Are payday lenders simply a necessary evil?
The Ontario Ministry of Consumer Services is going after payday lender Cash Store Financial Services which operates 200 outlets in Ontario alone: branded as InstaLoans and The Cash Store.
At issue is whether the company has violated Ontario's Payday Loans Act, which limits the fees that can be charged by payday loan companies.
Similar questions have been raised in Manitoba where certain outlets have started offering high-interest lines of credit, which also appear to fall outside the province's payday loan rules.
Payday loans are designed to tide borrowers over until their next pay cheque. The amount you can borrow is usually limited to 50% of net pay, at incredible interest rates that make credit cards look like a real bargain.
These loans then trap borrowers in a cycle of mounting debt. Charges escalate when the borrower is unable to repay the loan at the end of the month, or can repay but immediately needs to borrow the same amount again.
Proponents of payday loans claim that more strict regulation or even forcing them out of business will hurt those who need help and have no other place to turn for short-term lending solutions. Some also argue that such loans aren’t actually as onerous as their opponents charge and may be a neccessary evil.
"Like them or not, payday lenders do play an important function in society: as niche, legitimate providers of credit to people with credit challenges (loans are typically approved only to people with a source of income, and many of those earn middle-class incomes) and as a quick and convenient source of moderate amounts of cash," writes Sean Silcoff in the Globe and Mail.
Have you ever used a payday loan service? Would you describe yourself as a regular customer? What was your experience?
By Gordon Powers, MSN Money