The Real Cost of Payday Lending

Submitted by Tamarack on July 10, 2014 - 5:35am

Since the early 1990s payday lending businesses have become increasingly prolific in most parts of Canada. The payday loan industry claims that they provide a needed service at a reasonable cost and do not target those living on low incomes or push customers for repeat business. Social agencies and advocates working to reduce poverty view payday lenders and other fringe financial businesses as problematic for those looking to exit the cycle of poverty. Payday lenders charge interest rates that, when annualized, top 400 per cent.

Action to End Poverty in Alberta released the attached report, The Real Cost of Payday Lending, that looks at payday lending in Calgary and Alberta. The rationale for this report has come from the experiences many have shared with support services providers combined with the recent inclusion of payday lending in the Calgary Poverty Reduction Initiative’s (CPRI) ‘Enough for All’ report. This report was unanimously endorsed by Calgary City Council in May 2014.

The research report shows that payday lending, in its current form, is detrimental to both individuals and communities. Individuals can easily be trapped in a cycle of debt and poverty that can be difficult or impossible to exit. For example, in Alberta, a $300 payday loan taken out for 14 days results in an annualized interest rate of 600 per cent. The concentration of payday lenders in less affluent communities also limits the financial options for consumers in these communities.

The report indicates that all orders of government along with the non-profit sector and mainstream financial institutions have a role to play in supporting people who turn to payday lending due to a lack of access to affordable financial services and products.

With many municipalities and the provincial government working on poverty reduction strategies, now is the time to implement far-reaching change that can support people to exit the cycle of poverty and prevent them from falling into it in the first place.

Download the full report

real-cost-payday-lending.pdf241.6 KB