Payday and installment loans are on the rise in Canada as a result of the pandemic

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TORONTO — According to a recent survey, more people in Canada are looking into high-interest loans as a result of the pandemic. As a result, activists are urging the federal government to reduce the maximum interest rate that lenders are allowed to charge.

The study was carried out among ACORN Canada’s membership, which is a community organization that acts as an advocate for Canadians with low and moderate incomes. Because of COVID-19, 113 out of the 439 people who participated in the poll between November 2021 and January 2022 reported having taken out a loan with a high-interest rate, such as a payday loan or an installment loan.

A quarter of these respondents reported that they have been forced to obtain a loan with a high-interest rate 10 or more times since the beginning of the pandemic. More than half of those surveyed also reported that their initial request for a loan was turned down by a conventional financial institution such as a bank or credit union. In addition, 83% of respondents stated that they required the loans in order to meet their day-to-day financial obligations.

In a phone interview on Tuesday with CTVNews.ca, Peter Jongeneelen, a representative for ACORN in New Brunswick, stated that “when people have to take out the loans for basic expenses such as rent, groceries, phone, and internet… that’s sort of worrying.”

Borrowers typically have the option to take out installment loans, which typically have interest rates ranging from 30 to 60 percent and are designed to be repaid within a predetermined amount of time. The normal loan amount for a payday service is less than $1,500, and the loan term is less than 62 days. Depending on the province, the interest rate on a payday loan can be as high as 548 percent.

Individuals who may not be able to obtain loans from traditional banks and credit unions due to poor credit, low income, or a combination of both of these factors typically seek out these loans, which are offered by alternative lenders and are typically sought out by individuals who may not be able to obtain loans from traditional banks and credit unions.

According to Jongeneelen, “They simply do not qualify” for credit at banks due to the fact that their credit score is not high enough. They have no choice but to try and make ends meet by any means necessary in order to keep a roof over their heads and food on the table.

One of the members of ACORN who applied for and received a loan with installments was Suzette Mafuna. Mafuna is currently dependent on Old Age Security and returned to school in 2019 in order to better her chances of landing a suitable job and achieving financial independence. As her rent, phone bills, and other bills and expenses continued to pile up, she decided to take out an installment loan in the early months of the epidemic to assist her in paying for the costs associated with attending school.

On top of her original debt of $6,000, she now owes an additional $8,000 due to the assessed fees and interest.

“Nobody truly comprehends what it’s like to be a typical Canadian or to fight a daily uphill battle to make ends meet. These gentlemen who are now occupying these offices have all amassed significant wealth. They have never experienced life the way we have. The issue at hand is monetary, “Monday morning, she informed CTVNews.ca about it over the phone.

One of the reasons lower-income Canadians opted for high-interest loans was the phasing down of government COVID-19 programs like CERB, which was listed as one of the reasons. More than half of those who responded said that their current financial condition had become worse as a direct result of the pandemic and the ongoing requirement for financial assistance.

“Both the CERB and the reforms to EI were very positive steps in the right direction. But eventually, they came to an end. Things like the lockout benefit and the carer benefit were, to some extent, insufficient. The epidemic has not yet been contained “Jongeneelen stated this, and added that Statistics Canada found that the Omicron variety was responsible for the loss of 200,000 employment in Canada in January of 2022.

According to the report, the interest rate for criminal cases should be lowered.
It is against the law for Canadian lenders to impose yearly interest rates that are higher than sixty percent, as stated in the Criminal Code. According to ACORN, the federal government ought to reduce the interest rate on criminal cases to thirty percent.

Payday loans, on the other hand, are immune from the maximum interest rate regulations as long as the provinces continue to regulate the industry themselves, as stated in section 347.1 of the Criminal Code.

Payday lenders are restricted from charging more than $15 in fees for every $100 that is borrowed over a period of 14 days in the Canadian provinces of Ontario, British Columbia, Alberta, New Brunswick, and Prince Edward Island. That works out to a rate of interest that is comparable to 391 percent per year.

The largest fee that can be assessed is $17 per $100 in Manitoba and Saskatchewan, which works out to be 443 percent yearly. Payday lenders in Nova Scotia are permitted to charge a fee of $19 per $100 (495 percent yearly), whereas payday lenders in Newfoundland and Labrador are permitted to charge a fee of $21 per $100. (548 percent annually).

Payday loans are available in no other state but Quebec, which has become the only state to effectively outlaw their use. The maximum percentage of interest that can be charged on any loan in the province is 35%. ACORN is also advocating for the abolition of the section 347.1 exemption for payday loans, in the hopes that the federal government will follow Quebec’s example.

During the election for the federal government that took place a year ago, the Liberal Party made a commitment to “hard down on predatory lenders by decreasing the criminal rate of interest.” This pledge was also included as one of the goals in the mandate letter that Chrystia Freeland, the current Deputy Prime Minister and Minister of Finance, received in December of 2021.

In an email statement to CTVNews.ca, Adrienne Vaupshas, the press secretary for Freeland’s office, said that the federal government will be starting consultations on lowering the criminal rate of interest soon and that further details will be “made available in due course.” Freeland is the Minister of Foreign Affairs of Canada.

“A significant number of Canadians with low and moderate incomes are compelled to rely on high-interest, short-term loans in order to make ends meet, which traps them in a cycle of debt. The criminal rate of interest is going to be lowered as part of the government’s commitment to reducing the prevalence of predatory lending “she added.

However, the Canadian Consumer Finance Association (CCFA), an industry group that represents financial institutions that provide payday and installment loans, has stated that these changes may end up being detrimental to low-income Canadians who, in the absence of these changes, would not have any access to credit from traditional financial institutions. The CCFA contends that this could discourage borrowers from obtaining loans from illicit lenders who are not licensed.

“The provision of loans on an installment basis is both costly and frequently high-risk. An important factor in determining the interest rate that will be charged on an installment loan is the credit score of the borrower. As a matter of fact, many people who apply for loans do not meet the requirements for approval because of their credit profiles “Monday, the organization said in a statement that was sent to CTVNews.ca via email.

“The elimination of access to credit for those Canadians with lower credit scores who were previously qualified at the current rate” is what will happen if the maximum interest rate allowed by the federal government is reduced in any way.

ACORN is also advocating for the federal government to take steps to improve access to conventional banking services. The non-sufficient funds (NSF) cost for withdrawals might be reduced from $45 to $10, and the federal government could be asked to guarantee bank loans for Canadians with low to moderate incomes. These are just two of the options that are being proposed. Additionally, ACORN proposes the implementation of a postal banking system, in which the United States Postal Service would run a publicly-owned bank for individuals who do not have access to financial institutions.

“It’s upsetting that the banks don’t seem to have anything that’s a priority for those people who have low- and moderate-income and who need some sort of emergency loans,” Jongeneelen said. “It’s upsetting that the banks don’t seem to have anything that’s a priority for those people.” It is imperative that the government take action on this matter as soon as possible.

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