May 12, 2022

It’s high time to act on payday loans

Sometimes the demands made on governments seem so eminently reasonable that it’s amazing they need to be repeated over and over again.

In a report released last week, ACORN, a nonprofit group that advocates for low- and middle-income Canadians, once again calls on the federal government to crack down on exorbitant interest rates charged by high-cost lenders. .

Screaming outlets offering payday loans and other similar quick-money provisions at high cost are symbols of desperation on the main streets of nearly every city.

They are the physical manifestation of an inequitable society – a divide both highlighted and deepened by the COVID-19 pandemic.

As ACORN has long argued, lenders benefit the most vulnerable.

The pandemic has made matters worse for those on the fringes, he said. Many of those trying to pay their bills turn to so-called payday loans – small, short-term loans with extremely high annual interest rates.

These loans do not exceed $1,500, must be repaid within 62 days and can bear interest up to 500% in some provinces. They are regulated by provincial governments and lenders are exempt even from the 60% limit on interest.

Some respondents to an ACORN survey also took out what are known as installment loans – longer-term loans of $1,500 to $15,000 that are repaid over a longer period at annual rates of up to 60%.

The result is people falling into pitfalls they can’t escape as they struggle to pay their bills and cover the rising cost of living, ACORN said.

The poor, he said, are the industry’s target market and “lenders continue to exploit people’s vulnerabilities.”

For lenders, “the objective is not to help people but to ensure that the person who took out a loan is trapped in a vicious circle of debt”.

ACORN wants the federal government to reduce the legal limit on interest rates on installment loans to 30% from 60%.

“This should be a priority and the government should act on it, and fast,” Donna Borden, an ACORN leader, told Torstar’s Christine Dobby.

Lenders argue that the reduction in the legal interest rate could actually hurt some borrowers by cutting off all access to financing for those with low credit ratings.

That’s why ACORN also wants the government to force traditional banks to offer more low-cost borrowing options to individuals, backed by the government itself, and cut bank fees charged from $45 to $10. when customers do not have the necessary funds to cover the transactions.

“It is not preference but a lack of choice that is the main factor driving low and middle income people to take out high cost loans,” ACORN said.

The survey notes that while the economic consequences of the pandemic continue to be felt and government supports dwindle, while “the most disadvantaged segments of the population have seen their jobs disappear or face a substantial reduction in working hours. work, senior executives, CEOs and large corporations have seen their wealth increase.

In his mandate letter to Finance Minister Chrystia Freeland in December, Prime Minister Justin Trudeau asked her, among other things, to “crack down on predatory lenders by lowering the criminal interest rate.”

Strong words. But as ACORN said last week, it’s “critical to translate that commitment into action.”

The file is clear and the need is real. The government should get on it.