by: Jolson Lim
For instalment loans - longer-term credit with high interest - lenders can charge up to 60 per cent annual interest under the usury rules.
Payday loans - high-interest loans that are typically due two weeks later - are exempt from federal rules under a 2007 amendment, if provinces have their own regulations for payday lenders, which all now do.
Many low- or moderate-income Canadians rely on high-interest, short-term loans to make ends meet or for unanticipated emergencies, leaving them stuck in a cycle of debt, the budget states.
Anti-poverty advocates have zeroed in on companies like Money Mart, Easy Financial, and Cash Money, accusing them of misleading advertising, not being forthright about the strings attached, and pushing borrowers to take out larger loans at the highest interest rates possible.
They say the practices are continuing during COVID, when more Canadians than ever are facing financial hardship.
"They're thriving, because they're taking advantage of people," said Donna Bordon, a member of the anti-poverty group, ACORN Canada. "People are afraid of losing their homes, so they borrow money from these places."
The consultations are a "first step" in tackling predatory lending, Bordon said, adding she hopes they include more than industry representatives, who will sharply oppose any changes.
Despite low interest rates set by the Bank of Canada, poorer borrowers are more likely to lack the requirements to access safer loans from traditional banks. Instead, they seek quick cash from payday lenders, despite the risk of falling into debt they can't escape.
In Ontario, for example, payday lenders can charge $15 in interest for every $100 over a two-week period - equal to an annualized interest rate of 391 per cent.
Last July, the Ontario government capped the interest rate that lenders can charge on defaulted payday loans at 2.5 per cent per month. It also set a maximum fee of $25 that lenders can charge for dishonoured or bounced cheques, or pre-authorized debits.
In 2019, the Financial Consumer Agency of Canada found that two per cent of Canadians had taken out payday loans in the previous year. The percentage was even higher for Indigenous people, and low-income and single-parent households.
Last month, NDP finance critic Peter Julian tabled a private member's bill to lower the maximum interest rate to 30 per cent, and to remove the exception for provinces that regulate payday lenders - measures ACORN supports.
The Canadian Consumer Finance Association, which represents payday lenders, said in a statement that while it's still reviewing Monday's budget, it's opposed to lowering the interest-rate limit.
"Instalment loans are long-, not short-term loans, and they provide an important source of credit for many Canadians who cannot access credit elsewhere," the organization said.
"Any reduction to the federal maximum interest rate will result in removal of access to credit for those Canadians with lower credit scores who previously qualified at the current rates. The government should not take any action that results in denial of credit to Canadians, or forces borrowers to access credit from illegal, unlicensed lenders."
A survey of 376 ACORN members published by the group last February found 40 per cent of respondents were turned down by a traditional bank before taking out a high-interest loan. Seventeen per cent said they're now unable to make repayments due to COVID-19.
The federal government should seek ways to provide alternative lines of credit to low-income Canadians, such as mandating banks to offer lower-interest loans, Bordon said.
Besides setting up a complaints process for consumer lending that's stronger than the provinces' systems, it should also consider postal banking for rural areas and small towns, she added.
The ACORN survey found that 70 per cent of its survey respondents had once turned to payday loans. Forty-five per cent had taken out instalment loans, an increase from a similar survey conducted in 2016, when only 11 per cent said they'd taken out such loans.
ACORN represents low- to moderate-income Canadians. Sixty per cent of its survey respondents earn less than $30,000 a year.