Action needed on payday loans: ACORN
An anti-poverty group is calling on more education and safeguards around payday loans in Saskatchewan and the rest of the country.
In Saskatchewan, people taking out payday loans pay $17 on every $100, for loans up to $1,500. The money is typically repaid on their next payday. Over one year, the effective interest rate on the loans adds up to 443 per cent.
In February, new regulations in Saskatchewan lowered the maximum lending rate to $17 from its previous maximum of $23.
Many clients who seek payday loans don’t have access to credit or are unable to get credit in traditional ways, according to Mary Castillo, a credit counsellor with Credit Counselling Society in Saskatoon.
“People that are using them might lack financial literacy. They might not have the awareness of what the true costs are,” Castillo said.
Loans needed for some, says industry group
According to the Canadian Consumer Finance Association, which represents most payday loan stores in Canada, the loans are expensive to provide and can be a lifeline for some.
“People whose income has gone down unexpectedly or their expenses have gone up unexpectedly, they're not getting these loans for frivolous reasons,” said Tony Irwin, the organization’s president and CEO. “They're getting them to feed their kids, to keep their lights on or pay their rent.”
Beating the system
Most provinces, including Saskatchewan, have banned rollover loans, which some borrowers had previously used to repay a loan with a new loan from the same lender. According to anti-poverty group ACORN Canada, this has led competing shops to cluster together, allowing customers to repay loans through neighbouring stores.
“They found a way around it by sending you across the street to the person across the street and say, ‘Go across there and find the money to pay us off or you're going to pay this huge fee,’” said Donna Borden, the national fair banking leader for ACORN.
The organization is calling for a national database to track payday loans. ACORN also wants lower interest rates on the loans and for banks and credit unions to offer more alternatives.