Capping how much payday loan companies can charge doesn't go far enough, Sudbury, Ont. expert says

The federal government says it wants to cap the rates payday loan companies are able to charge Canadians to borrow money from them. 

The government unveiled its budget in Ottawa earlier this week, in the midst of soaring inflation rates and cost of living. 

The government said, through the budget, it wants to target what it calls "predatory lending" by changing loopholes that currently allow some lenders to charge rates as high as 47 per cent per year.

The government said it's going to amend the Criminal Code to cap those rates at 35 per cent, in line with existing regulations already on the books in Quebec. It also plans to require payday lenders to charge no more than $14 dollars for every $100 borrowed. 

I saw a person with 15 payday loans that they were rotating every two weeks.— John Cockburn, financial empowerment co-ordinator

John Cockburn, a financial empowerment co-ordinator with the Sudbury Community Service Centre, says he agrees that payday loans are predatory and that government should be proactive in helping to protect Canadians. 

However, he said limiting how much the companies can charge doesn't go far enough. 

"Mainstream banks have to start to offer some kind of micro loan program."

"Where they're going to accept people with less than stellar credit on loans as small as $100. But then giving them reasonable interest rates and reasonable time to pay it back," he said. 

Financial trouble

In Sudbury, there are several payday loan companies sprawled across the city.

CBC News reached out to several for comment but did not receive a response in time for publication. CBC also reached out to the Canadian Consumer Finance Association, which represents most payday loan companies and are waiting on a response.

Cockburn said he estimates that of his clients, more than 80 per cent use payday loans and it leads many of them into financial trouble — and for some financial ruin. 

"I saw a person with 15 payday loans that they were rotating every two weeks," he said. 

"And this person worked in major industry and they had a very good, well-paying job but their credit wasn't stellar, they were maxed out on all their liabilities." 

Cockburn said juggling the payday loans left his client with only one option, to file for bankruptcy. 

"It was untenable to keep it going and pay everything off because there was never any money to pay anything off. It took everything they had just to keep the loans afloat," he said. 

"This is the danger of a payday loan, not so much as what they're being charged but the frequency as to how many they use."

"Once they're into one payday loan, its very difficult to get out of that payday loan because they have to pay back the whole amount plus interest in two weeks or a month, depending on when they get paid," Cockburn said.

In 2020, former city councillor Geoff McCausland brought the issue of payday loan companies forward to council. 

Provincial regulations allow municipalities the power to regulate the locations of payday loan stores.

At the time, McCausland proposed that restrictions could include limiting the total number of establishments permitted in the city, requiring they be a certain distance apart, or not allowing them near certain locations, such as casinos, methadone clinics or affordable housing units, for example. 

However, McCausland said since council passed the motion to conduct a business licensing review on such companies, not much action has been taken on the issue since.

"It was supposed to be back last year, I believe. There was a change in the director of bylaw and we are still waiting for that business licensing review to happen ... the deadline was missed on that based on what was in the original motion," he said. 

McCausland said he was motivated to take on the issue after seeing how it was affecting people in his community.

No mechanism in place

"I live in the Donnovan and there's regularly a giant billboard plastered on the entrance of the Donnovan that says, 'Payday loans, cash now, cash for you," he said. 

"To me, it's very problematic, predatory advertising [and] lending practices." 

McCausland said he agrees with Cockburn that the problem that needs to addressed is how many payday loans people are able to accumulate. 

"There's absolutely no mechanism ... to prevent someone from going to four different payday loan companies and getting four different loans within the same two week period," McCausland.

"It just seems like there must be a simple solution available," he said.

CBC News reached out to the City of Greater Sudbury but did not receive a response in time for publication.