Momentum calls for an end to the “criminal” interest rate on payday loans
In a new policy report released this month, a Calgary nonprofit is calling for an end to allegedly “criminal” payday loan interest rates.
Momentum is also calling for an end to statutory exemptions that allow interest rates of up to 500 percent nationwide, and 400 percent in Alberta.
The group calls for the maximum APR in Canada to be set at 36 percent, including borrowing costs.
“Going from 400 percent to 36 percent is huge when you’re counting your dollars just to be able to afford the rent, buy diapers or groceries for the family,” said Courtney Mo, manager of Public policy research and evaluation for momentum.
Loans are aimed at low income, new Canadians
Momentum, who works with low-income Calgarians to improve financial skills, said payday or installment loans are wrongly targeted at the weak.
“Those who can least afford to borrow have to pay the most,” said Mo.
Currently in Canada that The Criminal Code limits the interest rate to 60 percentHowever, it offers an exception for payday lenders. Section 347.1 of the Criminal Code allows loans below $ 1,500 and if the payment term is less than 62 days, the loan may exceed the 60 percent limit.
Mo said lenders often charge up to the 59.9 percent limit on installment loan agreements.
“Far too high, especially for low-income families, newcomers to Canada and the vulnerable,” she said.
A LiveWire Calgary analysis of Calgary payday lenders found that out of 29 city-licensed lenders, 17 were located in regions where median income for families ranged from $ 56,192 to $ 79,053 – the lowest quartile in the 2016 census.
The same analysis found that 15 – or 52 percent – of these lenders were located in areas with the lowest income single-parent families.
“We have seen an increase in payday lenders and marginal lenders in lower-income corridors,” said Mo.
Statistics from the Alberta government say 33% of all payday loans granted in 2020 were between $ 1,000 and $ 1,500. That was equivalent to $ 124.3 million of the total loan value of $ 219.5 million that the industry spent to consumers.
Of the 288,401 loans issued in the province, 42,678 were in default. Accordingly, that was the equivalent of $ 19.2 million, or approximately 8% of the total loan value issued in Alberta.
Consumers were billed a little more than $ 23 million in credit fees.
Proposed changes from momentum
The non-profit organization has proposed four changes to the Criminal Code and local and provincial regulations.
In addition to lowering the EAR interest rate to 36 percent, they are calling for Section 347.1 of the Criminal Code to be repealed.
Mo said this would bring Canada in line with regulations in Quebec and many US states.
They are also calling for actuarial certificates to be removed and for Canada’s attorney general to prosecute interest rate investigations.
Momentum also calls for better access to secure small dollar loans.
“We all need to borrow at some point in our lives – and debt can actually be productive when borrowing for education, tools for work or around a business, etc. Safe and affordable credit is fundamental to all Canadians,” said Mo.
The nonprofit has advocated greater use of small loans from credit unions or through the proposed post banking through Canada Post.
The payday industry says it plays an important role for Canadians
In a statement sent via email, the Canadian Consumer Finance Association, which represents payday lenders in Canada, said its members are highly regulated and licensed.
“Payday loans are heavily regulated and the fees are set by the provincial governments based on their analysis of the cost of offering the product,” the statement said.
They said they offer payday loans because “many hard-working Canadians cannot get short- or long-term loans from banks, credit unions and trusts”.
In response to a question about Momentum’s call to cut rates from LiveWire Calgary, the association said it would only refuse credit to Canadians.
“Of course everyone wants a cheaper loan, but governments shouldn’t further restrict the interest rates a lender can charge. If it did, the only result would be that a larger cohort of Canadians would be denied access to credit, or at least credit, “from a government-regulated lender,” the statement said.
“Credit demand would not change, however, and would simply shift to illegal unlicensed online lenders such as the lenders identified by Service Alberta.”
The Province of Alberta has issued warnings of unregulated online lenders targeting Albertans.
Current and planned industry regulation
In 2015, the City of Calgary enacted bylaws prohibiting the amalgamation of pawn shops and payday loans. At that time, only the then local councilor Jim Stevenson voted against the statutes.
The statutes prohibit any payday loan provider from being within 400 feet of each other.
The province of Alberta currently limits the interest rate on payday loans to 400 percent and rprovides a term of the loans between 42 and 62 days. Alberta also caps fees to $ 15 per $ 100 of loan, increasing to a maximum of $ 225 on a payday loan.
In 2016, the legislature passed a law to end overexploitation, which reduced the previous borrowing costs.
New Westminister-Burnaby MP, Peter Julian, has tabled several private member bills amending Section 347.1. Bill C-274 received a first reading in March 2021 before the federal election. His new bill C-213, was presented and received a first reading in Parliament on December 14th.
“Members are aware that Canada currently has legalized interest rates of up to 600%. This bill would end the loopholes that allow financial institutions and payday lenders to charge 500% or 600% and cut the criminal interest rate in half.” that is currently allowed in the criminal code, “said Julian before parliament.