A lot of research has gone into understanding why people use these services over conventional banks, and a main driver is they feel uncomfortable with and don't trust the big banks. They actually trust these extortionate lenders more.
That makes sense. I was wondering why people would make this mistake.
Some people are not allowed to open savings or checking accounts at a bank or credit union because they're in the Chex system (or one of the other reporting systems) due to fraud, overdrafts, or other misuse of a bank account.
Getting in trouble with a checking account is a lot like getting in trouble with a credit card, a defaulted student loan, or a broken lease: when you make a mess or allow a mess to happen, you have to clean it up before other people will trust you. Until people with Chex problems go back and clean up the mess they made (or allowed someone else to make using their account), they can't be a customer with an account, and for my credit union at least, you do have to be an account-holding customer before you're eligible for a mortgage or car loan, much less a personal loan.
Until there's a widespread outbreak of responsibility in the general public, I foresee an ongoing consumer demand for payday loan or high interest loan consolidation services.
I live in Canada, so I have no idea what you are talking about.
I lived in Alberta for 22 years. Let me break it down for you with some slight changes to the terminology, because I guarantee there are unreliable and untrustworthy people in Canada who commit shenanigans.
Banks and trust companies, such as Canada Trust and the other regionals that aren't quite what we used to call the Big Five, don't sit by idly while people misuse checking and savings accounts. When a customer does something blatantly fraudulent, such as by overdrafting a chequing account, knowingly writing bad cheques, depositing empty envelopes or stolen cheques, or otherwise abusing the account, there are predictable consequences.
First, the bank makes all reasonable efforts to track down and recover the money. There are NSF fees and penalties, often $50 apiece or higher, that apply when a person overdrafts the account. There are interest fees that accrue when an account balance is negative. There's also what's called a right of offset (or sometimes a right of set-off) that allows the bank to debit a customer's account to cover a shortfall on another, without necessarily telling the customer or getting permission.
TransUnion and Equifax have Canadian branches and collect information about creditworthiness. Among the things that can be reported to these agencies are outstanding debts to financial institutions due to unpaid NSF fees. Simply walking away from overdraft fees and abandoning an empty account, and then opening another account, isn't a viable strategy. The low number of banking institutions (compared to, say, the USA) reduce the need for massive databases like Chex, but banks do actually keep track of customers that rip them off and that haven't fixed the mess they made.
When a customer makes a mess involving a bank account, they have two options: to clean up the mess they made, and straighten up and fly right, or to do the opposite and try to evade responsibility. If a person makes the latter choice consistently enough, and if the offenses are deliberate, repeated, and fraudulent to the point where criminal charges become necessary, the bank eventually loses interest. Financial institutions do have the right to refuse to do business with a customer. In the province of Ontario, for example, a person who has committed a crime against a bank within the last 7 years does not have the automatic right to open an account. Nor does a person who has used a bank account to break the law such as by laundering money from criminal activities.
This is what I mean by a bank not wanting to do business with a customer.
There's such a thing as a person so irresponsible or malicious that they aren't eligible for accounts, much less loans, from financial institutions. Such people can and do resort to non-traditional and predatory lenders. There are also people who, for whatever reason, can't provide the necessary identification or initial deposit to open an account. Those individuals do end up "unbanked".