Anti-poverty advocates call on feds to rein in ‘predatory’ lenders

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Low-income families face ‘critical’ time of year as anti-poverty advocates once again call on federal government to lower mandatory maximum interest rate in bid to rein in lenders “predators”.

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ACORN (Association of Community Organizations for Reform Now) members across the country staged a national day of action earlier this month with protests held at payday lenders, where people shared personal testimonies about being “trapped in a cycle of debt,” according to Bader Abu-Zahra, president of the Vanier ACORN chapter.

Vanier has among the highest concentrations of payday lenders in Canada, Abu-Zahra said, and the pandemic has only increased demand.

“Right now, during the pandemic, people will have emergencies and they are forced to go to these lenders,” Abu-Zahra said. “They can’t get approved for a bank loan because they don’t make enough money, so they have to go to these payday lenders – not because they want to, but they’re have to take that money.”

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Once they signed up for a loan, Abu-Zahra said, he heard dozens of stories of “excessive” phone calls, either to offer more loans or incentives, or to collect on those who already exist.

“They say they have excessive phone calls, (lenders) are calling to offer services, to offer loans, and they are also calling and harassing them to collect.”

ACORN conducted a nationwide survey of its members and found that more than half had an annual individual income of less than $20,000, and 70% of respondents said they had taken out a high-interest loan, with rates loan between 45 and 60%.

Of the 376 survey responses collected earlier this year, 30% said they had taken out a loan in the previous 12 months, while 13% said they had taken out more than ten loans in the same period.

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The organization has collected testimonials from people across the country, including Grace, an Ottawa mother who is still repaying a $5,000 loan she took from a payday lender four years ago.

“Everything was fine but I lost my job due to COVID-19,” she wrote.

Unemployed, she initially turned to Ontario Works and the federal CERB program, but faced tremendous financial hardship with two daughters and one in college.

The incessant “threatening” phone calls made matters immensely worse, Grace wrote.

“They keep calling me, harassing me, telling me they want to start all over again,” she wrote. “I can’t do it, I don’t have any money. I don’t care about my credit, I have to think about me, my children. I’m too stressed, I don’t want to sink into depression.

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“The interest rate on these loans is just too high,” she wrote. “The balance I owe is much more than I have withdrawn despite having been making regular payments for some time.”

A “vast majority” of respondents (80%) said they took out loans to meet day-to-day expenses like rent, groceries and utility bills.

Others said they needed loans to cover medical, illness and car repair expenses, including ACORN said 22% of respondents took out loans because they were told it would help them repay other loans to improve their credit rating.

“People don’t always have the knowledge of legal terms, or the knowledge of reading contracts. And (with) this lack of understanding, I believe, people are exploited,” Abu-Zahra said.

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There are often hidden costs associated with loans, inflating the overall loan rate and increasing payments.

“So they can sign for an interest rate, and they don’t realize that there are additional loan costs, fees, and insurance that make the actual interest rate much higher,” he said. Abu Zahra.

The Canadian Consumer Finance Association, which represents companies that provide financial services to retail consumers, said in a statement that its members are already “highly regulated and licensed” under various provincial laws across Canada. .

“Payday loans are highly regulated and the fees charged are set by provincial governments based on their analysis of the cost of offering the product,” the CCFA said in a statement.

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“Many working Canadians are unable to access short or long-term credit from banks, credit unions and trust companies. Government studies have shown that people access these loans from our members responsibly for necessary planned and unplanned expenses.

“We would all like to pay less for products and services, but governments should not further restrict the interest rates a lender can charge. If they did, the only result would be that a larger cohort of Canadians would be denied access to credit, or at least credit from a government-regulated lender.

Credit demand would not change, the CCFA said, “and would simply shift to illegal, unlicensed online lenders.”

ACORN said agencies offering online credit “present some of the same risks to consumers as storefront credit, but could potentially expose them to additional risks, as many high-cost online credit providers are neither approved or regulated”.

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ACORN is calling on the federal government to lower the maximum interest rate from 60% to 30%, amend the Criminal Code to include language specific to payday lenders, and intervene to force banks to reduce insufficient funds ( NSF) costs $10.

Above all, the organization calls on the government to reform banking legislation to ensure that basic financial services are available to all Canadians.

“The federal government must mandate banks to provide an affordable loan to low- and middle-income people supported by the Government of Canada,” ACORN said, “so they can avoid predatory lenders in times of personal financial crisis.”

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Charles T. McConnell