Toronto’s general government and licensing committee decided Wednesday that the city should stop issuing licenses to new payday loan stores.

“These are in areas where residents are very vulnerable,” said Ward 5 Councillor Frances Nunziata, adding that a large number of payday loan sites are located in her riding of York South-Weston.

“We have to control them.”

The final decision will be up to city council, where it is scheduled for debate on Oct. 2, but it had the unanimous support of councillors on the licensing committee, including Councillor Stephen Holyday, (Ward 2 Etobicoke Centre) who said he voted against the motion only a technicality — he does support regulating payday loan companies.

Payday loan companies charge high fees for short-term loans and can trap unwitting borrowers in a cycle of debt. They are typically located in low-income neighbourhoods, often close together, encouraging a desperate clientele to borrow from one payday loan company in order to pay another, the committee was told Wednesday.

“Weston Road and Lawrence have those businesses, those lenders, together for a reason — they know that individuals who are vulnerable are going from lender to lender within maybe 20 minutes, 25 minutes,” said Bob Murphy, a representative from the Association of Community Organizations for Reform Now (ACORN), speaking at the committee meeting.

“Once you get stuck in that hole, you’re in big trouble, you will be homeless very quickly, you’ll be visiting food banks, you’ll be travelling from food bank to food bank,” said Murphy, who lives on a fixed income and was once stuck in the cycle himself.

A spokesperson for the industry said the companies operating in Toronto are licensed and regulated and provide a service to people who have limited or no access to banking services. The committee was warned that illegal and unlicensed operators will step in to fill the demand not being met by regulated companies.

“The way it is set up now is, by attrition, you’re eliminating every payday loan store in Toronto, eventually,” said Jim Burnett of Pathway Group Inc. He was speaking on behalf of the Canadian Consumer Finance Association, which says it represents the majority of Canada’s regulated providers of small-sum, short-term credit, including payday loans.

“The demand will remain the same and people will go online and get riskier loans — that’s what’s happening now.”

The committee recommendations come more than a year after city council adopted interim regulations to stem the proliferation of payday lending businesses by creating a new business licence category in April 2018.

The move had an immediate chilling effect, with only 187 of 212 the then-existing payday loan locations applying for a city licence. The others closed, merged or moved online, according to a city staff report.

The committee also adopted a motion asking city council to require that all payday loan establishments in Toronto provide city-sanctioned information on credit counselling services.

It endorsed a motion calling for the creation of a national database of payday loan users to stop them from taking out loans to pay off other loans.

Nelson Belchior, president and co-founder of Pay2Day, with five locations in the GTA and 30 across Canada, said that if city council follows through on the recommendations, it will be putting the industry in the hands of the largest companies in the sector, including Money Mart, Cash Money and Cash 4 You, which are already well-established.

“The top three have just been granted a monopoly card,” said Belchior, who is a member of the Independent PayDay Loan Association of Canada, representing smaller operators in the sector. “This is about minimizing competition. We’re the competition and we’re being told we can’t go in there and compete.”

He believes there is room for more locations in Toronto. He said that the average customer borrows $450 five times a year.

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Belchior said it was the “mom-and-pop” vendors who have shut down since the city brought in the new regulations.

As of January 1, 2018, the maximum cost of a payday loan is $15 for every $100 that you borrow. According to Consumer Protection Ontario, that means a $300 payday loan for two weeks will cost $45, compared to $6.15 on a credit card with an interest rate of 23 per cent. Six loans of $300 will cost $270, compared to $36.88 on a credit card with an interest rate of 23 per cent.