The pandemic has pushed more Canadians to seek out high-interest loans, a new survey finds, and advocates are calling on the federal government to lower the maximum interest lenders can charge.
ACORN Canada, a community group advocating on behalf of low- and middle-income Canadians, conducted the investigation among its members. Of the 439 people who responded to the survey between November 2021 and January 2022, 113 said they took out a high-cost loan, such as a payday loan or an installment loan, due to COVID-19.
Of these respondents, a quarter said they had to take out a high-interest loan 10 times or more since the start of the pandemic. More than half also said they first applied for a loan from a traditional bank or credit union, but were turned down. In addition, 83% said they needed loans to meet day-to-day expenses.
“When people have to take out loans for basics like rent, groceries, phone, internet…it’s pretty alarming,” ACORN New Brunswick spokesperson Peter Jongeneelen said Tuesday. Brunswick, to CTVNews.ca in a phone interview.
Installment loans are generally offered to borrowers with interest rates between 30 and 60% and intended to be repaid within a specified period. Payday loans are typically $1,500 or less for a term of 62 days or less and can have interest rates up to 548%, depending on the province.
These loans are offered by alternative lenders and are typically sought out by people who may not be able to access loans from traditional banks and credit unions due to bad credit, low income or a combination of both.
“They’re just not eligible (for credit from banks) because their credit score isn’t good enough,” Jongeneelen said. “They’re forced to try to do everything they can to keep a roof over their heads, to keep food on the table.”
Suzette Mafuna was one of the ACORN members who took out an installment loan. Mafuna depends on Old Age Security and returned to college in 2019 to find a good job and achieve financial independence. With rent, phone bills, debts and other expenses piling up, she took out an installment loan in the early months of the pandemic to help pay her school expenses.
But with fees and interest, she now owes an additional $8,000 on top of her $6,000 principal.
“No one understands what it’s like to be an average Canadian or to struggle to make ends meet. These guys sitting in these offices are all rich. They never lived our lives. It’s all about the money,” she told CTVNews.ca on Monday by phone.
The end of COVID-19-related government supports such as CERB has been cited as one of the reasons lower-income Canadians have turned to high-interest loans. More than half of respondents said their financial situation had deteriorated due to the pandemic and the continued need for financial support.
“CERB was great and the changes to EI were great. But then they ended. Things like lockout pay, carer’s pay — they were somewhat inadequate. We are still in the pandemic,” Jongeneelen said, adding that Canada lost 200,000 jobs in January 2022 after the Omicron variant emerged, according to Statistics Canada.
THE CRIMINAL INTEREST RATE SHOULD BE REDUCED: REPORT
The Criminal Code of Canada prohibits lenders from charging annual interest rates above 60%. ACORN says the federal government should lower the criminal interest rate to 30%.
But under section 347.1 of the Criminal Codepayday loans are exempt from maximum interest restrictions as long as provinces adopt their own regulations.
In Ontario, British Columbia, Alberta, New Brunswick and Prince Edward Island, payday lenders can charge a maximum of $15 per $100 loaned over a two-week period . This equates to an annual interest rate of 391%.
In Manitoba and Saskatchewan, the maximum fee is $17 per $100, or 443% per year. Nova Scotia allows payday lenders to charge $19 per $100 (495% per year), while Newfoundland and Labrador lenders can charge $21 per $100 (548% per year). year).
Quebec is the only province to have effectively banned payday loans. Interest rates for all loans in the province are capped at 35%. ACORN is also calling on the federal government to follow Quebec’s lead and repeal the Section 347.1 exemption for payday loans.
In last year’s federal election, the Liberals pledged to “crack down on predatory lenders by lowering the criminal interest rate.” This commitment was also identified as one of the priorities in the speech of Deputy Prime Minister and Minister of Finance Chrystia Freeland mandate letter in December 2021.
Adrienne Vaupshas, press secretary for the Freeland office, told CTVNews.ca in an emailed statement that the federal government will soon begin consultations on reducing the criminal interest rate, with further details at “to make available in due time”.
“Too many low- and modest-income Canadians are forced to rely on short-term, high-interest loans to make ends meet, leaving them in a cycle of debt. The government is committed to cracking down on predatory lenders by lowering the criminal interest rate,” she said.
But the Canadian Consumer Finance Association (CCFA), the industry group representing financial institutions that offer payday loans and installment loans, says these changes could end up hurting low-income Canadians who otherwise would not have access to any credit from financial institutions. traditional. The CCFA argues that this could discourage borrowers from seeking loans from illegal and unlicensed lenders.
“Installment loans are expensive to provide and often high risk. The borrower’s credit score is an important factor in determining the interest rate charged on an installment loan and, in fact, many applicants do not qualify for a loan due to their credit profile,” the band said in a statement sent to CTVNews.ca. Monday.
“Any reduction in the maximum federal interest rate will result in the elimination of access to credit for Canadians with lower credit scores who previously qualified at the current rate.
ACORN is also calling on the federal government to make traditional banking services more accessible. Suggestions include reducing the insufficient funds (NSF) fee for withdrawals from $45 to $10 and having the federal government secure bank loans for low- and middle-income Canadians. ACORN also suggests introducing a postal banking system, where the Postal Service would operate a public bank for those who do not have access to banks.
“It’s heartbreaking that banks don’t seem to have anything prioritized for low- and moderate-income people who need some sort of emergency loan,” Jongeneelen said. “The government must act on this as soon as possible.”