In a new political report released this month, a Calgary nonprofit is calling for an end to what it claims to be “criminal” interest rates on payday loans.
Momentum is also calling for an end to legislative exemptions that allow interest rates of up to 500% nationwide, and 400 percent in Alberta.
The group is calling for the maximum effective annual interest rate in Canada to be set at 36 percent, including borrowing costs.
“Going from a 400% interest rate to a 36% interest rate is huge when you’re counting your dollars just so you can pay rent, or buy diapers or food for your family,” said Courtney Mo, Director of Public Policy Research and Evaluation for Momentum.
Loans target new low-income Canadians
Momentum, which works with low-income Calgarians to improve their financial skills, said payday or installment loans unfairly target vulnerable people.
“Those who can afford to borrow the least have to pay the most,” Mo said.
Currently in Canada, the the penal code limits the interest rate to 60 percent, but provides an exemption for payday lenders. Section 347.1 of the Criminal Code allows loans under $ 1,500 and when the payment period is less than 62 days to exceed the 60 percent limit.
Mo said on installment loan contracts, lenders often charge up to the 59.9% limit.
“Far too high, especially for low income families, newcomers to Canada and the vulnerable,” she said.
A LiveWire Calgary analysis of payday lenders in Calgary found that of 29 city-approved lenders, 17 were located in areas with median family incomes between $ 56,192 and $ 79,053, the lowest quartile in the city. 2016 census.
The same analysis found that 15 – or 52% – of these lenders were located in areas with the lowest-income single-parent families.
“We have seen a proliferation of payday lenders and fringe lenders in the low income halls,” Mo said.
The statistics of the Government of Alberta indicate that 33% of all payday loans issued in 2020 were between $ 1,000 and $ 1,500. This represented $ 124.3 million of the $ 219.5 million total value of loans made by the industry to consumers.
Of the 288,401 loans issued in the province, 42,678 were in default. As a result, this represented $ 19.2 million or about 8% of the total value of loans issued in Alberta.
Just over $ 23 million in credit charges were billed to consumers.
Modifications proposed by Momentum
The nonprofit has proposed four changes to the criminal code and municipal and provincial regulations.
In addition to lowering the interest rate on the AEOI to 36 percent, they are calling for the repeal of section 347.1 of the Criminal Code.
Mo said this would bring Canada into compliance with the regulations of Quebec and many US states.
They are also asking for the withdrawal of actuarial certificates and the approval of the Attorney General of Canada for the prosecution of criminal interest rate investigations.
Momentum is also calling for better access to secure, small dollar credit.
“We all need to borrow at some point in our lives – and debt can actually be productive if you borrow for education, borrow tools for work or to start a business, etc. – and therefore we believe that access to safe and affordable credit is fundamental for all Canadians, ”said Mo.
The nonprofit advocated for greater use of small loans from credit unions or through postal banking services offered through Canada Post.
Help desk industry says it plays an important role for Canadians
In an emailed statement, the Canadian Consumer Finance Association, which represents payday lenders in Canada, said their members are highly regulated and licensed.
“Payday loans are highly regulated and the fees charged are set by provincial governments based on their analysis of the cost of offering the product,” the release said.
They said they offer payday loan services because “many hard-working Canadians do not have access to short or long term credit from banks, credit unions and trust companies.”
In response to a question about Momentum’s call to cut interest rates by LiveWire Calgary, the association said it would only deny credit to Canadians.
“Of course, everyone would like a cheaper loan, but governments shouldn’t restrict more interest rates than a lender can charge. If they did, the only result would be that a larger cohort of Canadians would be denied access to credit, or at least credit from a government regulated lender, ”the statement said.
“The demand for credit would not change, however, and would simply shift to illegal unlicensed online lenders such as the lenders identified by Service Alberta.”
The province of Alberta has issued warnings regarding unregulated online lenders targeting Albertans.
Current and proposed industry regulations
In 2015, the City of Calgary passed a bylaw prohibiting the consolidation of pawn shops and payday lenders. At that point, it wasn’t until then that Ward 3 Councilor Jim Stevenson voted against the settlement.
The regulations prohibit any payday loan vendor from being within 400 feet of each other.
The province of Alberta currently limits the interest rate on payday loans to 400 percent, and rrequires loan terms to be 42-62 days. Alberta also limits fees to $ 15 for every $ 100 of the loan, which gives a maximum of $ 225 in fees for a payday loan.
The legislature passed legislation to end predatory lending in 2016, which lowered previous rates on borrowing costs.
Peter Julian, Member of Parliament for New Westminster-Burnaby, has introduced several private members’ bills to amend section 347.1. Bill C-274 received first reading in March 2021 before the federal election. His new bill, C-213, was presented and received a first reading in parliament on December 14.
“As members are well aware, legalized interest rates of up to 600% currently exist in Canada. This bill would close loopholes that allow financial institutions and payday lenders to charge 500% or 600% and cut the criminal interest rate in half. which is currently authorized in the Criminal Code, ”Julian told Parliament.