TORONTO – Due to the COVID-19 pandemic, more and more people are using the services of payday loan and installment loan companies, which charge higher fees and interest rates than traditional banks, according to an anti-poverty group.
Acorn Canada held protests Wednesday in nine different cities across the country, including Toronto, to raise awareness about what it calls “predatory lending.”
According to a survey conducted by Acorn, 80% of those who took out payday loans did so to pay for everyday expenses such as rent, groceries and electricity.
Additionally, 40% said they were turned down by a traditional bank before taking out a high-interest loan and 17% said they could no longer make payments due to COVID-19 financial difficulties.
Acorn said that due to the way payday loans and short-term installment loans are structured, annual interest rates can range from 25% to nearly 400%.
“If you take 40, 50, or 100 percent interest on a loan of a few hundred dollars because you have to pay the rent, how are you going to get out of this hole?” Djenaba Dayle with Acorn said.
The group said that even though the Bank of Canada has set interest rates at historic lows, low-income Canadians are not benefiting.
“Even with the lowest interest rates with the Bank of Canada, they still charge these wacky rates,” Dayle said.
“People are being offered more than they need and they think 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 principal.”
CTV News Toronto has been reporting during the pandemic on those who have taken out payday loans and are struggling to keep up with their payments.
Kathleen Kennedy of Hamilton said she borrowed $4,300 with an interest rate of almost 50%.
“I realized I made a very big mistake. The interest rate is outrageous and they’re harassing me. I don’t ever want to go through that again,” Kennedy said.
Acorn targeted Money Mart and easyfinancial during the protests. CTV News Toronto has contacted both companies for comment.
A spokesperson for 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% in annual interest, is not favorable to consumers.
“Our installment loans have a maximum interest rate of 46% and over the past five years we have worked to improve the cost of borrowing for our customers, which has been reduced to an interest rate average of 37%.
The spokesperson added: “Our customers are the nine million Canadians who are considered ‘unprivileged’ based on their credit score and who are typically turned down by traditional banks.”
Acorn said more needed 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 model.
By the time some people pay off one loan, they have to take out another to pay their bills, which can lead to what Acorn calls a viscous cycle of debt.