Fringe financial services stepping into gap left by banks: expert

An increasing number of Canadians are being left behind by mainstream banks, and that leaves customers vulnerable to fringe services such as rent-to-own stores, according to a Winnipeg expert.

Fringe financial services are defined as any product offered outside of a traditional bank. They include pawn shops, payday lenders, cheque-cashing stores and rent-to-own stores.

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Jerry Buckland, dean of Menno Simons College in Winnipeg, is calling on banks to be more proactive in delivering services to low-income people, but he added that government also has a role to play.

"I think that any company that deals with financial services needs to be regulated," he said. "They are particularly risky to people."

Gail Anderson, Manitoba's director of consumer affairs, said rent-to-own stores are regulated through parts of the Consumer Protection Act.

"We do regulate rent-to-own through requiring them to abide by the cost of credit provisions," she said, adding that there is no specific law or plan to implement one to protect consumers.

Buckland said regulators are far behind as companies continually adapt their products to meet the needs of the low-income market.

Anderson said its up to consumers to weigh what they are able to afford and ask themselves questions about the rates they are paying.

"Are they prepared to pay very high costs for credit?" she said. "Will they shop around and decide that's not something they want to do?"

High costs with small loans leave some out

According to Buckland's research, mainstream banks have essentially left the poor behind because of the high costs associated with small loans.

These days, they are automating lending, emphasizing credit cards and promoting lines of credit, he said.

"They found it too expensive and too staff-intensive to offer these loans." he said, adding that people who don't have sufficient access to mainstream banking turn to fringe services when they have nowhere else to go.

"That has consequences," he said, "including high prices, higher fees and regulation that is not as comprehensive."

Feeling accepted by retailers is key to why rent-to-own stores are an attractive option despite the high costs, Buckland said.

"We found that this is really important to low-income people, that they feel accepted," he s aid.

Anderson said her office would be "receptive to looking at what could help."

"We certainly want to speak to people that feel this is creating difficulty," she said.