Payday lenders are still charging extremely high interest rates on loans during the pandemic. File photo by Doug Ives / CP

A payday loan is a cash advance on a paycheck or government assistance such as the Canada Emergency Benefit (CEP). All you need is a pay stub (or proof of income), address, and bank account information. It can be done online and only takes a few minutes.

But they are the most expensive credit available. According to the US Consumer Financial Protection Bureau, the interest charged on these loans over a year ranges from 260% to 780%. A recent report by the Canadian Center for Policy Alternatives (CCPA) think-tank shows that payday lenders are charging the maximum they can get under provincial laws – up to 652% over a year in Île-du- Prince Edward Island and 391% one-year interest in Ontario, Alberta, British Columbia and New Brunswick.

Equally lucrative is the short-term loan industry in the United States. In 2015, payday borrowers, often people with bad credit or few options, paid more than $ 60 billion in fees and interest. Things are even worse under President Donald Trump, who rolled back consumer protection and gutted the federal agency tasked with fighting predatory lending.

Younger people are often more likely to have a payday loan than older debtors. In a survey of Ontarians conducted by insolvency firm Hoyes Michalos, people aged 18 to 29 used payday loans more than any other age group. The same survey found that half of those under 30 who file for bankruptcy or insolvency – that is, broke and have no other financial options – have payday debt. .

And now, amid the coronavirus pandemic, consumer advocates are warning of a debt storm brewing as millions of financially desperate people seek ways to stay afloat. There is an opportunity for payday lenders and payday lenders to earn even more because they are considered essential services. Unlike banks and credit card companies that have lowered interest rates on loans and credit and offer deferral options, payday lenders are, for the most part, running their business as usual.

In the United States, secured loans still charge up to 780% interest over a year for a 2 week payday loan. In Prince Edward Island, iCash still advertises up to 650% interest per year.

The Toronto Star contacted six payday lenders in the Toronto area and found that all but one 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 comment. However, he says on his website: “We know that now, more than ever, people need quick and hassle-free access to cash.”

Cash Money, on the other hand, told VICE that it is seeing a “significant decrease in new loan applications.” Melissa Soper, senior vice president of public affairs for Cash Money, said that according to the Canadian Consumer Finance Association (CCFA), which represents the fast lending industry, the payday lending activity in Ontario from April 5-11 was down 84% from last week. from February. VICE could not confirm this decline and the CCFA did not respond to VICE’s request for comment.

Soper said Cash Money has changed the payment of 10,000 customers across Canada who owe money based on their circumstances, ranging from changing the due date to interest or waiving fees.

Economist Ricardo Tranjan, author of the CCPA research, said it may have been 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. Currently, very few jurisdictions offer tenant breaks, but offer homeowners mortgage deferral options.

And while banks and credit card companies cut interest rates, most payday loan customers are people who don’t have access to cheaper loans like a credit card or line of business. credit, typically low-income people and newcomers or people who have reached their maximum low-interest borrowing options.

“In Canada, middle- and high-income families have access to good and cheap financial products, while low-income households have to resort to bad and expensive financial products,” he said.

Donna Borden, a representative for Toronto-based poverty advocacy group ACORN, said she expects an increase in demands for payday loans, especially from people who suddenly find themselves unemployed and dependent. government assistance. This echoes the warnings of consumer protection advocates in the United States.

According to Borden, payday lenders are “like loan sharks” who can take advantage of the coronavirus crisis to attract more customers.

Borden describes payday loans, which are $ 1,500 or less, as a gateway to installment loans of up to $ 15,000, often offered by the same lenders. These larger loans charge up to 60% annual interest, much more than a line of credit or a cash advance on a credit card.

Payday loans compared to other types of consumer credit. Source: Financial Consumer Agency of Canada

Struggling with growing bills during the 2008 recession, she borrowed $ 10,000 from a payday lender. “Before I knew it I paid almost $ 24,000 and they said I still owed $ 7,000,” Borden said.

Because there are rules limiting the ability of payday lenders to roll over a loan, people who cannot pay when due often resort to another such loan from another company. And because lenders don’t require a credit check, you generally won’t be refused a short-term cash advance if you owe money to another payday lender.

According to Doug Hoyes, the founder of Hoyes Michalos, people typically have three or more payday loans by the time they come to his business to file for bankruptcy. The use of breakdown services has increased over the past eight years and he expects a wave of people to go bankrupt and file for bankruptcy later this year.

“Our return to work will be gradual, which means that people’s incomes will only increase gradually, leaving less funds available for debt service,” he said. “By the end of the summer or fall, the courts will be open, debt collectors will call and the pressure will increase so that bankruptcy and consumer proposal filings will likely increase, perhaps by. significantly. “

ACORN has launched petitions in Ontario and British Columbia calling for tougher rules to limit payday lenders during and after the pandemic. Payday loans are currently regulated by the provinces, but Borden says it’s time for the federal government to step in. ACORN is demanding a freeze on payments and interest on all high interest loans without penalty and forcing banks to create low dollar loan products for low and low income people without interest during the COVID-19 crisis.

Tranjan said an easy policy fix would be for all provinces to follow Quebec’s lead and cap payday loan interest at 35 percent per year.

Any change would come too late for Rori. She is trying to figure out what to do when her ECPs are depleted because she is not eligible for EI. Due to her current debt, she says she is not entitled to any other loans, so she is considering enrolling in essential jobs, in a grocery store or in the restaurant business even though her immune system is weakened. .

“I’m scared financially because I don’t know when my job will be safe even if things get back to normal,” she said. “I don’t have security coverage and emergency funds in case things go downhill.”

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