Use of payday loans surges amid COVID-19 pandemic, new survey finds
TORONTO -- Due to the COVID-19 pandemic, more people are using the services of payday loan and installment loan companies, which charge higher fees and interest rates than traditional banks, an-anti poverty group says.
Acorn Canada held protests in nine different cities across the country on Wednesday, including Toronto, to raise awareness of what it calls "predatory lending.”
According to a survey conducted by Acorn, 80 per cent of those who took out payday loans did so to pay for everyday living expenses such as rent, groceries and hydro.
Furthermore, 40 per cent said they were turned down by a traditional bank before taking a high interest loan and 17 per cent said they're now unable to make payments due to the financial hardship of COVID-19.
Acorn said because of the way payday loans and short-term installment loans are structured, annual interest rates can range from 25 per cent to almost 400 per cent.
“If you are taking out a 40, 50 or 100 per cent interest rate on a loan of a couple of hundred dollars because you’ve got to pay the rent, how are you ever going to get out of that hole?” Djenaba Dayle with Acorn said.
The group said even though the Bank of Canada has set interest rates to historically low levels, low income Canadians are not benefiting from them.
“Even with the interest rates at rock bottom with the Bank of Canada they are still charging these outlandish rates,” Dayle said.
“People are offered more than they need and they think well maybe I can catch up on my bills and you pay for a year or two, and you're still trying to pay off the loan’s principal.”
CTV News Toronto has done stories during the pandemic of those who took out payday loans and are having trouble keeping up with their payments.
Kathleen Kennedy of Hamilton said she borrowed $4,300 with an interest rate of almost 50 per cent.
"I realized I made a very bad mistake. The interest rate is outrageous and they are harassing me. I never want to go through this again," Kennedy said.
Acorn targeted Money Mart and easyfinancial in the protests. CTV News Toronto reached out to both companies for comment.
A spokesperson from easyfinancial told CTV News Toronto, “We are not a payday lender and we fully agree that payday loans, which are small, short term loans that cost more than 400 per cent in annual interest, are not favorable to consumers.”
“Our instalment loans have a maximum interest rate of 46 per cent and over the last five years we have been on a journey to improve the cost of borrowing for our customers, which has reduced to an average interest rate of 37 per cent.”
The spokesperson added, “Our customers are the nine million Canadians who are considered ‘non-prime’ based on their credit score and are typically declined by traditional banks.”
Acorn said more needs to be done to protect low income and vulnerable people from unfair lending practices. Credit counselors say there is a risk of falling into a payday loan pattern.
By the time some people pay off one loan, they need to take out another one to pay their bills, which can lead to what Acorn calls a viscous cycle of debt.