The past year was one that most companies would probably like to forget. But one industry has been doing just fine, and believe it or not, it’s in the finance sector: the payday loan business.
These so-called lenders of last resort, such as Money Mart, specialize in small, short-term loans at high-interest rates. They’ve been realizing big gains in these tough economic times, winning customers who need emergency loans, as well as those frustrated by tightening credit at the big banks.
Last week, Edmonton-based the Cash Store Financial Services Inc., which has 415 stores across Canada, announced it had a “stellar” quarter, with branch revenues up 11 per cent compared to the same period last year. “We haven’t seen anything really negatively impact our business,” says CEO Gordon Reykdal, adding that the company plans to open 70 new stores this year. Dollar Financial Corp., the U.S. company that owns Money Mart, has been on a roll too. It recently reported that its total revenue was up 17 per cent last quarter—a company record.
Still, Stan Keyes, president of the Canadian Payday Loan Association, which represents 20 payday loan companies, is cautious about the coming year. He says the industry has “levelled off,” in part because of job losses. But faced with the choice of defaulting on a small bank loan or going to a payday lender, he says people still tend to choose the latter.
Not everyone is happy with the sector’s success. Consumer advocates say payday lenders prey on those who can least afford their high-interest rates and fees. Several provinces are now clamping down on the worst lending practices—a move supported by the CPLA, which is eager to clean up the industry’s image. Good thing, because like them or not, it looks like payday lenders are here to stay.