristics, how borrowers choose and repay loans, payday lending regulations , and internet payday lending . The research methodology involved several steps: inserting payday loan questions within an omnibus survey (containing questions on several topics); a follow-up survey with respondents that indicated in the omnibus survey that they had used payday loans; and focus group discussions with a subset of the follow-up survey respondents (Pew Charitable Trusts 2012, p. 31). A total of 49,684 people were involved in the omnibus survey, a total of 451 people were surveyed in the follow-up survey, and there were 10 focus groups. The number of respondents in the follow-up survey represents 0.9% of the omnibus respondents, but this level is consistent with other surveys that seek to include low- and modest-income households because they are more difficult to reach, by telephone, than middle- and non-poor people, because they have fewer or no phones. Moreover, a small share of the US population actually uses payday loans.

  6. 6.

    Caskey proposes a “second fruitful approach that might help answer the big question would be ethnographic studies that carefully follow the budgeting decisions and thought processes of payday loan customers and their households over time. Such studies would necessarily have to be small scale and could be criticized for inevitable subjective data filtering by the ethnographers, but they could also offer rich insights to complement the traditional econometric and experimental approach of economists” (Caskey 2010, p. 37).

  7. 7.

    Early critics of payday lending found that rollovers were common among payday loan consumers. By this it was meant that on the repayment date, the loan was extended, and the original fees were doubled, and additional fees were added. Consequently, fees more than doubled for the rollover loans.

  8. 8.

    Test the consumer’s ability to repay the loan through, for example, a credit score.

  9. 9.

    This is a heuristic that involves using a known state or condition to assess a current state or condition, even if the known state or condition has no relationship to do with the new one. For instance, we might estimate the population of a city we are visiting by “anchoring” that estimate to our own city, even if they are completely different sizes.

  10. 10.

    For their study the Pew Charitable Trusts categorized US states into three categories: (1) Twenty-eight “permissive” states, where most Americans live, where the payday loan rate caps are greater or equal to $15/$100; (2) “Hybrid” states where rate caps are approximately $10/$100, there are restrictions on the number of loans each borrower can take, and sometimes borrowers are allowed to repay the loan over several pay periods; and (3) “Restrictive” states where the rate cap is placed at 36% APR, and payday loan storefronts are not found (Pew 2012, p. 20).

References

  • Anderson, John. 2013. Making the Case for Postal Banking in Canada. Ottawa: Canadian Centre for Policy Alternatives.

    Google Scholar 

  • Baradaran, Mehrsa. 2015. How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy. Cambridge, MA: Harvard University Press.

    Book  Google Scholar 

  • Barth, James R., Jitka Hilliard, and John S. Jahera, Jr. 2015. Banks and Payday Lenders: Friends Or Foes? International Advances in Economic Research 21 (2): 139–153.

    Google Scholar 

  • Bertrand, Marianne, and Adair Morse. 2011. Information Disclosure, Cognitive Biases, and Payday Borrowing. Journal of Finance 66 (6): 1865–1893.

    Article  Google Scholar 

  • Bertrand, Marianne, Sendhil Mullainathan, Dean Karlan, Eldar Shafir, and Jonathan Zinman. 2009. What’s Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment. Working Papers, Economic Growth Center, Yale University.

    Google Scholar 

  • Bhutta, Neil. 2013. Payday Loans and Consumer Financial Health. Finance and Economics Discussion Series, No. 2013-81, Board of Governors of the Federal Reserve System (U.S.).

    Google Scholar 

  • Brennan, Marilyn, Brian McGregor, and Jerry Buckland. 2011. The Changing Structure of Inner-City Retail Banking: Examining Bank Branch and Payday Loan Outlet Locations in Winnipeg, 1980–2009. Canadian Journal of Urban Research 20 (1): 1–32.

    Google Scholar 

  • Buckland, Jerry. 2012. Hard Choices: Financial Exclusion, Fringe Banks, and Poverty in Urban Canada. Toronto: University of Toronto Press.

    Google Scholar 

  • Buckland, Jerry, Tom Carter, Wayne Simpson, Anita Friesen, and John Osborne. 2007. Serving Or Exploiting People Facing a Short-Term Credit Crunch? A Study of Consumer Aspects of Payday Lending in Manitoba. Winnipeg, Canada.

    Google Scholar 

  • Caskey, John P. 1994. Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor. New York, NY: Russell Sage Foundation.

    Google Scholar 

  • ———. 2005. Fringe Banking and the Rise of Payday Lending. In Credit Markets for the Poor, ed. Patrick Bolton and Howard Rosenthal. New York: The Russell Sage Foundation.

    Google Scholar 

  • ———. 2010. Payday Lending: New Research and the Big Question. Working Papers, No. 10–32, Federal Reserve Bank of Philadelphia, Philadelphia.

    Google Scholar 

  • ———. 2012. Payday Lending: New Research and the Big Question. In Oxford Handbook of the Economics of Poverty, ed. Philip Jefferson. New York: Oxford University Press.

    Google Scholar 

  • Consumer Federation of America. 2011. CFA Survey of Online Payday Loan Websites. Washington, DC.

    Google Scholar 

  • Consumer Protection BC. 2016. BC Aggregated Payday Loan Data – Self-Reported for License Years ending on October 31. Victoria, BC. https://www.consumerprotectionbc.ca/wordpress/wp-content/uploads/2017/10/2016-Payday-Aggregate-Loan-Data-Table-for-Web.pdf

  • Consumers’ Association of Canada (Manitoba) Inc. 2015. Privacy in Online Lending: An Analysis of Online Payday Lenders’ Privacy Policies and Consumer Expectations for Privacy Protection. Winnipeg, Canada.

    Google Scholar 

  • Deloitte. 2014. Strengthening Ontario’s Payday Loans Act: Payday Lending Panel Findings and Recommendations Report. Toronto.

    Google Scholar 

  • Denise Barrett Consulting. 2015. Consumer Experiences in Online Payday Loans. Toronto.

    Google Scholar 

  • DFC Global Corp. 2014. Form 10-K for the Year Ended June 30, 2013. Berwyn, US: DFC Global Corp. https://www.sec.gov/Archives/edgar/data/1271625/000119312513352311/d590562d10k.htm

  • Dijkema, Brian, and Rhys McKendry. 2016. Banking on the Margins: Finding Ways to Build and Enabling Small-Dollar Credit Market. Hamilton: Cardus.

    Google Scholar 

  • Edmiston, Kelly D. 2011. Could Restrictions on Payday Lending Hurt Consumers? Federal Reserve Bank of Kansas City Economic Review 96 (1): 63–93.

    Google Scholar 

  • Fantauzzi, J. 2016. Predatory Lending: A Survey of High Interest Alternative Financial Service Users. Canadian Centre for Policy Alternatives and ACORN Canada.

    Google Scholar 

  • Fejos, Andrea. 2015. Achieving Safety and Affordability in the UK Payday Loans Market. Journal of Consumer Policy 38 (2): 181–202.

    Article  Google Scholar 

  • Financial Consumer Agency of Canada. 2016. Payday Loans: Market Trends. https://www.canada.ca/en/financial-consumer-agency/programs/research/payday-loans-market-trends.html

  • Fitzpatrick, Katie, and Alisha Coleman-Jensen. 2014. Food on the Fringe: Food Insecurity and the Use of Payday Loans. Social Service Review 88 (4): 553–593.

    Article  Google Scholar 

  • Gathergood, John. 2012. Self-Control, Financial Literacy and Consumer Over-Indebtedness. Journal of Economic Psychology 33 (3): 590–602.

    Article  Google Scholar 

  • Grant, Tavia, and Janet McFarland. 2015. Payday Loans: Predatory Loan Sharks or Crucial Fix in a Pinch? The Globe and Mail. http://www.theglobeandmail.com/report-on-business/payday-loans-predatory-loan-sharks-or-crucial-fix-in-a-pinch/article24463029/. Accessed 27 July 2015.

  • Kaufman, Alex. 2013. Payday Lending Regulation. Finance and Economics Discussion Series, No. 2013-62, Board of Governors of the Federal Reserve System (U.S.).

    Google Scholar 

  • Lawrence, Edward C., and Gregory Elliehausen. 2008. A Comparative Analysis of Payday Loan Customers. Contemporary Economic Policy 26 (2): 299–316.

    Article  Google Scholar 

  • Leyshon, Andrew, and Nigel J. Thrift. 1997. Money/Space: Geographies of Monetary Transformation. London: Routledge.

    Google Scholar 

  • Leyshon, Andrew, Paola Signoretta, David Knights, Catrina Alferoff, and Dawn Burton. 2006. Walking with Moneylenders: The Ecology of the UK Home-Collected Credit Industry. Urban Studies 43 (1): 161–186.

    Article  Google Scholar 

  • Lusardi, Annamaria, and Olivia S. Mitchell. 2014. The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Literature 52 (1): 5–44.

    Article  Google Scholar 

  • McKernan, Signe-Mary, Caroline Ratcliffe, and Daniel Kuehn. 2010. Prohibitions, Price Caps, and Disclosures: A Look at State Policies and Alternative Financial Product Use. Washington, DC: Urban Institute.

    Google Scholar 

  • Melzer, Brian T. 2014. Spillovers from Costly Credit. Working Papers, Center for Economic Studies, U.S. Census Bureau.

    Google Scholar 

  • Mills, Gregory B., and William Monson. 2013. The Rising Use of Nonbank Credit among U.S. Households: 2009–2011. Washington, DC: Urban Institute.

    Google Scholar 

  • Montezemolo, Susanna. 2013. Payday Lending Abuses and Predatory Practices. Durham, NC: Center for Responsible Lending.

    Google Scholar 

  • Mullainathan, Sendhil, and Eldar Shafir. 2013. Scarcity: Why Having Too Little Means so Much. New York: Henry Holt, Times Books.

    Google Scholar 

  • Packman, Carl. 2014. A Short History of Payday Lending. History Workshop Journal 81 (1) (Spring).

    Google Scholar 

  • Pew Charitable Trusts. 2012. Payday Lending in America: Who Borrows, Where They Borrow, and Why. Washington, DC: Pew Center on the States.

    Google Scholar 

  • ———. 2013a. How Borrowers Choose and Repay Payday Loans: Payday Lending in America. Washington, DC: Pew Center on the States.

    Google Scholar 

  • ———. 2013b. Payday Lending in America: Policy Solutions. Washington, DC: Pew Center on the States.

    Google Scholar 

  • ———. 2014. Fraud and Abuse Online: Harmful Practices in Internet Payday Lending. Philadelphia: Pew Charitable Trusts.

    Google Scholar 

  • Pollon, Christopher. 2015. Easy Money. The Walrus, June 19.

    Google Scholar 

  • Prager, Robin A. 2014. Determinants of the Locations of Alternative Financial Service Providers. Review of Industrial Organization 45 (1): 21–38.

    Article  Google Scholar 

  • Service Nova Scotia. 2015. Opening Statement of Service Nova Scotia (SNS): February 2015 Payday Loan Hearing. Halifax, Canada: Service Nova Scotia.

    Google Scholar 

  • Shefrin, Hersh M., and Richard H. Thaler. 1993. The Behavioral Life-Cycle Hypothesis. In Economics and Psychology, ed. Shlomo Maital and Sharone L. Maital, 166–200. Cheltenham, UK: Edward Elgar.

    Google Scholar 

  • Simpson, Wayne, and Dana Bazarkulova. 2013. Payday Loans Consumer Profile Based on the 2009 Canada Financial Capabilities Survey. Winnipeg.

    Google Scholar 

  • Simpson, Wayne, and Jerry Buckland. 2016. The Dynamics of Financial Institution Location in Toronto: Who Is Serving the Inner City? Economic Development Quarterly 30 (4): 1–29.

    Article  Google Scholar 

  • Soederberg, Susanne. 2014. Debtfare States and the Poverty Industry. London: Routledge.

    Google Scholar 

  • Squires, Gregory D., and Sally O’Connor. 2001. Color and Money: Politics and Prospects for Community Reinvestment in Urban America. Albany, NY: Suny Press.

    Google Scholar 

  • Thaler, Richard H., and Cass R. Sunstein. 2008. Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven, CT: Yale University Press.

    Google Scholar 

  • Wolff, Sarah D. 2015. The Cumulative Costs of Predatory Practices. Durham, NC: Center for Responsible Lending.

    Google Scholar 

  • Zinman, Jonathan. 2010. Restricting Consumer Credit Access: Household Survey Evidence on Effects around the Oregon Rate Cap. Journal of Banking and Finance 34 (3): 546–556.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Menno Simons College, Canadian Mennonite University, Affiliated with the University of Winnipeg, Winnipeg, MB, Canada

    Jerry Buckland

  2. Department of Economics, School of Public Policy and Administration, York University, Toronto, ON, Canada

    Brenda Spotton Visano

Authors
  1. Jerry Buckland
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Brenda Spotton Visano
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Menno Simons College, Canadian Mennonite University Affiliated with the University of Winnipeg, Winnipeg, MB, Canada

    Jerry Buckland

  2. Faculty of Liberal Arts and Professional Studies School of Administrative Studies, York University, Toronto, ON, Canada

    Chris Robinson

  3. Faculty of Liberal Arts and Professional Studies Department of Economics School of Public Policy and Administration, York University, Toronto, ON, Canada

    Brenda Spotton Visano

Rights and permissions

Reprints and permissions

Copyright information

© 2018 The Author(s)

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Buckland, J., Spotton Visano, B. (2018). Introduction. In: Buckland, J., Robinson, C., Spotton Visano, B. (eds) Payday Lending in Canada in a Global Context. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-71213-0_1

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-71213-0_1

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-71212-3

  • Online ISBN: 978-3-319-71213-0

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation