COVID-19 prompted more lower income Canadians to seek high-interest loans: report

Toronto –

The pandemic has resulted in more Canadians applying for high-interest loans, a new investigation has found, and advocates are urging the FBI to lower the maximum interest rate that lenders can charge.

ACORN Canada, a community group that advocates for low- and moderate-income Canadians, conducted the survey among its members. Of the 439 people who participated in the survey between November 2021 and January 2022, 113 said they took out a high-cost loan, such as an installment loan or an installment loan, due to covid-19.

Among these respondents, a quarter said they have had to take out a high-interest loan 10 or more times since the pandemic began. More than half also said that they first applied for a loan from a traditional bank or credit union but were rejected. In addition, 83 percent said they needed the loans to cover everyday expenses.

“When people have to take out loans for basic expenses like rent, food, telephone, internet … it’s a little worrying,” Peter Jongeneelen, spokesman for ACORN in New Brunswick, told on Tuesday in a telephone interview.

Installment loans are generally offered to borrowers with interest rates between 30 and 60 percent and intended to be repaid within a certain period of time. Saturday loans are usually $ 1,500 or less for a period of 62 days or less and may have an interest rate of up to 548 percent, depending on the province.

These loans are offered by alternative lenders and are usually sought after by individuals who may not be able to access loans from traditional banks and credit unions due to bad credit, low income or a combination of both.

“They are simply not qualified (for bank credit) because their credit rating is not good enough,” Jongeneelen said. “They have to try to do what they can to keep a roof over their heads, keep the food on the table.”

Suzette Mafuna was one of the ACORN members who took out an installment loan. Mafuna relies on old age security and returned to the university in 2019 so that she could find a good job and achieve financial independence. With rents, phone bills, debts and other expenses piling up, she took out an installment loan during the first months of the pandemic to help her pay for school expenses.

But with fees and interest, she now owes an additional $ 8,000 in addition to her principal amount of $ 6,000.

“No one understands what it’s like to be an average Canadian or to struggle to make ends meet. These guys sitting in these offices are all rich. They’ve never lived our lives. It’s all about money,” she told on Monday by phone.

The phasing out of state covid-19 subsidies such as CERB was mentioned as one of the reasons why lower-income Canadians turned to high-interest loans. More than half of those surveyed reported that their financial situation worsened due to the pandemic and continued need for financial support.

“CERB was fantastic and the changes made by EI were fantastic. But then they ended. Things like the lockout benefit, the benefit for caregivers – they were somewhat inadequate. We are still in the pandemic,” Jongeneelen said, adding that Canada lost 200,000 jobs in January 2022 after the emergence of the Omicron variant, according to Statistics Canada.


The Criminal Code of Canada prohibits lenders from setting annual interest rates that are higher than 60 percent. ACORN says the federal government should lower the criminal interest rate to 30 percent.

But below Section 347.1 of the Criminal Codepayday loans are exempt from the maximum interest rate limits as long as the provinces introduce their own regulation.

In Ontario, BC, Alberta, New Brunswick and PEI, payroll lenders can charge a maximum of $ 15 per $ 100 borrowed over a two-week period. This corresponds to an annual interest rate of 391 percent.

In Manitoba and Saskatchewan, the highest fee is $ 17 per $ 100, or 443 percent annually. Nova Scotia allows payroll lenders to charge $ 19 per $ 100 (495 percent annually) while lenders in Newfoundland and Labrador can charge $ 21 per $ 100 (548 percent annually).

Quebec is the only province that has effectively banned payday loans. The interest rates for all loans in the province are limited to 35 percent. ACORN also urges the federal government to comply with Quebec’s management and repeal the exemption under section 347.1 for payday loans.

During last year’s federal election, the Liberals promised to “crack down on predatory lenders by lowering criminal interest rates.” This commitment was also identified as one of the priorities of Deputy Prime Minister and Minister of Finance Chrystia Freelands power of attorney in December 2021.

Adrienne Vaupshas, ​​press secretary for Freeland’s office, told in an email that the federal government will begin consultations on lowering the criminal rate soon, with further details “made available in due course.”

“Too many Canadians with low and modest incomes are forced to rely on short-term high-interest loans to survive, which puts them in a debt cycle. The government is committed to cracking down on predators by lowering the crime rate on interest,” he said. she.

But Canadian Consumer Finance Association (CCFA), the industry group that represents financial institutions that provide installment and installment loans, says these changes could hurt low-income Canadians who would not otherwise have access to credit from traditional financial institutions. CCFA claims that this may force borrowers to apply for loans from illegal, unlicensed lenders.

“Installment loans are expensive to provide and often with high risk. The borrower’s credit score is an important factor in determining the interest rate on an installment loan and in fact, many applicants do not qualify for a loan because of their credit profile.” email to on Monday.

“Any reduction in the federal maximum interest rate will result in the removal of access to credit for those Canadians with lower credit scores who previously qualified for the current interest rate.”

ACORN also calls on the federal government to make traditional banking more accessible. The proposals include lowering the fee for insufficient funds (NSF) for withdrawals from $ 45 to $ 10 and getting the federal government to guarantee bank loans for Canadians with low and moderate incomes. ACORN also proposes the introduction of a postal banking system, where Posten would run a publicly owned bank for those who do not have access to banks.

“It is outrageous that the banks do not seem to have anything that is a priority for those people with low and moderate incomes who need some form of emergency loan,” Jongeneelen said. “The government must act sooner rather than later.”

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