Federal New Democrats are calling on Ottawa to cut the legally allowed interest rate on loans and close a loophole that allows the payday loan industry to charge ultra-high interest rates.
In a private member’s bill introduced Thursday, NDP House Leader MP Peter Julian called for amendments to the Criminal Code that would lower the legal limit on interest rates to 30%, from 60% previously, as well than the removal of an exception to this limit that allows lenders to charge higher rates when governed by provincial rules. This exception allows payday loans, which are short-term loans, with very high interest rates.
“We know Canadians are struggling to make ends meet,” Julian told a news conference, adding that people who turn to high-interest loans have often been “rejected by the banking system”.
Julian wants the Liberal government to incorporate his proposed changes into the budget implementation act when it is tabled in the coming months.
Anna Arneson, spokesperson for the federal Department of Finance, said the government has focused on helping Canadians during the pandemic through a number of support programs and benefits, including the Canada Child Benefit the emergency stimulus, and would not comment on what would be included in the upcoming budget.
She added, “Canadians considering unconventional lenders for additional financial support should consult with their provincial consumer affairs office about the associated risks. In general, so-called “payday loans” that negotiate instant credit for a very high interest rate are not in the best interest of consumers. »
For long-term, high-interest loans, often called installment loans, lenders can charge an annualized interest rate of up to 60%. Payday loans, where money is advanced in exchange for a post-dated check or pre-authorized debit, are usually even more expensive.
In Ontario, for example, payday lenders can charge $15 in interest for every $100 over a two-week period, yielding an annualized interest rate of 391%. In several other provinces, including Prince Edward Island, Newfoundland and Labrador and Nova Scotia, the maximum annual interest rates on payday loans are even higher. In Quebec, the province has limited payday lenders to a maximum annualized interest rate of 35%.
Donna Borden, a member of the anti-poverty group ACORN Canada, joined Julian to share her experience with a high-interest loan. “I took out a loan of $10,000 and after five years I still owed them the same amount of money,” she said. “By the time I was done, I paid over $25,000.”
ACORN released a report last month calling for a national anti-predation lending strategy. Among other things, he wants the government to force banks to reduce insufficient funds (NSF) charges and end check holds, two factors that may tempt people to turn to payday loans.
Julian said Thursday that Ottawa had provided $750 billion in liquidity support to Canada’s banking system in response to the pandemic. These measures include a $300 billion increase in lending capacity linked to reduced capital requirements for banks, $300 billion in asset purchase programs by the Bank of Canada and the purchase of up to to $150 billion in insured mortgages.
“People are forced to go to payday lenders because the banking system refuses to have them as customers. We need to make sure the banking system is much more responsible and responsive to the people, especially in light of the unprecedented levels of support,” he said.
Statistics Canada’s most recent Survey of Financial Security in 2016 found that in 3.4% (520,000) of Canadian households, at least one member had used a payday loan in the past three years. Renter households were more likely than homeowners to have access to payday loans, as were single-parent homes.
Eighty percent of payday borrowers did not have a line of credit and 43% did not have a credit card. Nearly half of payday loan borrowers had applied for a credit card but were turned down.
Mathieu Labrèche, spokesman for the Canadian Bankers Association, declined to comment specifically on the story, but said: “Many banks in Canada offer small, short-term loan and credit options, all accessible at a cost much lower than payday lenders. ‘ some products.”
The Consumer Finance Association of Canada, which represents payday lenders, did not respond to a request for comment Thursday afternoon.
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