City eyes zoning changes to keep payday loan companies away from vulnerable groups

Back in 2019, Shelly-Ann Allan's bank refused to lend her the money she needed to help pay for her father's funeral, so she had to turn to a payday loan company.

But what she didn't account for was the death of her stepfather shortly after. She had to take out another payday loan on top of the one that still had a balance of $1,500.

"The interest rates [have] built up and built up on me, and there's where it's affecting me right now," said Allan, who lives near Jane and Finch, an area of the city that has a disproportionately large number of payday loan companies. 

Critics say the concentration of such businesses in low-income communities helps perpetuate the cycle of poverty. That's why Toronto city council is discussing a recommendation this week from its Housing and Planning Committee that would bar new payday loan outlets from setting shop within 500 metres of social services offices, social housing, liquor stores, casinos and pawnshops.

According to Allan's contract with the payday loan firm easyfinancial, her cumulative interest rate now stands at 47 per cent, and she now owes $24,000. She says where she lives, people need more than just zoning restrictions to restrict payday lenders, they also need financial institutions that will lend them money at reasonable interest rates.

"People like myself … the bank wouldn't look at me to lend, because they said that I would not be able to pay back that money," said Allan.

Currently, lenders in Ontario can charge no more than $15 in interest for every $100 borrowed.

Despite that, University of Toronto finance professor Andreas Park says annual percentage rates can hit over 400 per cent for short-term payday loans, and additional interest can be applied if the loan isn't paid by the term's end, according to the Payday Loans Act. 

A 2021 report by city staff says zoning restrictions would only apply to new establishments, and could not retroactively apply to existing ones.

In 2018, the city capped the number of payday loan licenses and locations. The city says this has contributed to a more than 20 per cent decrease in such establishments, from 212 to 165 as of Jan. 26. But a new supplementary report released days ahead of this week's city council meeting shows there has been limited movement by the remaining payday outlets, with only three moves since the city brought in those restrictions.

Staff recommended finding "improvements to consumer protection and access to low-cost financial services" as a way to regulate the industry.

Coun. Anthony Perruzza, who represents Ward 7, Humber River-Black Creek, says that's all part of the city's Anti-Poverty Reduction Initiative.

"But that plan is still in the works, and it's still some years in the making."

Park says zoning restrictions against businesses are limited in their ability to tackle the heart of the problem.