Survey of Payday Loan Users in Toronto and Vancouver

November 11, 2005

Report for
The Association of Community Organizations for
Reform Now (ACORN)
PAYDAY LOAN USERS SURVEY CONFIDENTIAL

Acknowledgements
ACORN Canada gratefully acknowledges the support provided by VanCity Credit
Union in funding the research in this report. Support for this project does not
necessarily imply Vancity’s endorsement of the findings or contents of this report.

For Strategic Communications, Inc

Lead researchers: David Kraft and John Willis
Project management: Armand Cousineau and Shiloh Bouvette
Thanks also to Gillian Strange, Stephen Arsenault, and David Smith.

www.stratcom.ca

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1.0 Summary

• Payday loan consumers are largely working-age and employed, more likely
than not male, and born in Canada. As a group, payday loan users have a
distinctly lower income than the general population. Almost half of the most-
frequent users of payday loans (>10 times in the past 12 months) have
annual household incomes that are $30,000 or less.

• Vancouver users tend to have lower levels of education, on average, than their
Toronto counterparts, and to be older.

• More than a third (37%) of respondents in this survey have taken out a
payday loan six times or more in the past year, and of those, about half
have done so more than ten times. In Toronto, the reported frequency of
use is very high, with 44% saying they have taken out a payday loan 6
times or more in the past 12 months.

• Many users of payday loans are people with poor credit records that they
believe bar them from getting adequate services at banks and credit unions,
and/or who feel a need for quick cash to cover outstanding bills or debts.
They use these services to create the liquidity for daily living that many
Canadians take for granted, so they can manage bill payments and debts.
Undoubtedly some other users fit the image of the happy-go-lucky young
person on his way out to an evening of fun (shown in industry
advertisements) but this is a minority.

• Consumers with the lowest household incomes (<$30,000/year) and the

heaviest users (>10 times in the past 12 months) are more likely than
other payday loan users to cite bad credit and/or outstanding debt as the
reason to use payday lending.

• Two-out-of-three payday borrowers say they would prefer to use a bank or

credit union if they could get a payday loan there. More than a quarter
(27%) agree with the statement “In the past I have felt uncomfortable or
intimidated by the collection practices used by payday lending companies like [name
location].”

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• Four-in-ten (41%) users of payday loans do not know what interest rate
they are paying for their latest loan. A large majority (74%) are unaware
that all charges and fees for payday loans count as interest, according to
the law.

• By a wide margin, most payday loan borrowers believe it is very (61%) or

somewhat (23%) important to regulate payday loan services.

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PAYDAY LOAN USERS SURVEY CONFIDENTIAL

2.0 Introduction

In the late spring of 2005, the Association of Community Organizations for Reform
Now (ACORN) asked Strategic Communications, Inc. to design and field a survey of
Canadians who use the services of so-called ‘payday lenders’. The practice of offering
short-term payday loans against an individual’s paycheque (and/or other regular source
of income such as pension cheques) has grown dramatically in the past few years and
the industry is now estimated to be worth $2 billion a year in Canada in terms of loan
volume. By comparison, a recent report about the industry in the United States, where
payday lending originated, stated that the industry is worth US$44 billion annually in
that country.

ACORN and other organizations have raised concerns about the phenomenon of payday
lending, citing extremely high rates of interest and lack of consumer awareness about the
dangers of extended use of payday loans. The industry remains unregulated, and
ACORN has called for legislative action to be taken.

With this background, we designed this research to investigate:

• The demographic profile of payday loan consumers in Toronto and Vancouver

• Patterns of use by consumers, such as frequency of use, generally, and back-to-
back loans specifically
• Reasons for taking out a payday loan, and reasons for using this kind of service as
opposed to a bank or credit union
• Consumers’ awareness, knowledge, and perceptions about interest rates,
lending/collection practices and documentation provided for their payday
loan(s).

A detailed overview of the methods used to conduct this research can be found in
Section 4 of this report. In brief, we recruited 419 individuals for face-to-face
interviews, each of whom had recently taken out or paid back a payday loan from a
commercial service. We conducted the survey in both Toronto and Vancouver, with
roughly equal samples in each (Toronto = 204 respondents, Vancouver = 215
respondents).

To recruit this many payday loan users required that we screened a total of 1,079
people, most of whom were using other services of these commercial establishments.
Thus our target population of payday loan users represents 39% of the total population
of clients for the businesses at which we conducted the surveying.

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A survey running approximately 12 minutes in length was administered to respondents

by professional interviewers from Strategic Communications. All interviews were
conducted in the four months between early July and late October, 2005.

This report highlights the main findings of the survey.

3.0 Main Findings

Who uses payday loans?

We found that payday loan users in Toronto and Vancouver are mainly men (just over
60%), with a minority being women. They are from all age ranges, but in Toronto they
tend to be younger than the general population. As a group, they are more likely to
have a high school diploma or college degree than the general population, but less likely
to have a university undergraduate or graduate degree.

Users of payday loans are also more likely to be born in Canada than the general
population of these two highly diverse cities. In Vancouver in particular, this difference
is very noticeable with 79.1% of respondents born in Canada compared to 52% for the
population at large.

Since payday loans require that the borrower have a paycheque or other regular source
of income, it is no surprise that the majority of clients we interviewed are employed full-
time (72.8%). In Toronto this figure is even higher at 80.9% and in Vancouver it is
lower at 64.7%. (This may amount to having more than one part-time job, and does
not necessarily mean these respondents are employed at a single job.)

On income, the pattern is marked and distinctive: payday loan users have lower
incomes, on average, than other residents of the cities in which they live. In Vancouver,
46% report that they live on a household income at, or below, $30,000 each year, while
the comparable figure for the whole population of Vancouver according to the 2001
census is 36%.

In Toronto, the number of payday loan users living on $30,000 annual household
income or less is approximately equal to the general population (around 30%).
However, viewed from the perspective of the median household income for the general
population in Toronto, which is just over $54,000 annually, about 7-in-10 payday loan

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users in that city have a household income below the median. In Vancouver, about two-
thirds of payday loan users have a household income below that city’s median (which is
$42,000).

And, taken as a group, the most-frequent users of payday loans (>10 times in the past
12 months) are similarly disadvantaged -- 46% have household incomes that are
$30,000 or less.

These findings are particularly notable considering that the majority of this user-group
are working full-time.

As for levels of education, we found that payday loan users are more likely to have a
high school diploma and/or college degree or trade certificate in comparison to the
general population in their city. But they are also less likely to have a university degree.
And again, there is a distinctive characteristic of lower levels of education in Vancouver
and somewhat higher in Toronto.

See further details in accompanying charts and tables.

Frequency and Patterns of Use

About one-quarter (25%) of respondents (in the two cities combined) have taken out a
payday loan only once or twice in the past 12 months. However, more than a third
(37%) have taken out a payday loan six times or more in the past year, and of those
fully half have done so more than ten times. In Toronto, the reported frequency of use
is very high, with 44% saying they have taken out a payday loan 6 times or more in the
past 12 months.

Just over 18% of respondents chose not to answer this question, so the figures above are
undoubtedly, in fact, underestimates.

Asked whether they have taken out a payday loan in the past 12 months ‘right after’
paying off a previous payday loan, more than half (52%) responded that they have done
so. More troubling is the fact that one-in-five (20%) have done this 6 or more times in
the past 12 months.

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Factors Influencing Consumer Choice

Although three-in-ten respondents (30%) reported that they use payday loans because
they are fast and convenient, it is clear that a far larger number use them to cover
financial ‘emergencies’ such as overdue bills and debts coming due. Almost one-in-four
(25%) said they use this product because they have a bad credit record and/or
outstanding debts to cover, and a further 23% cited the need for last-minute cash to
cover bills coming due and other daily needs. Fourteen percent (14%) said that they
feel they cannot rely on banks or credit unions to help them solve their needs for cash
on a short-term basis.

Citing bad credit and/or outstanding debts as the reason to use payday lending is
highest among customers with lowest household incomes (<$30,000/year) and the
heaviest users (>10 times in the past 12 months).

And it is revealing that nearly two out of three payday loan users (64%) would switch to
a bank or credit union if they could acces a similar small loan product there. The
reasons given for this preference are dominated by the perception that the interest rates
charged by banks and credit unions are lower (55%), that mainstream banking
institutions provide the convenience of one-stop shopping and/or ‘better services’ (22%),
and that they are more safe, legitimate, and honest (16%).

(Both of the questions reported above were open –ended and allowed for multiple
responses, so respondents had the chance to offer more than one reason.)

We further investigated the element of safety and security. Respondents were asked if
they agree that “In the past I have felt uncomfortable or intimidated by the collection practices
used by payday lending companies.” In both cities a significant minority agreed -- 23% in
Toronto, and 31% in Vancouver.

Payday borrowers are not marginal users of financial services: 88% have a debit card and
85% report having a chequing account at a bank or credit union. Consistent with their
reasons for using payday loans, though, far fewer have a major credit card (42%),
overdraft protection (33%), or a home mortgage (7%).

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PAYDAY LOAN USERS SURVEY CONFIDENTIAL

Awareness and Knowledge of Interest Charges

One of the most notable findings of this research relates to how aware or knowledgeable
payday loan users are about the interest charges they are paying for the service.

Asked what level of annual interest they paid on the payday loans they have taken out,
many respondents consider it to be relatively low: more than a quarter (27%) believe it
to be 20% or less, and a further 14% believe it to be between 21 and 30% annually.
However, a very large number of payday loan users (40%) simply said they do not know
what level of annual interest they are paying.

A large majority (74%) of payday loan users said they are unaware that all charges and
fees for payday loans count as interest according to the law. Perhaps not surprisingly,
two-thirds (67%) are unaware that it is unlawful to charge more than 60% annual
interest for a loan.

Regulating Payday Lending

What do payday borrowers have to tell us about the public policy debate that surrounds
this issue?

Two-out-of-three payday loan borrowers (67%) are not aware that this industry is the
only major financial service that is unregulated in Canada. However, most believe it is
very (61%) or somewhat (23%) important to regulate payday loan services.

To further test this attitude, we offered respondents more background information:

“According to the way the Canadian Government calculates interest rates, virtually all payday
lenders charge between 300% and 2,500% annual rates of interest, which is illegal.” And we
then posed a clear choice between two points of view:

“This is a good reason to regulate the payday loan industry so that rates will be reduced.”

“The rates [charged] are justified because of the cost of making small loans, and the
industry will serve its customers better if it is not regulated by government.”

Put in this context, 69% of respondents said that regulation of the payday loan industry
is closer to their own view, while 18% said that leaving the industry unregulated more
accurately reflects their own view.

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4.0 Methods and Sampling

These results are compiled from face-to-face interviews with 1,079 clients of commercial
payday loan providers, conducted between July 4th and October 30th 2005 by
professionally-trained staff interviewers of Strategic Communications, Inc. Of these,
204 were conducted in Toronto and 215 were conducted in Vancouver.

Neither ACORN as the research sponsor, nor Strategic Communications as the research
provider, had access to lists of payday loan users. As a result, an innovative sampling
strategy was adopted.

Respondents were approached by Strategic Communications’ staff interviewers upon

exiting payday loan establishments, and screened to discover if a) they had previously
been interviewed in this survey, and b) if they had “ever used a store like this one to
take out a payday loan.” As a result, the target subsample that is the topic of this
report is the 419 respondents who reported that they had taken out at least one payday
loan. Users of other services offered by these businesses were screened out.

To date there has been very little research about the characteristics of payday loan users.
Previous research commissioned by the payday loan lobby organization appears to have
been focused on the experience of clients in ‘mainstream’ payday loan establishments
(defined as members of the industry lobby group – the Canadian Payday Loan
Association or CPLA.

ACORN, in contrast, was interested in the experience of payday loan users with the
smaller, stand-alone businesses in this field. In their view, legislation and regulation
covering this commercial activity should be designed to assist ALL consumers, not just
those who are clients of the largest, wealthiest, most organized players in the industry.
This research was designed to shed light on that segment of the industry that has been
least discussed in the public debate so far.

To this end, the locations for surveying were selected to ensure representation from
clients of the large number of payday loan providers who are not members of the CPLA.

This sampling technique yields what researchers term a ‘sample of convenience’, which
is typical for innovative research in new fields. There is no comprehensive and reliable
background dataset (e.g. official Census) on the target population of this study, we

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cannot use techniques such as weighting to ‘match’ the demographic representation

within our sample to the actual population in the real world.

The findings of this research accurately represent what these respondents told us. With
more than 400 interviews conducted face-to-face on the doorsteps of a broad range of
payday lending institutions, we believe this research to be the most comprehensive
profile of these consumers yet produced.

5.0 About Strategic Communications

Strategic Communications, Inc. (Stratcom) is an innovative Canadian consulting firm

founded in 1991 by Robert Penner. Stratcom specializes in services to enhance the
effectiveness of Canada’s non-profit community, offering services in the fields of opinion
research, communications, and campaign strategy. The company has two full-service
offices in Toronto and Vancouver.

Stratcom has conducted public opinion and specialized research for clients such as the
Law Society of Upper Canada, Amnesty International, and the United Nations
High Commission for Refugees (UNHCR). The company’s research has been noted
in The Toronto Star, Vancouver Sun, Globe & Mail as well as in numerous online
publications. Stratcom will soon start publication of an in-depth newsletter focusing on
exclusive data from the company’s ten years of public affairs research on behalf of
Canadian civil society.

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 Born in Canada
90%
2001 Census, whole population
80%
Payday loan users 79%
70%

60%
59%
50% 52%
49%
40%

30%

20%

10%

0%
Toronto Vancouver

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Age
50%
Sample Toronto Census Toronto Sample Vancouver Census Vancouver
45%

40%

35% 36%
35%
30% 32%
29%
28%
25%
25%
23% 23%
20% 23%
22%
19% 19% 19%
15%
15% 14%
10%
8%
5%
5%
4% 5% 4%
0%
20 or younger 21-30 31-40 41-50 51 or older

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PAYDAY LOAN USERS SURVEY CONFIDENTIAL

Gender
100%

90% Toronto Sample Toronto Census Vancouver Sample Vancouver Census

80%

70%
67%
60%
59%
50% 52% 51%
48% 49%
40%
41%

30% 33%

20%

10%

0%
Men Women

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PAYDAY LOAN USERS SURVEY CONFIDENTIAL

Employment Status
100% Full-time
90% Part-time
80%
81%
Self-employed
70% 73% Unemployed
65%
60% Retired
50% Homemaker
40% Student
30%

20%

10%
10% 10% 9% 7% 4%
7% 3% 3% 4%
0%
Toronto Vancouver Total

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Household Income
Total, before-tax

70%

60% Toronto Sample Toronto Census Vancouver Sample Vancouver Census

50%
49%
45%
Median Income for:
40% 41%

36% Toronto - $53,480

30% Vancouver - $42,026
30% 30% 29% 30%

20% 22%
19%
17% 17%
14%
10%
9%
7%
5%
0%
<$30k $31-60k $61-90k >$90k

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Education
60%

50%
Toronto Sample Toronto Census Vancouver Sample Vancouver Census

44%
40%

36%
34%
30%
28% 28% 28%
26% 25%
24% 24% 24% 24%
20% 22%

16%
10% 12%

3%
0%
Less Than High HS Grad/Some College Grad/Some Univ/Grad Degree
School College Univ

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Frequency of Use
In the past 12 months, about how many times have you used [store name] or other stores
like it to get a payday loan?
30%

25%
Toronto Vancouver Total 24%

20%
20%
18% 19%
18%
15% 16%
14%
13%
12%
12%
10% 11%
10%
9%
8%
7% 7%
7% 7%
5% 6%
5%
3%

0%
Once Twice Three times Four times Five times 6 to 10 times More than 10
times

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Rapid Turnover Borrowing

How many times in the last 12 months have you taken out a payday loan right after paying off
your last payday loan?
60%
58%

50%
48%

Toronto Vancouver Total

40%

36%

30%

20%

13% 13% 13%

10% 11% 11%
10%10%10% 10%
9% 9%
7%
5% 5% 3% 4% 5%
3% 3% 1% 2%
0%
Zero Once Twice Three times Four times Five times 6 to 10 More than
times 10 times

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Other Financial Services

Which of the following financial products or services do you currently have?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Debit card 88%

Chequing account at a bank or

85%
credit union

Savings account at a bank or a

58%
credit union

Major credit card 42%

Overdraft protection at your

32%
bank

Home mortgage 7%

None 4%

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Reasons for Using Payday Loans

In your case, what are the main reasons why you use payday services like [name of store]
instead of a bank or credit union?

29%
Fast, Convenient, Easy, Flexible 31%
30%
Bad credit rating/outstanding 25%
26%
debts 25%
Last Minute/Emergency 21%
25%
Loans/Overdue Bill Payments 23%
Assume banks/credit unions won't 18%
11%
provide small short-term loans 14%
13%
Customer service 8%
10%
Bank/credit union hours not 8% Toronto
7%
convenient 7% Vancouver
Closer to work/home than bank or 8%
credit union
3%
5%
Total
Dislike/Distrust of Banks - 1%
3%
Impression as greedy, impersonal 2%
1%
Send Money/Change Currency 2%
1%

0% 5% 10% 15% 20% 25% 30% 35%

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Reasons to Prefer a Bank or Credit Union

Why would you prefer to use a bank or credit union? (n=219)

51%
Cheaper - Lower Interest 61%

55%

24%
Convenience/Comfort - One
Location Financial Services - 20%
More/Better Services
22%

19%
Security, Safety, Integrity, Toronto
13%
Legitimacy, Reputation
16% Vancouver
Total
5%
Improve Personal Credit Rating etc 4%

4%

0% 10% 20% 30% 40% 50% 60% 70%

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Intimidation Factor?
In the past I have felt uncomfortable or intimidated by the collection practices used by
payday lending companies like [name location].
pct Agree/Disagree

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Strongly Agree Somewhat agree Neutral Somewhat Disagree Strongly Disagree No experience

Toronto 12% 11% 16% 13% 25% 20%

Vancouver 20% 12% 8% 7% 21% 27%

Total 16% 11% 12% 10% 23% 23%

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Perceived Annual Interest Rates

What percent annual interest do you estimate you are paying on the payday loans you
receive here?

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

7%
< 10% 13%
10%
16%
10 - 20% 18%
17%
20%
21 - 30% 9%
14% Toronto
4%
31 - 40% 3%
Vancouver
4%
2%
41 - 50% 5% Total
4%
2%
51 - 100% 5%
3%
8%
> 100% 4%
6%
39%
Dont Know 42%
41%

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Not Aware
Did you know..?
(Combined sample)
Aware

0% 10% 20% 30% 40% 50% 60% 70% 80%

74%
…all charges are counted as
interest?
26%

…it is against the law to 67%

charge >60% annual interest
for a loan? 33%

…that the payday lending 63%

industry is worth an estimated
$1 billion/year? 36%

…that payday loans are the

68%
only major financial service
that is unregulated in most of
32%
Canada?

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Is Regulation Important?
Very Important Somewhat Important Neutral Somewhat Unimportant Very Unimportant

pct Agree/Disagree
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Toronto 62% 24% 4% 3% 4%

Vancouver 60% 21% 5% 3% 5%

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To Regulate or Not to Regulate?

Regulate the payday loan industry to reduce rates

Interest rates and fees are justified and the industry should not be regulated by government.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

77%
Toronto
13%

61%
Vancouver
23%

69%
Total
18%

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Ontario Government Inaction on Payday

Lending (n=204)
Strongly approve Somewhat approve Neutral Somewhat disapprove Strongly disapprove

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

6% 10% 9% 23% 45%

[Toronto Sample Only] This past spring the Ontario legislature considered legislation to regulate the payday
lending industry, but the Liberal government decided to withdraw its support for the bill, which means the
industry will remain unregulated for the foreseeable future. Based on what you know right now, do you approve
or disapprove of the Liberal government's actions?

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