The payday loan sphere was on the receiving end of a one-two punch this week with Google announcing a ban on “misleading and harmful” lending ads and Alberta proposing Bill 15, An Act to End Predatory Lending, which would bring rates from $23 per $100 borrowed down to a maximum of $15 per $100 borrowed – the lowest regulated payday loan rates in the country.
Adam Fair, director of programs at financial-literacy focused charity Prosper Canada, says although it may seem like it’s happening all at once, the payday-loan sphere has been under heavy examination over the past few years.
“It may be a useful service for some if they can use it in an effective way, but for too many people they’re getting into big trouble using payday loans because of the structure of (loans),” says Fair.
Typically, payday loans offered by companies like Speedy Cash or Money Mart are lent for short periods, so the Criminal Code allows them to exceed the maximum 60 per cent annual interest rate. Some providers have faced criticism with fees rising, in some cases, to 600 per cent interest over the course of the year.
But there’s a reason they haven’t been regulated out of existence, says Fair.
“There is a whole bunch of people that have grown to use these and depend on these, so if you took them away there could be pain that is incurred,” says Fair, pointing out that there’s a percentage of people who are benefitting from these services to manage cash flow.
Nearly a quarter of Canadians are living paycheque to paycheque, according to BMO’s latest Rainy Day survey.
“You can say credit card might be serving that purpose for people, but people generally max out their credit card (before) using these products,” says Fair.
“And mainstream financial institutions aren’t really active or interested in this space, so there isn’t really alternatives for people to get really concrete short-term loans in a short amount of time.”
Credit unions like Vancity and economic-focused groups like Momentum, which recently teamed up with First Calgary Financial to offer Cash Crunch loans, have been active in the sphere but innovation is taking some time.
Leslie Gardner, a Nanaimo, B.C.-based financial planner with Money Coaches Canada, says she urges Canadians to explore other options before turning to a payday lender.
“Can you delay it by contacting the person and just saying, ‘Can you wait? My paycheque is coming in soon.’ Or, can you work overtime? Or sell something, or pick up a flag job, or get an employer advance on your paycheque?” says Gardner.
“Even at 19 per cent and having to start paying interest immediately, cash advance from a credit card is still a batter rate.”
Gardner says that she recognizes sometimes there is no option, but using a payday loan can be an opportunity to reassess your budget.
“Tighten it … make sure you put that payment into your spending and, going forward, to try to keep money set aside for those emergencies,” she says.
“Paycheques might be delayed, you might have a medical bill you didn’t see coming. Always try to have that little bit of contingency – even if it’s just $25 a month – stick it in a separate account and just leave it alone for those rainy days, because they’re going to happen – guaranteed.”