Federal New Democrats are calling on Ottawa to reduce the legally allowed interest rate on loans and close a loophole that allows the payday lending industry to charge very high interest rates.
In a private member’s bill tabled Thursday, NDP House leader MP Peter Julian called for Criminal Code changes that would reduce the legal limit on interest rates to 30 percent, from 60 percent, and remove 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 said at a press conference, adding that people who turn to high interest loans have often been “shunned by the banking system” .
Julian wants the Liberal government to incorporate the changes it is proposing into the budget implementation act when it is tabled in the coming months.
Anna Arneson, spokeswoman for the federal Department of Finance, said the government has focused on helping Canadians during the pandemic through a number of support and benefit programs, including the Canada Benefit. emergency for recovery, and would not comment on what would be included in the next budget.
She added, “Canadians considering alternative lenders for additional financial support should consult with their provincial consumer office about the associated risks. In general, so-called “payday loans” which swap readily available credit for a very high interest rate are not in the best interests of consumers. “
For long-term, high-interest loans, often referred to as 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 interest for every $ 100 over a two-week period, resulting in 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, member of the anti-poverty group ACORN Canada, joined Julian to share his experience with a high interest rate 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 cut NSFs and end check freezes, both of which can turn people into payday loans.
Julian said Thursday that Ottawa had provided $ 750 billion in liquidity to the Canadian banking system in response to the pandemic. These measures included a $ 300 billion increase in lending capacity linked to the reduction in bank capital requirements, $ 300 billion in asset purchase programs by the Bank of Canada and the purchase of a maximum of $ 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 that the banking system is much more accountable and responsive to the people, especially in light of 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 loan borrowers did not have a line of credit and 43 percent did not have a credit card. Almost half of payday loan borrowers applied for a credit card but were turned down.
Mathieu Labrèche, spokesperson 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 are available to customers. a much lower cost than payday lenders. ‘ some products.”
The Canadian Consumer Finance Association, which represents payday lenders, did not respond to a request for comment Thursday afternoon.