Reducing the high cost of being poor

The Canadian Press notes that payday loan services are just now getting real attention from governments:

The interest Sinclair has shelled out amounts to more than 1,000 per cent on an annualized basis.

The burgeoning short-term loan industry across Canada is largely unregulated, and the Criminal Code provision restricting loan rates to less than 60 per cent per year is rarely enforced.

Fees and penalties can be compounded and virtually unlimited.

The provinces and Ottawa are looking at new rules, and this fall ministers responsible for consumer affairs will draw up an action plan. Options include limiting penalties for late payments, slapping a new ceiling on interest rates and giving provinces more enforcement power.

Even the token "quote from a satisfied customer" is based on the idea that in the absence of other options, a person is better off paying an exorbitant interest rate than having to go through a pawn shop instead. The more important question left unasked is that of why there aren't some better options available.

One helpful solution noted by Judy Wasylycia-Leis is the creation of community-centred financial institutions:

In neighbourhoods like Winnipeg's north end, lax rules on banking services have allowed all major banks to simply pull up stakes and leave for more profitable pastures, paving the way for high interest payday lenders to enter.

My constituents are fighters, not victims, however, and are organizing through the Alternative Financial Services Coalition to provide access to non-profit financial services for their community.

While limits on the amount of interest charged on rollover loans and more strict enforcement of the usury provisions will help somewhat, the real solution lies in the creation and expansion of community lenders. Ideally, governments would provide backing to allow community lenders to function while taking small losses their issued loans. In turn, the lenders could both encourage local development, and keep more money in the hands of those who need it most.