Project Summary

Usury, the charging of high interest rates on small loans, is an ancient problem faced by low-income and credit-challenged people. Historically in Canada and today in the South (or Developing World) poor people depend on small businesses such as moneylenders and pawnbrokers to provide credit in times of need.

Pawnshops continue to be lenders of last-resort in Canada but a variety of new business models have arisen to meet credit and financial service needs of low-income people. These include rent-to-owns, cheque-cashers, pay-day lenders, quick tax refund services and are sometimes referred to as fringe banks, not that they accept deposits, but that they provide many of the financial services low-income people and neighborhoods use.

Financial exclusion is when a person has no, or a very limited, relationship with mainstream bank and are consequently dependent on fringe banks. In Canada there is evidence that these are predominantly low-income people (Lott & Grant, 2002; Buckland & Martin, 2005) and that financial exclusion leads to dependence on low-quality financial services that are very expensive, compounding these peoples’ poverty.

Why do low-income people frequent fringe banks in the face of modest –to-low quality services and high prices? Why have the numbers of fringe bank outlets, particularly pay-day lenders, grown so rapidly in the 2000s? In the face of mainstream bank branch closures in low-income neighborhoods why haven’t these banks or other organizations devised new means to deliver services to low-income Canadians? Why have fringe banks not been criminally charged or regulated in the face of charging fees that universally break section 347 of the Criminal Code? These are some of the unanswered questions that this research will seek to answer.

The goals of the research are two-fold. First, we shall seek to understand the nature and causes of financial exclusion. Why do people choose to be unbanked? How does being unbanked affect a household’s financial position? Second, the research program seeks to understand how different financial service legislation and different community financial service programs affects participants’ financial wellbeing. Do usury limits, assist the financially excluded? Do community banks such as Vancouver’s Pigeon Park Savings facilitate greater financial inclusion?

This research program will contribute to an understanding of financial exclusion in Canada through multidisciplinary study in three sites across the country. The research sites will take place in three inner city, low-income neighborhoods including, Winnipeg’s North End, Downtown West Toronto and Vancouver’s Downtown Eastside. Each of these communities is unique. These three neighbourhoods similarly face the challenge of financial exclusion associated with bank branch closures, fringe bank outlet growth, and the consequent decline in quality of financial services and rise in costs.

The research team is made up of Dr. Jerry Buckland, economist and international development specialist with Menno Simons College, Winnipeg;  Maureen Fair, Executive Director, Rick Eagan, Coordinator of Community Development, and Miryam Zeballos, Coordinator of Financial Advocacy and Problem-Solving (FAPS) at St. Christopher House; plus several student and community research assistants.

Jerry Buckland led a team or researchers to complete a major SSHRC-funded study of fringe banks in Winnipeg in 2001-2003. This research program builds on, deepens and broadens that study, examining savings and financial service behavior of low-income people, drawing on an institutional theory of savings (Sherraden and Barr, 2004, 2005), adding more research methods and looking at financial exclusion in three inner-city neighborhoods across Canada.