Loophole lightening wallets
Cash Stores charging extra to dole out loan in prepaid MasterCard form
By VINCENZO RAVINA Special to the Herald
Sat. Apr 23, 2011 - The Chronicle Herald
A legal loophole may be allowing Cash Stores to charge more for a payday loan than the province’s maximum fee.
Walk into a Cash Store location for fast cash and you’ll find yourself faced with a choice: cheque or prepaid credit card. If the average borrower chooses a cheque, he or she will wait five to seven business days for the cheque to clear.
To get cash right away, the borrower will have to pick the prepaid MasterCard option and pay an extra $45 for it.
Paper money in your hands is not an option at the Cash Store.
The Chronicle Herald commissioned me to check out the Cash Store after a company insider indicated there was a plan afoot to get around new payday loan rates by tacking on extra fees — an accusation that Cash Store Financial’s chairman and CEO, Gordon Reykdal of Edmonton, adamantly denied.
Of the extra fees, the insider had said: “It’s beyond greed. These are poor people going in here. We’re serving poor people every day.”
To get a payday loan, I needed ID, proof of a bank account and a pay stub to prove income. The Cash Store also wanted a pre-authorized debit form from my bank and a list of five phone numbers for my friends and family, to track me down if I didn’t pay my loan back.
When presenting the payout options to me, the employee helping me said, “You can choose to take the cheque and walk out the door with it and then you’re responsible for cashing it, or we can load it onto a prepaid MasterCard for you, then you’re able to get the cash out right away.”
For a borrower in poverty, the choice between cash now and cash five days from now is no choice at all.
“If you go to an outlet like that, it’s an urgency,” says Claudia Jahn, program director in Halifax for Community Action on Homelessness. “(Borrowers) have to pay rent or buy groceries; it’s really just survival. They have to go for the credit card and this will really drive them into deeper and deeper financial problems.”
Earlier this month, the provincial Utility and Review Board reduced the maximum payday loan fee to $25 per $100 borrowed from $30 per $100 borrowed.
David Roberts, the board-appointed consumer advocate for the hearing, says the Cash Store’s practices don’t break the law but are worth looking into if they’re creating barriers to a loan.
It might be that “the practical reality of someone’s life is that if they don’t get the money (right away), then it’s not going to be of any benefit to them,” Roberts said.
When Reykdal was asked if the five- to seven-day hold typically placed on a cheque creates a barrier, the Cash Store Financial chairman and CEO said: “We hope that’s not the case. But there are alternatives. For consumers to be able to get immediate access, they can take that cheque and endorse it over and they can get cash for it. It’d be unfortunate if the banks don’t provide that immediate cash for the consumer, but that would be more of a bank issue than a Cash Store issue.”
Other payday lenders in Halifax Regional Municipality, including Money Mart, offer payouts in cash to their customers. Reykdal says Cash Stores don’t because “we think it’s a better and a higher level of customer service we provide because it doesn’t cause us to put barriers like bulletproof glass in our operations.”
The $260 loan I got at Cash Store ended up costing me $381.25 to pay back with the prepaid MasterCard option. That’s $121.25 in fees. According to employees at several local Cash Stores, that’s a fee of $17.95 for the MasterCard and $7.95 as a monthly fee on the card. Another $19.10 is made up of fees for loading the money onto the card and withdrawing the money. That $45 is added to the loan, and the loan fees ($76.25) are added on top.
Reykdal has a different breakdown of the numbers. He says the prepaid MasterCard is free with a “premium bank account” that costs $29.95 plus $7.95 in monthly charges. Either way, Reykdal says, the customer is free to get his or her loan in cheque form for the legal maximum fee. Everything else is optional and completely up to the customer.
“If the customer so chooses to purchase a MasterCard, they can do that subsequent to the payday loan transaction.”
Deborah Baker, a spokeswoman with Service Nova Scotia, the provincial department that governs the payday loan industry, says the department hasn’t received any complaints on this issue but would investigate if one were brought to its attention.
Cash Store Financial operates 23 Cash Stores and Instaloans outlets in Nova Scotia and about 570 Canada-wide.
The $246-million company reported that it earned a net income of $3.4 million, or 19 cents per diluted share, in the three months that ended Dec. 31, down from $5.5 million, or 32 cents, in the same period the previous year. The company’s shares closed at $14.30 on the Toronto Stock Exchange on Thursday, down two cents from Wednesday’s close.
