Anti-poverty advocates call payday lenders 'criminal,' urge feds to cap interest rates

Anti-poverty activists demonstrated in London, Ont., Tuesday as part of a nationwide protest against the payday loan industry, calling its practices "predatory" and "criminal." The group is demanding the federal government reign in lenders by capping interest rates on payday loans at 30 per cent.

The protests echoed a similar campaign by the same group last year when Acorn pressured the federal government to intervene on the provincially regulated industry by lowering the criminal interest rate to 30 per cent, thereby making the industry's current practices against the law. 

About a dozen protesters gathered outside a a payday lender's storefront at Wellington and Commissioners, a busy commercial area where at least three such storefronts give out small, short-term, high-interest loans meant as financial lifelines for people to repair a car, pay for childcare or fly quickly to a sick relative's bedside.

However, the demonstrators say what begins as a $1,000 loan can quickly become a weighty burden. A 2021 CBC Marketplace investigation found CashMoney, Easyfinancial, Fairstone Financial and Money Mart used business practices that were confusing, misleading, and lacked transparency and documentation on personal loans that charged nearly 47 per cent interest.

'These folks extract money from those least able to afford it'

It's the kind of practice that leads borrowers to pay more in interest and fees than on the original value of the loan and can create an endless cycle of debt, according to Betty Morrison, a member of the anti-poverty group ACORN and a woman who once turned to payday lenders for the small amounts of money she needed to make ends meet. 

"I've taken out payday loans to cover basic bills but it's an endless cycle. You end up taking out one to pay the other," she said, adding she's relied on payday lenders since 2000 and likely owes them in excess of $20,000.

A survey conducted by Acorn last year suggests people who make an annual income of between $15,000 and $40,000 are most likely to use a payday lending company. The survey also suggested 90 per cent were renters, and most borrowed more than once, with a quarter of respondents who said they took out 10 or more loans. 

"People go to them because they can't pay their rent, they can't pay for their children, they desperately need money and they can't get a loan from the bank that have reasonable interest rates," said Claire Wittnebel, a leader with Acorn who helped organize the Tuesday rally. 

"These folks extract money from those least able to afford it — they're taking advantage of the folks most in need. This is what we're fighting against." 

Acorn wants the federal government to take further control of the payday lending industry so it can cap its interest rates at 30 per cent. The industry is currently regulated at a provincial level, but the group calls the provincial regulations "piecemeal."

Feds to release paper on 'predatory lending'

With inflation on the rise and the Bank of Canada increasing its key rate to keep the cost of living in check, the federal government launched a consultation on what it calls "predatory lending" in late summer of 2022.

The feedback will be used to determine the criminal rate of interest in Canada, which currently sits at 60 per cent. The only exception is payday loans of $1,500 or less on a term of 62 days or less, which can reach annualized rates as high as 390 per cent. 

It is unknown when the federal consultation paper will be released to the public. 

The Canadian Consumer Finance Association, which represents the payday loan industry in Canada, told CBC News Tuesday that it is already "highly regulated" and that fees charged are "set by provincial governments."

A spokeswoman who would only identify herself as "Sheila" wrote in an email to CBC News that governments "should not further restrict interest rates that a lender can charge."

"If they did," she wrote. "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. The demand for credit, however, would not change and would simply shift to illegal online unlicensed lenders."