Payday loan victims get $100 million

June 10, 2009
Betsy Powell
Dale Anne Freed
STAFF REPORTERS

Canada's leading payday lender has agreed to pay $100 million to Ontario clients who complained they were ripped off by usurious interest rates.

"It's been a long road," said Ron Oriet, 36, of Windsor. "I'm glad it's over. It's been six years."

A laid-off project manager who had borrowed from Money Mart to pay off student loans and car payments, Oriet was part of a class-action lawsuit filed in 2003 on behalf of 264,000 borrowers. Once the proposed settlement – it includes $27.5 million in cash, $43 million in forgiven debt and $30 million in credits – is approved by the court, the average payout will be about $380.

"We think it's fair and reasonable and in the best interest of the class members," lawyer Harvey Strosberg said yesterday.

From the Berwyn, Pa. headquarters of Money Mart's parent company – Dollar Financial Corp. – CEO Jeff Weiss said in a statement: "While we admit no wrongdoing ... this settlement will allow us to avoid the continuing substantial litigation expense that would be expected."

In 2004, a Toronto Star investigation revealed payday loans carried annualized interest rates ranging from 390 to 891 per cent.

In 2007, the federal government amended the law to allow the provinces and territories to regulate the payday loan industry and place limits on the cost of borrowing.

In March, Ontario established a maximum rate of $21 in fees per $100 borrowed making what was alleged to be an illegal practice legal, Strosberg explained.

"That's a political decision the government has made, and the government having made that decision, I can't say it's illegal that people shouldn't take advantage of that, that's why the credits became an option where they wouldn't have been an option before, we never could have talked about settling the case with credits while it's illegal," he said.

The class action, which had sought $224 million plus interest, alleged the financial services company had charged "illegal" interest rates on 4.5 million short-term loans from 1997 to 2007. The lawsuit said borrowers had paid an average of $850 in loan charges.

The case went to trial in Toronto in April but was adjourned with two weeks remaining after both sides agreed to mediation with former Supreme Court Justice Frank Iacobucci, Strosberg said.

Strosberg said there was a "practical side" to reaching a settlement since Money Mart owes $320 million (U.S.) on secured debt.

Ontario Superior Court Justice Paul Perell will review the settlement and if he doesn't approve it, "we're back in the saddle again," Strosberg said.

Back in Windsor, Oriet was relishing the apparent victory, recalling how the Money Mart outlet seemed like a saviour because he could walk out with cash in hand.

"But then you're in a vicious trap, a vicious cycle," he said. "Your next pay is down that chunk of money so you've almost got to get your butt back in there for another one."

Joe Doucet, 41 and his wife, Kim Elliott, 40, also fell victim to the lure of easy payday loans when Doucet was laid off as a factory worker. "We had up to five payday loans at the same time. The problem was the interest weekly ended up being $300 or $400."