Winnipeg Free Press - PRINT EDITION

Serving the unserved

Credit unions and community groups are the core's solution to fringe banks

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You may have never heard of Pigeon Park. It's not a green space found anywhere near our city.

Pigeon Park is small patch of trees and park benches in Vancouver's Downtown Eastside, known more for hard drug users than pigeons.

Yet the name has also become synonymous with an innovative initiative to fight poverty in the area.

Located near the park is a branch of Vancity Credit Union that provides banking services for the neighbourhood, appropriately named Pigeon Park Savings.

The branch -- often referred to as a 'bank' by clients -- was founded in partnership with the Portland Hotel Society (PHS) in 2004.

PHS is the non-profit agency that helped launch InSite, North America's only safe injection site.

Earlier this month, the society's executive director, Liz Evans -- once named one of the Top 40 most influential Canadians under age 40 -- was in Winnipeg to discuss 'the bank' and other projects in the Downtown Eastside.

She told an audience at a conference focusing on the financially excluded that Pigeon Park Savings is an integral part of an overall support network for the extremely poor residents of the area.

Since opening in 2004, it has offered clients less costly alternative to pawn-brokers and fringe banks like The Cash Store and Money Mart, she said to an audience of representatives from government, credit unions, credit counselling agencies and consumer advocate organizations from across Canada.

Today Pigeon Park has more than 4,500 members who, for a $5-flat monthly fee, receive a bank account, a photo ID bank card and even overdraft in some cases.

For its clientele, it's more than just a bank account.

"Offering people access to the simple dignity that comes with carrying a bank card or the status of being able to use a point-of-sale debit card may seem like a tiny step," she said. "But it's offering the right of membership to people who have been told at too young an age in many cases that they're not us, but outside of us."

Winnipeg, too, has its share of economically excluded individuals.

Free Press reporter Mary Agnes Welch's recent feature Bank Erosion in the North End (you can find it in the Long Reads section of our website) investigated the effects of the departure of major banks from Winnipeg's low-income neighbourhoods over the last decade.

While big banks may have left these areas, focusing on more profitable parts of town, fringe lenders like Money Mart have filled the void, says Menno Simons College professor Jerry Buckland, author of a new book, Hard Choices: Financial Exclusion, Fringe Banks and Urban Poverty in Canada.

It's fertile ground.

"For the unbanked, the estimates are between 0.5 and four per cent of the adult population," says the U of W professor in a recent interview with the Free Press.

But Buckland figures the actual number is likely closer to three per cent, which means more than 10,000 Winnipeggers likely have no bank account at all. It's estimated many more have accounts but lack access to services like low cost credit. Typically, these are the people fringe banks serve.

Credit unions and community groups have been working on alternatives. Assiniboine Credit Union (ACU) and Me-Dian Credit Union opened branches in the North End earlier this year.

Prior to these openings, community non-profits had banded together with ACU to create an alternative called Community Financial Services Centre (CFSC).

At one time, this was Winnipeg's answer to Pigeon Park Savings in Vancouver. Debra Joyal is manager of CFSC, now located in a redeveloped warehouse on Main Street.

She says CFSC is quite different from the Pigeon Park model. For one, staff consists of Joyal and her assistant, Lilian Pineda.

But the clientele is also diverse, spread over a large area.

"We have a lot of single mothers and fathers," she says.

About 46 per cent of CFSC's clients are aboriginal. Many others are recent immigrants. Some clients have substance abuse problems; others are impoverished from divorce or recently released from jail.

"Some may live on the street," Joyal says. "We've actually had a client that lived in a box under the Salter Street Bridge."

One of the biggest challenges is that many don't have identification papers, a barrier to opening an account.

Getting ID takes time, but more importantly, it costs money.

CFSC has been helping clients get ID and other necessary documentation to open accounts at ACU since 2005.

It's been a tough slog.

"We've been here for seven years, and we've only banked about 700 people," she says, adding they could help thousands more.

Now CFSC is in a state of flux. Its funding runs out at the end of June.

ACU's vice-president of social responsibility, Priscilla Boucher, says plans are in the works to rebrand CFSC and refocus its role in helping its clients. ACU and North End Community Renewal Corp. plan to announce CFSC's new name and role next month.

Along with CFSC, Boucher says the recent return of credit unions is a hopeful step in the right direction, but more participation is needed.

"Access to basic financial services is a basic need in our society," she says. "Any financial services institution that wants to be socially responsible should ensure that all citizens have access to important financial services."

Without more access, the alternatives largely remain fringe financial institutions like payday lenders.

These are costly options for low-income individuals, even though the province regulates them. Payday lenders charge an annual interest rate of more than 400 per cent on a loan. Under the Criminal Code, it's illegal to charge more than 60-per-cent annual interest.

But an exemption in the Code allows payday lenders to charge more as long as provincial regulation is in place. Buckland says it's an odd situation.

"You've got a law and then you're saying businesses can break that law -- basically," he says.

"But supporters of payday lending have said that if you crack down on it, then consumers are going to go to money lenders and face an even worse situation."

Spokesperson for the Manitoba government Julie DeVoin says many other regulations exist to protect consumers, such as clear disclosure of loan costs, limiting loans to 30 per cent of net income and the right to cancel within 48 hours. She says the regulatory framework helps Manitobans "avoid falling into a cycle of debt."

Buckland says a fairer solution is increased access to affordable banking options.

But this requires a lot of investment. ACU, for example, needed millions of dollars in deposits from community partners for the new branch to create a critical mass of capital to make it economically viable, he says.

"The cost of doing 'good' is expensive," Joyal agrees.

But it's an investment that will pay off in the long run. Just think about all of the social assistance money that goes into low-income families' savings instead of paying fees at fringe banks or pawnbrokers, she says.

"We need more than a few of us to get there," Joyal says. "We as a society need to act collectively on this."

Payday loan regulation in other provinces

Manitoba's payday lenders regulation is stricter than other provinces with legislation in place, says U of W professor Jerry Buckland. Manitoba prohibits fees higher than $17 per $100 of a payday loan. (The loan can't be more than $1,500 or longer than 62 days.) Caps in other provinces range from $20 to $25 per $100. Only Quebec and Newfoundland do not have legislation. As a result, the Criminal Code exemption does not apply in those jurisdictions, and payday lenders cannot charge more than 60 per cent per year interest. But Sylvie De Bellefeuille with Quebec consumer watchdog group Option consommateurs said recently at the Winnipeg conference on the financially excluded that high-interest lending still takes place in Quebec. So does regulation work? "Not that well, because people still need the money."

Are micro-loans the solution?

Micro-loans are typically loans for less than $1,000, charging a low interest rate or no interest at all. The concept started in Bangladesh by Nobel Prize winning economist Muhammad Yunus. These loans are popular in developing nations where small entrepreneurs have no access to credit. In Canada, Option consommateurs has started a micro-loan program that offers low-income individuals loans between $200 and $1,000. "It's very different from what is done elsewhere in the world," De Bellefeuille said. That's because the program offers consumer loans instead of small business loans. The program has been running for 10 years in partnership with Desjardins, the largest credit union in Canada. "It's a small loan made to low-income consumers to cover an unexpected expense," she said. Loans charge no fees or interest with a typical repayment period of a year or less. At the end of 2011, the program had granted 286 loans worth more than $156,000 in total with a repayment rate of about 85 per cent. By comparison, Canada's repayment rate for student loans is about the same. The most recent data show the default rate on student loans is 14.7 per cent nationally.

Are payday lenders making loads of cash?

The two largest payday lenders in Canada are The Cash Store and Money Mart. Both are owned by publicly traded companies. Money Mart is owned by Dollar Financial Group, a U.S. firm traded on the Nasdaq. The Cash Store is owned by Canadian firm Cash Store Financial, traded on the TSX and NYSE. But just because they're big doesn't mean they're wildly profitable. "Revenues have grown, but that's because their outlet numbers have increased," Buckland says. "In terms of profitability, it's a bit patchier. I don't see a consistent high level of profitability." To put thing in perspective, profits for the both firms are generally a few million dollars annually compared to Canada's largest banks that earn a few billion a year.

Republished from the Winnipeg Free Press print edition June 23, 2012 B11

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