Younger people are often more likely to have a payday loan than older debtors. In
one survey of Ontarians by the insolvency firm Hoyes Michalos, people ages 18-29 used payday loans more than any other age group. The same survey found that early half of those under 30 who file for bankruptcy or insolvency—meaning they’re broke and have no other financial options—have payday debt.
And now, amid the coronavirus pandemic, consumer advocates
warn of a debt storm brewing as millions of financially desperate people look for ways to stay afloat. There’s an opportunity for fast-cash and payday lenders stand to make even more because they’re considered essential services. Unlike
banks and credit card companies that have lowered interest rates on loans and credit and are offering deferral options, payday lenders are, for the most part, running their businesses as usual.
Guaranteed Loans in the U.S. is still charging as much as 780 percent interest over a year for a 2-week payday loan. In Prince Edward Island,
iCash is still advertising as much as 650 percent interest a year.
The
Toronto Star contacted six payday lenders in the Toronto area and found all but one of them were charging the maximum amount of interest allowed.
Money Mart, behind half of all payday loans in Canada, did not respond to VICE’s request for a comment. However, it says on
its website, “We know that now, more than ever, people need fast, hassle-free access to cash.”
Cash Money, on the other hand, told VICE that it’s seeing a “significant decrease in new loan applications.” Melissa Soper, Cash Money’s senior vice president of public affairs, said that according to the Canadian Consumer Finance Association (CCFA), which represents the fast-cash lending industry, Ontario payday loan activity for April 5-11 declined 84 percent from the last week of February. VICE could not confirm this decline and the CCFA did not respond to VICE’s request for comment.
Soper said that Cash Money has modified payment for 10,000 customers across Canada who owe money depending on their circumstances, ranging from changing the due date to interest or forgiving fees.
Economist Ricardo Tranjan, who authored the CCPA research, said this may be a slow start to a large-scale personal finance crisis.
For example, Tranjan said renters are four times more likely to use payday loans than homeowners. Right now very few jurisdictions are offering breaks for renters but are giving homeowners mortgage deferral options.
And while banks and credit card companies are slashing interest rates, most payday loan customers are people who don’t have access to cheaper loans like a credit card or line of credit, typically low-income earners and newcomers or people who have maxed out their lower-interest debt options.
“In Canada moderate- and high-income families have access to good and cheap financial products whereas lower-income households have to resort to bad and expensive financial products,” he said.
Donna Borden, a representative from the anti-poverty advocacy group ACORN based in Toronto, said she expects an increase in payday loan applications, especially from people who are suddenly jobless and relying on government aid. This echoes
warnings from consumer protection advocates across the U,S.
According to Borden, payday lenders are “like loan sharks” who can benefit from the coronavirus crisis to get more customers.
Borden describes payday loans, which are $1,500 or less, as a gateway to instalment loans of up to $15,000, often offered by the same lenders. These larger loans charge as much as
60 percent annual interest, significantly more than a line of credit or cash advance on a credit card.
