In a new policy report released this month, a Calgary non-profit is calling for an end to what they claim are “criminal” payday loan interest rates.
Momentum is also calling for an end to legislative exemptions that allow for interest rates as high as 500 per cent nationally, and 400 per cent in Alberta.
The group is asking for the maximum effective annual rate of interest in Canada to be set to 36 per cent, including lending costs.
“Going from a 400 per cent interest rate to 36 per cent interest rate is huge when you’re counting your dollars just to be able to afford rent, or buy diapers, or food for your family,” said Courtney Mo, manager of public policy research and evaluation for Momentum.
Loans target low income, new Canadians
Momentum, which works with low-income Calgarians to improve financial skills, said that payday or installment loans unfairly target the vulnerable.
“Those who can least afford to borrow have to pay the most,” said Mo.
Currently in Canada, the criminal code limits the rate of interest to 60 per cent, but provides an exemption for payday lenders. Section 347.1 of the criminal code allows for loans under $1,500, and where the payment period is under 62 days to exceed the 60 per cent limit.
Mo said that on installment loan contracts, lenders often charge right up to the limit at 59.9 per cent.
“Far too high, especially for low-income families, newcomers to Canada and vulnerable people,” she said.
A LiveWire Calgary analysis of payday lenders in Calgary found that of 29 lenders licensed by the city, 17 were located in regions where the median income for families was between $56,192 and $79,053—the lowest quartile from the 2016 Census.
The same analysis found that 15—or 52 per cent—of those lenders were located in areas with the lowest income single parent families.
“We have seen a proliferation of payday lenders, and fringe lenders in lower-income corridors,” said Mo.
Statistics from the Government of Alberta indicate that 33% of all payday loans issued in 2020 were between $1,000 and $1,500. This represented $124.3 million of the $219.5 million in total loan value issued by the industry to consumers.
Of the 288,401 loans issued in the province, 42,678 were defaulted on. Correspondingly, this represented $19.2 million or approximately 8% of the total loan value issued in Alberta.
A little over $23 million in cost of credit fees were charged to consumers.
