The federal New Democrats are calling on Ottawa to slash the legally permitted interest rate on loans and eliminate a loophole that allows the payday lending industry to charge ultra-high interest rates.
In a private member’s bill introduced on Thursday, NDP house leader MP Peter Julian called for amendments to the Criminal Code that would reduce the legal limit for interest rates to 30 per cent, down from 60 per cent, as well as remove an exception to that limit that permits lenders to charge higher rates when they are regulated by provincial rules. That exception allows for payday loans, which are short-term loans, with very high interest rates.
“We know that Canadians are struggling to make ends meet,” Julian said during a press 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 over the next few months.
Anna Arneson, a spokeswoman 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 Emergency Recovery Benefit, 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 their province’s consumer affairs office about the associated risks. In general, so-called ‘payday loans‘ that trade instantly accessible credit for a very high rate of interest, are not in consumers’ best interest. ”
For longer-term high-interest loans, often called installation loans, lenders can charge an annualized interest rate of up to 60 per cent. Payday loans, where money is advanced in exchange for a postdated check or pre-authorized debit, are typically even more expensive.
In Ontario, for example, payday lenders can charge $ 15 in interest for every $ 100 over a two-week period, leading to an annualized interest rate of 391 per cent. 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 per cent.
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 for $ 10,000 and at the end of five years I still owed them the same amount of money,” she said. “By the time I was finished, I paid over $ 25,000.”
ACORN published a report last month calling for a national anti-predatory lending strategy. Among other things, it wants the government to require banks to reduce non-sufficient fund (NSF) fees and put an end to holds on checks, both of which can turn people to payday loans.
Julian said Thursday that Ottawa has provided $ 750-billion in liquidity supports to Canada’s banking system in response to the pandemic. Those measures have included $ 300-billion in increased lending capacity tied to lowered capital requirements for banks, $ 300-billion in asset purchase programs by the Bank of Canada and the purchase of up to $ 150-billion in insured mortgages.
“People are being forced to go to payday lenders because the banking system refuses to have them as clients. We need to make sure the banking system is far more responsible and responsive to the population, particularly 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 per cent (520,000) of Canadian households, at least one member had used a payday loan over the past three years. Tenant households were more likely than homeowners to access payday loans, as were single-parent homes.
Eighty per cent of payday loan borrowers didn’t have a line of credit and 43 per cent did not have a credit card. Almost half of payday loan borrowers had applied for a credit card but been refused.
Mathieu Labrèche, a spokesman for the Canadian Bankers Association, declined to comment specifically on this story but said, “Many banks in Canada offer small, short-term loan and credit options, all of which can be accessed at far lower cost than payday lenders ‘products. ”
The Canadian Consumer Finance Association, which represents payday lenders, did not reply to a request for comment Thursday afternoon.