Hamilton Spectator: Editorial: It’s past time for action on payday loans

Posted April 1, 2022

Sometimes, requests made of governments seem so eminently reasonable that it’s amazing they need be repeated over and over again.

In a report last week, ACORN, a non-profit group advocating for low- and moderate-income Canadians, once again asks the federal government to crack down on exorbitant interest rates charged by high-cost lenders.

The gaudy outlets offering payday loans and other such provisions of quick money at high cost are symbols of desperation on the main streets of almost all towns and cities.

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

As ACORN has long argued, the lenders profit off the most vulnerable.

The pandemic has worsened things for those on the margins, it 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 don’t exceed $1,500, must be repaid within 62 days, and can carry interest as high as 500 per cent in some provinces. They are regulated by provincial governments and lenders are exempt from even the 60 per cent limit on interest.

Some respondents to a survey by ACORN also took out what are known as instalment loans — longer-term loans of $1,500 to $15,000 that are repaid over a longer period at annual rates of up to 60 per cent.

The result is people falling into snares they can’t escape as they struggle to meet bills and cover the escalating cost of living, ACORN said.

The poor, it 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 gets trapped in a vicious cycle of debt.”

ACORN wants the federal government to cut the legal limit for interest rates charged on instalment loans to 30 per cent from 60 per cent.

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

The lenders argue that reducing the legal interest rate could actually hurt some borrowers by cutting off all access to financing for those with low credit scores.

Which is why ACORN also wants the government to require mainstream banks to offer more low-cost borrowing options to people, backstopped by the government itself, and to reduce from $45 to $10 the bank fees charged when clients have insufficient funds to cover transactions.

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

The survey notes that while the economic consequences of the pandemic continue to reverberate and government supports taper off, as the most “disadvantaged segments of the population saw their jobs disappear or face substantial reduction in hours of work, top executives, CEOs and big corporations saw their wealth increase.”

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

Strong words. But as ACORN put it last week, it is “critical to translate this commitment into action.”

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

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By Spectator Editorial for the Hamilton Spectator

 

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