New Hamilton rules would only allow 15 payday loan outlets

The city of Hamilton is drafting a new law that would cap the number of payday loan places at 15.

Bylaw officials are working on a new radial separation rule allowing a maximum of one payday loan or cheque-cashing business per ward. City council will vote on it in February.

Existing businesses would be grandfathered, so there won't be an immediate difference, said Ken Leendertse, the city's director of licensing.

But in the long term, the new bylaw would reduce the number of payday loan businesses in Hamilton, he said. It will also stop them from setting up in areas with higher numbers of low-income residents.

"I don't think it's going to solve the problem because people still need money," he said. But "it will limit the exposure in the code red areas."

As of Jan. 1, Ontario brought in new regulations that allow municipalities to create their own rules around the number of high-cost lenders, and how far apart they are.

The regulations also cap how much such companies can charge for loans. The old fee was $18 per $100 loan. The new fee is $15.

In Hamilton, high-cost lenders are clustered around Wards 2 and 3 – downtown and the central lower city, says the Hamilton Roundtable for Poverty Reduction. Director Tom Cooper calls the bylaw "a very bold plan."

Payday loan businesses "use the proximity to people in need, but also very aggressive marketing tactics, to lure people in," Cooper said. Then high interest rates mean users get stuck in a cycle.

With the grandfathering clause, Cooper said, it will take a while to reduce the number. But "over time, you'll certainly see a decrease."

"I think that's all the city can do at this point."

Tony Irwin, president of the Canadian Payday Loan Association, said there's no concerted effort to set up around low-income areas.

"Our industry locates their businesses much the same way retail establishments do," he said. "They go to where the people are. They go to where there's space. They go to places that are well traveled, and where the customers are."

He hasn't seen a draft of the Hamilton bylaw, but "I'm certainly interested in understanding, from the city's point of view, why they think this is necessary, and how they arrived at one location per ward."

Brian Dijkema is sceptical the new plan will work. Dijkema has studied the payday loan industry as a program director at Cardus, and wrote a 2016 report called Banking on the Margins.

Dijkema would rather see the city put effort into establishing new programs with credit unions. The pending bylaw, he said, seems to put too much emphasis on the lenders, and not enough on addressing demand.

The limit, he said, would just give one high-cost lender a monopoly on the area.

"If you're looking to help the consumer and you're looking for the best policy to help the consumer, this one wouldn't be on the list."​

In 2016, the city introduced new licensing rules for payday loan businesses. Payday loan places had to post their rates, Leendertse said, and hand out credit counselling information. No charges have been laid as a result.