Bank fees, the niggling ones that creep in at the end of the month, are what sent James Jackson to a Money Mart.
Jackson used to have a bank account -- "I've tried all the banks and they're all the same," he said. He gave up in frustration after finding his meagre balance eaten away by unexpected fees.
"Banks charge extra. They always take stuff off every month, $20 for an overcharge, $20 for this, $20 for that," he said last week as he stepped out of the Money Mart, a "fringe bank" on Selkirk Avenue.
"I'd rather lose a few bucks now than $20 later."
Jackson pays about $6 to cash his $110 socialassistance cheque every two weeks. He also uses Money Mart when he earns the occasional paycheque hauling scrap metal. Over the course of this year, Jackson will pay more than $300 in fees.
Canada's stable, well-regulated banking system may be the envy of the world, but it's wishful thinking for many people in the North End and in inner-city neighbourhoods across Canada.
Where once there were 20 bank branches in the North End, now there are only two -- three, if you use a slightly more generous definition of the North End.
Fringe banks have become so common across Canada that there is even a Cash Money store, part of a mid-size chain of payday lenders and cheque-cashing stores, on the main floor of the federal Finance Department's complex in downtown Ottawa.
High interest on loans and hefty fees at fringe banks, coupled with the flight of Canada's five big banks from the inner city, exacerbate poverty and create a two-tiered banking system, says Jerry Buckland, a professor at Canadian Mennonite University's Menno Simons College.
Next month, Buckland will release a new book that explores causes and effects of the Money Mart phenomenon in the poorest neighbourhoods of Toronto, Vancouver and Winnipeg. Called Hard Choices: Financial Exclusion, Fringe Banks and Poverty in Urban Canada, the book is the culmination of a decade of research on the people who have come to be called the "unbanked."
"There is something ethically troublesome about a situation where low-income people are paying high fees for low-quality services and middle-income people are paying low fees for high-quality services," Buckland writes.
Buckland's research team did long surveys of inner-city residents and sent mystery shoppers into fringe and mainstream banks. They found a series of small barriers -- a lack of ID, unexpected fees, bad hours -- push people off the mainstream banking grid.
The byproduct is that poor people can't get financial advice or develop a credit rating, so applying for a mortgage or credit card is tough. They also don't have access to a way to save even a few dollars every month. Personal financial development comes to a grinding halt.
"I used to have a bank account, but it got closed," 19-year-old Aaron Puttee-Vouriot said as he waited for the bus outside the Money Mart on Selkirk.
"I owed them $30 because of bank's fees."
Instead, just like Jackson, he now cashes his twice-monthly $100 cheque at Money Mart because it's close to where he lives, and he can get the money right away, with no holds. He's not put off by the fees, which are costing him hundreds every year.
"I haven't really done up the math that much," he laughed.
On the surface, Puttee-Vouriot's decision to use a Money Mart appears irrational -- the high fees, the dead-end services, dealing with an industry whose business practices are still poorly regulated. But Buckland's research found poor people make a reasonable choice to pay hefty fees and interest to get services they value.
Often, people lack the proper identification to open a bank account, so they use a Money Mart, which has created its own in-house identification program to keep track of its customers.
Poor people can't afford to wait a week or more for a bank to process a deposited cheque, so they accept hefty cheque-cashing fees. In Manitoba, the fees are capped, amounting to $13 on a $500 cheque. The fees are higher in other provinces.
And the poor people Buckland interviewed would rather pay a cheque casher's easy-to-follow fees right off the top than get dinged by unexpected charges when they open their bank statements.
Buckland's surveys and mystery shoppers revealed that, in some cases, the Big Five banks weren't as respectful or as generous with information. Money Mart makes a point of offering friendly, non-judgemental service, he said.
And many inner-city residents say bank branches are often too far away and keep inconvenient hours.
About 15 years ago, Doris Vermette had accounts with CIBC and the Royal Bank, but now she does most of her banking at Money Mart.
"Because I lost my IDs, for one thing," explained the mother of three. "If you're in a school program or working or something, banks are only open until 4:30 or 5, and it's hard to rush over on the bus."
Maura Drew-Lytle, communications director for the Canadian Bankers Association (CBA), said banks are building more branches and keeping them open longer hours to serve Canadians better.
But like any other business, banks open branches where there are customers.
"We think there is good access for people," said Drew-Lytle. "Banks are businesses. They are not government services."
In 1980 in Winnipeg's North End, Buckland counted 20 mainstream banks or credit unions -- and just one pawn shop. The 1980s saw the rise of pawn shops in the North End, and the next decade saw the rise of fringe banks.
Now, there are only three credit unions and two mainstream bank branches remaining in the North End, and those big-name banks are on the outskirts -- the Bank of Montreal on McPhillips Street and the Scotiabank on Main Street near Inkster Boulevard.
There are at least 11 fringe banks, mostly pawn shops, as well as an Instaloan, a Money Mart and a Cash Store. Pawn shops offer short-term loans in exchange for goods -- usually big-screen TVs, video-game systems or jewelry. If the loan isn't repaid in a certain period of time, the goods can be sold in the store. Many pawn shops also offer cheque-cashing services for hefty fees.
Shops like Money Mart and the Cash Store offer payday loans -- short-term loans, often for two-week terms, repaid at high interest. And they cash cheques instantly, for a fee.
Oddly enough, most of the fringe banks are also on the fringes of the North End, on Main Street or McPhillips. The one bright spot is the brand-new Assiniboine Credit Union that opened recently on McGregor Street, the culmination of years of work by the community to get better bank services in the heart of the North End.
The phenomenon of the unbanked has been an urban problem across Canada for at least the last decade, but the federal government, which regulates Bay Street banks, has done little in response.
Federal access-to-banking regulations mandate that anyone with proper ID must be allowed to open an account, and federal government cheques such as the child tax benefit must be cashed free with no holds.
Earlier this month, Ottawa announced even tougher rules that cap holds on all cheques to four days and give customers access to the first $100 within 24 hours. It's a move the CBA says will improve services to low-income people in particular. The new rules come into effect in August.
But the regulations don't do anything to dissuade banks from closing inner-city branches or encourage them to create a suite of services tailored to the poor, such as low-interest, short-term payday loans.
And Ottawa has never shown much interest in forcing banks to backstop projects such as Pigeon Park Savings, a unique community bank in Vancouver's Downtown East Side that caters to the poor. Staff in the federal Finance Department would not respond to criticism that department has allowed mainstream banks to abandon inner cities. In an email, they said regulating payday lenders is the province's job.
Manitoba is widely acknowledged to have the toughest rules for payday lenders, though the five-year-old limits on payday-loan interest and cheque-cashing fees haven't caused a reduction in the number of Cash Stores, Money Marts and Instaloans in Winnipeg.
Manitoba tasked the Public Utilities Board with regulating fringe banks. The PUB ordered that the maximum a fringe bank can charge to cash a government cheque is $3, plus two per cent of the face value of the cheque. For someone on disability who gets an $800 cheque every month, that amounts to nearly $230 a year in fees.
In Manitoba, more than 80 per cent of social-assistance cheques are delivered by direct deposit, up from 35 per cent six years ago. That encourages people to open real accounts at real banks and avoid cheque-cashers.
The fee cap doesn't cover non-government cheques such as a paycheque.
It's still a bad deal compared with the Royal Bank's most basic account, which carries a $4 monthly fee, or $48 a year.
When it comes to payday loans, the PUB also capped the interest rate at 17 per cent for the first $500 and even lower for higher amounts.
Most middle-class people can get a line of credit with interest rates closer to three or four per cent.
"Prospective payday borrowers should realize that payday loans are so expensive that they should be avoided, to be considered only in the absence of access to credit from mainstream lenders, family, or 'doing without,' " warned the PUB.
The province has also helped fund the Community Financial Services Centre, a sort of gateway bank run out the Mount Carmel Clinic on Main Street. If an inner-city agency has a client with no bank account, they can refer the client to the CFSC, where a small staff walks the client through the process and sets them up with an Assiniboine Credit Union account. It's a referral-only service, but so far it's got 700 people banked.
Jim Rondeau, who just took over the provincial Consumer Affairs portfolio, says the unbanked are a big priority for him.
"We know the traditional banking system isn't quite fitting the need," he said.
This month, Rondeau is hosting a series of meetings in his office with representatives from the big banks, including the Royal Bank and TD Bank, to see if there is willingness to consider ways to expand services to the inner city.
Rondeau says the province can't just legislate an end to pawn shops and payday-loan stores -- the services may not be ideal, but they are vital in poor neighbourhoods.
But he is open to any creative solutions, and he might be uniquely positioned to help on one front -- the ID problem. Rondeau is also in charge of vital statistics, and he said he can envision a program run in partnership with that agency to get proper ID in the hands of people who need it.
But Buckland argues the problem is really a national one, and banks enjoy a level of protection by the federal government, which helps them achieve huge profits. Buckland concedes it's probably not realistic to expect Ottawa to force banks to open branches in marginal neighbourhoods. Banks may not be government services, but they provide a public good, he said.
Inner-city residents already pay more for milk at the corner store than in suburban big-box grocery stores. The difference with banking is that it's a service people need to meet other goals -- save for emergencies, buy a house, get a student loan.
"This phenomenon is very troublesome," said Buckland. "If we let this continue, where does it end?"
BIG FIVE BANK PROFITS (Year ending Oct. 31, 2011)
Royal Bank -- $6.7 billion
TD -- $5.9 billion
Scotiabank -- $5.3 billion
Bank of Montreal -- $3.3 billion
CIBC -- $3.1 billion
-- Source: Quarterly and annual reports