Insauga: Mississauga senior with over $10,000 in debt demands action on predatory loan companies

When Francis Baptiste took out a loan at a “payday loan” company to relieve some financial pressure on his household, the Mississauga senior didn’t realize that loan would snowball into thousands of dollars in debt and even more loans with eye-watering interest rates.

Baptiste, who lives in the city’s Malton neighbourhood, told insauga.com that when his monthly pension wasn’t enough to cover expenses, he went to financial institutions known for quick loans–and high-interest rates–such as Money Mart and CashMoney and quickly became overwhelmed with debts he couldn’t pay back.

“I am a retiree and a senior. Sometimes when the government pays and I need to wait the whole month, sometimes I need to get a loan,” he says, adding that he also found himself in need of cash when he was told he would have to pay back some of the CERB money he collected during the height of the pandemic.

Baptiste told insauga.com that he and his wife, who have loans with Cash Money, MoneyMart and EasyFinancial, owe more than $10,000.

He says he’s been unable to make payments and is receiving calls from collection agencies.

“I feel like I’m being squeezed, especially at high-interest rates. If, for some reason, the government would step in and make them lower their rates to 30 or 40 per cent, it will help.”

Baptiste and others seeking protection from what some call “predatory lenders” have connected with advocacy groups pressuring the federal government to make good on its promise to reign in payday loan companies that charge unusually high rates.

“Our banking campaign deals with a lot of aspects of finance and it has a lot to do with predatory lending and changing the criminal interest rate,” says Tanya Burkart, a leader at Peel ACORN, an independent social and economic justice organization comprised in part of low- and moderate-income Mississauga residents.

“The payday loan…a lot of the lenders charge a 300 per cent to 500 per cent annual interest rate and they’re not always regulated by federal law.”

ACORN, which recently held a demonstration outside of Mississauga MP Peter Fonseca’s office, is demanding the federal government lower the interest rate for installment loans from 60 per cent to 30 per cent or 20 per cent plus the Bank of Canada rate, whichever is lower. They also want action to lower associated costs such as fees and insurance.

According to ACORN, thousands of low- and moderate-income Canadians rely on predatory lenders because they can’t easily secure loans from larger financial institutions.

ACORN says payday loans (less than $1,500 paid back in two weeks) can boast an annual interest rate of 400-600 per cent, while installment loans can boast an annual interest rate of up to 60 per cent, plus associated charges.

The poverty advocacy group says it saw a 300 per cent increase in the uptake of installment loans between 2016 and 2020. In a survey conducted between November 2021 and January 2022, 40 per cent of respondents told ACORN they took out loans one or two times and 25 percent said they took out loans 10 or more than 10 times.

According to ACORN, respondents said they needed the loans to cover basic expenses such as rent, groceries and car repairs.

ACORN, which launched a campaign to end predatory loans in 2005, says it has seen some progress on the file–including a consultation process hosted by the Canadian government–but not a lot of concrete action.

The federal government first announced its intention to launch a consultation on predatory lending in its 2021 budget. A news release indicates the government was consulting on lowering the criminal rate of interest in the Criminal Code of Canada to installment and other loans offered by payday lenders.

The consultation ran from Aug. 9, 2022, to Oct. 7, 2022, and more than 600 ACORN members sent submissions to the federal government.

The advocacy group recently met with Fonseca and said that while he agreed that the issue is serious, he indicated it might take a little more time to take further action.

“He said ACORN’s submission makes a very compelling case for lowering the interest rates but we need to wait because the consultation got over only last year,” an ACORN representative told insauga.com in an email.

“What he didn’t say is that this is not a new issue. People have been waiting for so many years and with inflation, skyrocketing rents and other expenses and no alternatives, we will only see the predatory lending industry expand.”

Fonseca’s office did not respond to a request for comment.

ACORN’s Burkart says there’s a lack of urgency among policy-makers and that there might be some fears about a negative impact on the overall financial system at play.

“There’s no sense of urgency and no sense of political will to change the interest rate. We have a two-tier banking system and a lot of low- or moderate-income people don’t make enough or don’t qualify for banking products. It’s easy for people who don’t have access to financial institutions to fall into this,” she says.

“We’d like to see a low-cost federal loan benefit so people can access the short-term loans that they need. There’s fear that there will be financial loss by payday loan lenders by changing the interest rate and that’s not true. Lowering to 30 per cent or lower does not mean there will be any kind of collapse in institutions that provide loans.”

Burkart says that ACORN also wants the regulation of payday loans to come from the federal government so that all provinces and territories operate under the same system.

“There’s a patchwork of regulations across different provinces, so we want it to go back to the federal government. The main demand is that the criminal interest rate be lowered from 60 per cent to 30 per cent and that there are alternatives for people who need loans.”

According to ACORN’s submission to the federal government, Quebec has already set the maximum interest rate lenders can charge at 35 per cent.

“This hasn’t stopped the growth of predatory lending in the province but has at least helped low- and moderate-income people from not being charged exorbitant interest rates,” the submission reads.

“The fact that the annual report of GoEasy (the parent company of Easy Financial) shows that it is looking to expand exponentially in Quebec demonstrates the fact that these lenders can operate and their business is very much viable at or below 35 per cent.”

Burkart says that the government needs to establish a federally funded fair credit benefit that gives allow lower-income people access to low-cost credit options in case of emergency.

ACORN also believes the government should emphasize and support fair lending alternatives, such as postal banking in all cities.

As of now, Canada Post is offering a MyMoney Loan program in partnership with TD Bank that offers variable interest rates between 11.03 per cent and 21.03 per cent (TD Prime Rate plus 4.33 per cent to TD Prime Rate plus 14.33 per cent) and fixed interest rates from 9.98 per cent to 19.98 per cent.

While the MyMoney Loan program offers lower interest rates, Burkart says there are still barriers that prevent some low- to moderate-income residents from accessing the service.

“We have a concern about postal banking. It’s not working,” she says.

As of now, those who apply for a MyMoney Loan must provide a credit score, and approval could be contingent on them not declaring bankruptcy or having accounts in collections for past due payments in the last 24 months.

Burkart argues that a fair credit benefit and better postal banking system will go a long way towards keeping vulnerable residents away from predatory lenders.

“We need a fair credit benefit to provide affordable loans so people can avoid predatory lenders when they have personal financial issues and we want the federal government to support postal banking. The infrastructure is there. Having a credit score is an impediment to access to fair financial services,” she says, adding that the feds need to move faster on the file.

“There hasn’t been any timeline and they haven’t released a report.”

Baptiste told insauga.com that if he knew he’d end up with so much debt, he would have never taken out the loans in the first place.

“If I had any idea, I wouldn’t have done this. Sometimes you don’t read the fine print because you need the money. I asked for a copy of the agreement, and I saw the interest rate and I was surprised. Most seniors don’t read the fine print,” he says.

Ultimately, he’d like to see the government step in to prevent seniors and vulnerable people from taking out high-interest loans in desperation, only to wind up with spiralling debt, increased financial insecurity and extreme stress.

“I’d like to see part of the loans forgiven, but it would be good to just see interest go down. I’d like to see an organization that can help people in my situation and seniors in my situation. It would be helpful to not have to go to high-interest creditors.”

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Article by Ashley Newport for Insauga