It’s time to intervene on payday loans

Sometimes requests to governments seem so perfectly reasonable that it is amazing that they have to be repeated over and over again.

In a report last week, ACORN, a nonprofit group that advocates for low- and middle-income Canadians, again calls on the federal government to crack down on exorbitant interest rates charged by expensive lenders.

The swanky outlets offering payday loans and other quick cash at high prices are symbols of desperation on the main streets of almost every city.

They are the physical manifestation of an unjust society – a divide that has been both highlighted and exacerbated by the COVID-19 pandemic.

As ACORN has long argued, lenders benefit from the most vulnerable.

The pandemic has worsened the situation for those on the fringes, it said. Many trying to pay their bills turn to so-called payday loans — small, short-term loans with extremely high annual interest rates.

These loans do not exceed $1,500, must be repaid within 62 days, and can earn interest of up to 500 percent in some provinces. They are regulated by the provincial governments and lenders are even exempt from the 60 percent interest rate limit.

Some respondents to an ACORN survey have also taken out so-called installment loans — longer-term loans of $1,500 to $15,000 that are repaid over a longer period of time at annual rates of up to 60 percent.

The result is people caught in pitfalls they can’t escape as they struggle to pay bills and meet escalating living expenses, ACORN said.

The poor are the industry’s target market and “lenders continue to prey on people’s vulnerabilities.”

For lenders, “the goal isn’t to help people, it’s to make sure that the person who took out a loan stays trapped in a cycle of debt.”

ACORN wants the federal government to lower the legal interest rate limit for installment loans from 60 percent to 30 percent.

“This should be a priority and the government should act on it, and do it quickly,” Donna Borden, a director of ACORN, told Torstar’s Christine Dobby.

Lenders argue that lowering the statutory interest rate could actually hurt some borrowers by cutting off access to finance for those with low credit scores.

Because of this, ACORN also wants the government to require mainstream banks to offer people lower-cost lending options backed by the government itself, and to reduce bank fees from $45 to $10 charged when customers do not have sufficient funds to cover transactions.

“Not a preference, but a lack of choice is the main driver pushing low- and middle-income people to take out expensive loans,” ACORN said.

The survey finds that as the economic fallout from the pandemic continues to linger and government support wanes, top executives, CEOs and large corporations saw the most vulnerable demographics see their jobs disappear or face significant reductions in their working hours Wealth grows.”

In his letter of mandate to Treasury Secretary Chrystia Freeland in December, Prime Minister Justin Trudeau instructed her, among other things, to “tackle predatory lenders by lowering the criminal interest rate.”

strong words. But as ACORN put it last week, “putting that commitment into action” is “crucial.”

The case is clear and the need is real. The government should go ahead with this.