Halifax Examiner: Views: Who’s paying the price for payday and high-interest loans?

Posted April 16, 2021

Last week I was meeting Iris the Amazing for coffee and as I was waiting I saw two young people walking down Young Street with huge signs advertising $10,000 lines of credit from Cash Money just up the street. Cash Money offers payday and other high-interest loans, which can leave borrowers in a terrible cycle of debt. Of course, I wondered how much these two were getting paid to walk around with these ad signs, but I also wanted to know how the payday and high-interest loan businesses were doing in this pandemic.
 
I called the Cash Money branch and was told to call their spokesperson Bill Baker (he didn’t call me back). But I learned from the branch that customers can apply for those lines of credit for any amount from $1000 to $10,000 at a 46.93 APR (annual percentage rate.) 
 
Payday and high-interest loans are regulated in Nova Scotia and several other provinces. A spokesperson with Canadian Consumer Finance Association, which represents most of the regulated providers of small-sum, short-term credit — including payday loans, installment loans, term loans, lines of credit, and cheque cashing services in Canada — sent me this statement:
 
Beginning in March 2020 all of our members took steps to help borrowers who were impacted by the pandemic. This included reducing or waiving interest on arrears, restructuring loan payments or suspending loan repayments. Contrary to some perceptions, the payday loan business has not increased as a result of the pandemic. Demand for credit has steeply declined due to a) loss of a steady source of income for many borrowers; b) reduced spending by the population and c) federal income supplements. A study of payday lending across Canada conducted by the CCFA found that loan volumes declined 80% in the first 3 months of the pandemic and then stabilized at roughly 50% of traditional volumes.    
 
ACORN Canada did its own survey on high-interest loans in 2020, which you can read here. ACORN wanted to capture the experience of people who’ve taken out high-interest loans, especially the loans applied for online. They collected 376 surveys and here are some highlights: 
 
  • 70% of respondents stated taking out a high interest loan. 
  • While a majority of consumers (i.e. 70%) continue to take payday loans, there is a surge in people taking installment loans. In 2016, the proportion of people taking out installment loans was 11% which has gone up to 45% in the latest study.   
  • Notably, the study points out that either people take these loans only once, or they are caught in a vicious cycle of debt. While 30% of respondents reported taking these loans only once in the last 12 months, the second highest number of times reported was more than 10 times in a year, by 13% of the respondents.  
  • To no surprise, 80% of respondents said that they took out a loan to meet everyday living expenses such as rent, groceries, hydro etc. 22% of respondents mentioned that they took it out to improve their credit rating as they were promised it would help them do so.  
  • 45% said that they were rushed to sign the loan agreement with the lender.  
  • 12% of respondents were never informed about optional products — such as home and auto insurance, credit protection, and credit improvement policies — until a large sum was debited from their account.
  • Almost 30% stated that they took out an online loan. Reasons for taking a loan online were primarily because people found them convenient and quick. 
  • 17% said that they have not been able to make payments as they are facing a tough financial situation due to COVID. Only 7% found the lenders extremely considerate. 
  • 40% approached banks before they took out a high interest loan, and were denied. Only 3% said that they prefer a high interest loan. 
  • With regard to online loans in particular, the study shows that the nature of issues that affect these loans when taken from the storefront or online are broadly similar. However, there are certain specific issues that pertain only to online loans and hence it’s important that all consumer protections applied to storefront loans must apply to online loans as well. 
While people haven’t been getting payday loans during the pandemic, it doesn’t mean they won’t be a problem for those who do, especially when we all get back to “normal.” Loans Canada gathered some data from Statistics Canada and ACORN Canada on who typically uses payday loans:
 
  • Single-parent families were three times more likely to use payday loans than couples with no children.
  • Single female-led households were more likely to use payday loans than single male-led households.
  • Young families (ages 15 – 24) were three times more likely to use payday loans than older families (ages 35 – 44).
  • Renters were almost three times more likely to rely on payday loans than those with a mortgage.
  • Families with a debt-to-asset ratio greater than 0.50 were 3.2 times more likely to use payday loans than families with a debt-to-asset ratio of less than 0.25.
 
Yesterday, I talked with Leanne Salyzyn — managing partner of Salyzyn & Associates Limited and a licensed insolvency trustee — who says most consumer insolvencies include payday loans as creditors. As Salyzyn puts its, “As long as there are payday lenders, there will be people using payday lenders.”
 
These loans are easier to apply for now, too. Customers can simply apply online. And again, it’s people with lower incomes who may not be financially literate who apply for these loans. Says Salyzyn:
 
I always say buyer beware. They didn’t force the consumer to come into their door and take the proceeds. They’re there for a reason and they do legitimately help out individuals. However, you have to be careful if you’re going to dance with the devil, you better know what the music is. Most people don’t take the time to understand, ask questions, read the paperwork. They need money and they’re getting the money quickly to help them out of that emergency. It’s a vicious cycle and it’s difficult to get out of.  
 
Salyzyn tells me insolvency rates are the lowest they’ve been in 20 years. And more people have been saving during the pandemic because, well, for months we couldn’t go anywhere or spend much. She says some people who earn lower incomes even managed to save because they received CERB or other benefits, which paid more than their jobs — which is disturbing, of course. Says Salyzyn:
 
The pandemic has shown us more than ever that having a savings safety net is so important to everybody’s financial plan. The problem is most people just live paycheque to paycheque and that’s the difficulty. If all of a sudden your income gets sliced for an entire month and you had to come up with your rent and your car payment and your groceries … most Canadians don’t have the savings they should in case of emergencies.
 
Salyzyn says people should take a closer look at their finances now because creditors, who provided some relief over the last year, are likely to get aggressive again in the fall. But maybe the pandemic is teaching us about money, too. Salyzyn says:
 
"We’re afraid to talk about money, but it’s important to talk about it so we can be more educated, and to educate the people around us."

 

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Source: Halifax Examiner

 

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