Payday lender lines of credit and 47% installment loans create debt traps, critics say

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Patricia Edwards, Toronto, wanted to help her two grown children when they couldn’t pay the bills for the Toronto townhouse they share.

Although she had no assets and a poor credit record, she was employed at that time. She turned to a cash lender for a permanent loan and not for a payday advance. You might be wondering how to find new loan offers if you’ve never been to a place like this before. The short answer is that there are a lot of places that will help you go through the process of finding new loan offers. You can find them through Green Day Online Lender site.

“I was like: OK, let’s find out if my loan is available because I am working.”

Edwards, 53 was able in early 2019 to borrow $ 1500 from Cash Money. However, she lost her job in 2019, and then the pandemic. She had to refinance the loan two times and turned to Money Mart to get a two years installment loan.

Today, her total debt is almost $5,000, and she pays nearly 47% interest.

Ottawa under pressure to cap payday lenders with high interest

Pressure is growing on the federal governments to reduce the interest rates for payday lenders. Payday lenders can charge interest rates as high as 50%. Advocates contend that payday lenders often target the most financially fragile people, and that the economic pandemic has made matters worse. 2:04

The voices of many Canadians who share her pain are calling for industry reform. Activists, elected officials, and even small credit businesses claim that financially vulnerable individuals are too often attracted to low bimonthly payment from payday lenders on long term loans.

Only option

Edwards stated that Edwards would love to receive a bank mortgage. “But I don’t drive a car, have no house, have no assets. I don’t qualify.”

Payday loan lenders claim that this makes them so essential. They loan money to people in crisis who might not otherwise have the means to borrow.

Canadian Consumer Finance Association, a group representing nearly 1,000 high interest lenders across Canada, released a statement to CBC News. They stated that unsecured loan are difficult to provide and that the government approves members’ interest rates.

The statement stated, “Our members have been highly regulated.” He also stated that “for reasons involving risk, the higher the interest-rate, the better the borrower’s credit rating.”

Money Direct, run by Patrick Mohan and with nine locations throughout Ontario, Nova Scotia, Money Direct offers payday loans. But he is critical about big chain lenders. The Independent Payday Loan Association of Canada, which he established in 2008, represents operators that are closer to his business. He explained that the group is comprised 50 small, “mom-and-pop” lenders who do not offer long-term lines of credit or loans.

Patricia Edwards of Toronto reviews the agreement. A mother of two is nearly $5,000 in debt to two payday lender. (CBC News).

Although member companies cash checks and offer Western Union money transfers, in terms of lending they only offer short term payday loans. This is to allow the consumer to meet his financial needs. Up until his next paycheck arrives. Borrowers pay $15 every two weeks for every $100 borrowed. He says that most people repay their loans quickly.

He said that the payday loan product is a type of pay period. “Say that you need $400. You enter, get money, then you pay $ 456 at current rates.

Mohan noted that larger chains, such as Money Marts, easyfinancials, Cash 4 You, and Cash Money, have started offering a wider array of financial products. After several Canadian provinces cracked down on payday loans in 2016, Mohan suggested that they had reduced the fees from $ 23 to $ 15 every two weeks. Ontario has decreased them from $ 21 to $ 15. Alberta has reduced their fees from $ 23, to $ 15, once every two-weeks, while Ontario has lowered them from $ 21, to $ 15.

He explained that “They saw what was happening, and then they started pushing lines of credit to the installment loans.” They were like, “Keep it lower than 60% and we won’t be sued by the federal authorities.” 

The Criminal Code of Canada makes it illegal to have an interest rate of 60 %.

Be a force for change

Acorn Canada is a national nonprofit that protects the rights for low-income people. It has organized protests across Canada and called on the federal government.

Donna Borden (Vice President of Acorn’s East York branch) in Toronto stated that the pandemic caused more Canadians and others to turn to high-interest lenders.

She explained that “a lot people use or take these loan to buy food or pay their rent.” It’s worse with COVID.

Acorn conducted an online survey to find out which segments of credit were growing fastest. Troubleshooting. He found that the proportion of survey respondents who claimed to have taken out installment loans has increased from 11% in 2016 down to 45% in 2020.

People are losing work, and they are in desperate need for money, Borden stated.

Acorn Canada, which advocates for low income people, organized protests in support of what it calls “predatory lenders” in nine Canadian municipalities on February 17, 2021. (Gland Canada).

Canadian Consumers Finance Association argues that their loan portfolios continue to grow.

“There has been a significant decline in the amount of loans taken Canadians,” CCFA stated, according to CBC News.

He listed government support programs and the “lack of spending during closings” as reasons.

Patrick Mohan of Independent Payday Loan Association of Canada claimed he noticed a similar trend.

He spoke of the low demand and said “We are still down 35-40 percent.” Although things are starting to rebound, the economy isn’t growing as fast and people aren’t borrowing as much.

“A goldmine”

Pierrette Rockuette, a New Brunswick independent senator, sponsored two bills for amending the Criminal Code. The bill would lower the maximum interest rate that lenders are allowed to legally charge. It would also reduce the overnight bank to between 60 percent and 20 percent. day. Ringuette stated she was going to sponsor another bill.

“Canada is like the gold mine of these institutions because the current state the legislation we have,” she said.

She noted that although some states in the United States have put a lower limit on the interest rates charged for payday lenders they continue to be profitable.

“Yes, they can serve in States of the United States where on average you would have an Interest Rate capped at 10, 12, and 15 percent. However, they can serve Canadians very effectively at 20 percent,” she said.

Patricia Edwards loan agreement page reveals her interest rate as 46.9%. (CBC News

Ringuette however stated that it can take years for bills to be sent to the Senate. Then, it takes even longer for them to pass. She indicated that Trudeau government could be more aggressive, possibly even announcing an increase in federal budgets due in April.

She stated, “It’s possible within three-months and it should be done within 3 months.” “I hope everyone has a budget.”

Try to get out of the debt trap

Patricia Edwards claimed she was worried that she would not be able escape from the debt trap. Now she is trying to find a way out. Even though it’s not an option for her, she did consider how borrowing with her credit card could help her solve her 47%-interest rate problem.

Edwards said, “If I could get a $10,000 Visa card for 19% I would,” and then only 19% will be due on the Visa.

Many consumers complain about credit cards rates being too high. But, when compared to what payday lender charge for certain products, these rates might seem like an affordable deal.

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