The rate of interest

Montreal real estate agent Boris Theodore pleaded guilty a coupla days ago "to his part in a family loansharking operation," reported my morning paper. Boris helped out his brother, Ted Theodore Sr., "when he picked up and delivered envelopes of money to the office, located in a Jarry St. wig shop." (Just goes to show me -- I thought all fronts were esthetician walk-ins. The industry is expanding its repertoire!) Boris told the court: "I didn't see any harm in it."

And where is the harm, after all? Loan sharks lend out money to people who really need it. The catch, of course, is a usurious rate of return. Ted "charged between five percent per week and 2,000 percent a year on his loans."

The whole idea with loansharking is to keep the mark from ever catching up. Endless interest makes for a quite nice income.

It was in the 1970s that Quebec's infamous "Report of the Commission of Inquiry on Organized Crime and Recommendations" came out, which spent a chunk of time on loansharking. (I'm not saying the Theodores are organized crime, eh. Just writing about loansharking and what the commission discovered about the milieu 30 years ago.)

Loansharking was quite lucrative, wrote the commissioners.

The commissioners give the example of a poor schmuk who's borrowed $300. Four weeks later, he's paid back $40, but owes another $507 in interest and penalties for late or missed payments. "Such a case is typical.... The borrower could in this way pay the loan shark $3,300 a year without having paid back a cent of his $500 debt." In short, loan sharks are creeps targeting the most desperate of the poor.

"They all have one problem in common: they cannot borrow from traditional financial institutions. The slightest need for money inevitably sends them to the underground market, that is, to the loan shark. Since their inability to pay remains unchanged, they are unable to pay back the borrowed money, which has obviously been increased by exorbitant amounts of interest and, gradually, under pressure of threats and intimidation, some agree to commit crimes in an attempt to extricate themselves. Among the underprivileged, it becomes as normal to be continually repaying a loan shark as to pay for the telephone, gas, and electricity." So some 30 years ago, in order to pay off his rising debt in lieu, one guy stole a car transmission a week from his employer. It took 18 weeks -- and 18 transmissions -- before he was caught and jailed.

Solutions? Accessible loans. And I mean accessible. Quite a few financial institutions have set up community programs to allow for cheap loans. And while this is in the bank's public relations interest, it's not a big moneymaker. So I'm going to suggest that financial institutions prefer other options. Like credit cards with ridiculous interest rate charges.

I have one that charges more than 20 percent interest, at a time when the Bank of Canada's rate is down around -- what, five percent? For many, credit cards are the new loan sharks. And they're legal!

Pushy people can demand a credit card with a cut rate. I was told it would be difficult, but they'd look into it. Take the you-should-be-terrifically-thankful-for-this switch-sales-pitch with a grain of salt. Just demand one, and you'll get it. Then transfer the balance. Down goes the monthly interest ding.

A line of credit -- another loan -- is also possible, again with littler interest charges.

Still, many can't even qualify for a credit card or a loan. There are actual alternatives -- but only if you already have regular income. You can go to a Money Mart, or some other payday lender. They're everywhere, even though some critics say they're completely illegal. Just another example of how you can get away with anything these days if moolah's involved. Now, the industry has moved into screwing the middle-class, too. Which -- swallow your bitterness, o poverty-stricken one! -- may mean that things will change.

"The payday loan industry," it sez here, "emerged in the 1990s, and quickly established itself as the fast food of the banking world: convenient, but unhealthy financially, with sky-high interest rates and fees. The loans these outlets offer are really small advances, which average under $300. They are covered by a postdated cheque to be cashed on the customer's next payday, and always include a criminally high interest rate."

Vancouver-based critic John Young, of the Association of Community Organizations for Reform Now, is quoted as saying: "It is illegal: 24/7, 365 days a year, every single payday loan is in contravention of the Criminal Code of Canada and everybody knows it."

"The Criminal Code sets the maximum interest rate at 60 percent [!]. Payday loan companies routinely charge upwards of 1,000 percent, after various fees are taken into account."

Plus ça change...

In March, the Manitoba government had a go. "It introduced legislation to protect consumers and regulate fees for short-term loans, while also calling on the federal government to allow all provinces to regulate the industry," it sez here. "This burgeoning industry now serves two million Canadians every year and is one of the last unregulated financial services sectors in the country....

"A recent City of Vancouver study found that most payday loan outlets are located within steps of a bank and along busy commuter routes. In downtown Ottawa, there's a payday loan store attached to the lobby of the federal Department of Finance. Well-paid public servants are its biggest customer."

Now. About the poor....?