'Canadians deserve better': Experts decry 'outrageous' interest rates by alternative lenders
Hidden camera investigation catches lenders offering confusing, questionable loan information
A senator and a prominent mortgage industry executive are calling on the federal government to crack down on lenders who charge sky-high interest rates to Canadians desperate for cash, after a Marketplace hidden camera investigation found questionable business practices among a number of alternative financial institutions.
The investigation into CashMoney, Easyfinancial, Fairstone Financial and Money Mart reveals confusing and misleading representations, and a lack of transparency and documentation.
"It's an abusive financial process that needs to be curtailed," Sen. Pierrette Ringuette told CBC Marketplace.
The Marketplace investigation found lenders offering personal loans at rates up to 46.96 per cent, in an era when interest rates are at historic lows. Bank of Canada rates are now below one per cent
"It's OK to make money," said Alex Haditaghi, chairman and founder of mortgage lender Radius Financial, after viewing the footage documented by Marketplace. But it doesn't mean they have to charge exorbitant lending rates, he said.
WATCH | How alternative lenders operate:
Toronto-based Haditaghi called the high rates "predatory lending" that put Canadians in a "hamster wheel" of debt. He said such rates "should never be allowed in this country."
Ringuette called the lending practices "abusive" and "unethical," and told Marketplace she wants interest rates capped at 20 per cent plus the overnight Bank of Canada rate.
"Because of this COVID situation and the financial burden of households, I think that it's a critical time to do so," said Ringuette.
Marketplace goes undercover with hidden camera
CashMoney, Easyfinancial, Fairstone Financial and Money Mart offer loans with convenient repayment through automatic bank withdrawal. Their target clientele: roughly nine million Canadians with lower credit ratings who can't secure loans from traditional banking institutions, according to Goeasy Ltd, owner of Easyfinancial.
Primarily known for payday loans, CashMoney and Money Mart have quietly moved into the lucrative world of longer-term lending, with CashMoney offering up to $10,000. Money Mart lends up to $15,000 with multi-year repayment plans.
Easyfinancial and Fairstone Financial offer instalment loans up to $45,000 and $35,000, respectively. Homeowners willing to secure their loans by putting up property are eligible for the higher amounts and lower rates.
Marketplace journalists asked for information about borrowing $6,000 to be repaid over three years. Some sales agents downplayed rates by providing a monthly interest rate, which appears smaller, rather than an annual rate. At CashMoney, an agent repeatedly expressed the rate as 3.9 per cent, which a colleague later clarified as 46.93 per cent annual interest.
Haditaghi called monthly rates "misleading," an attempt to make them seem "palatable and easy to accept, and easier to sell."
On hidden camera, a Money Mart sales representative said the 46.9 per cent that is "unfortunately" charged to most customers is split over three years, not an annual rate. The agent also described Money Mart as a "secondary bank" but the company does not appear on the federal government's list of banks.
In a statement to Marketplace, a Money Mart spokesperson said the company "regrets any confusion that may have been created during this interaction."
"We do not believe there was any attempt to mislead, obfuscate or confuse the CBC mystery shopper," said a statement on behalf of Money Mart, owned by DFC Global Corp. The statement said the agent was using "plain language" and could have "handled better" the explanations.
Money Mart and Easyfinancial offered loan estimates that showed interest payments amounting to more than $5,000 on a three-year $6,000 loan.
Ask for a 3-year loan, get a 9-year payment plan
The payment scenario offered at CashMoney was worse, requiring approximately nine years and roughly $20,000 (including the $6,000 principal) to pay off a line of credit at 46.93 per cent, according to Haditaghi and an independent actuary consulted by Marketplace. They examined the payment estimate provided to the Marketplace journalists, who had clearly requested a three-year repayment plan.
"When a customer asks you, 'I'd like to pay this thing off in three years,' the whole objective is to give them payments that in three years there's no balance or principal left," said Haditaghi.
In an email, CashMoney stated that "our disclosures are very clear about how the minimum payments are calculated and customers often repay their loans early." Spokesperson Melissa Soper also said CashMoney, which is owned by U.S. financial company CURO, offers a "line-of-credit" product and not a "fixed payment instalment plan," which it did until 2018.
'Exorbitant, outrageous' interest payments, yet legal
Haditaghi said the interest rates and payments are "exorbitant" and "outrageous," but acknowledged they are legal.
Lenders in Canada can charge up to 60 per cent interest, according to the Criminal Code of Canada. A rate of 46.96 per cent seems well under this threshold, but there are several ways of calculating interest. In fact, a 46.96 per cent APR (annual percentage rate) comes in at just under 60 per cent when using the calculation dictated by federal law.
"So they all manoeuvre just below, just to make sure there are no [criminal] charges," said Ringuette. "Quite a good business plan for them. But what about Canadian consumers?"
The 60 per cent criminal rate was set in the early 1980s when banks charged about 20 per cent interest on loans. Worried about usury and loan sharking, the federal government capped the legal rate at roughly three times what banks were charging consumers.
But with Bank of Canada rates now below one per cent, Ringuette said, "no normal person that can count would accept" that the current 60 per cent cap is reasonable.
The lenders visited by Marketplace said they are engaged in responsible lending and perform a critical service in the marketplace, offering credit solutions for Canadians who are rejected by traditional lending institutions. High rates are required because the clients are riskier and may default or walk away from their debts, according to the industry.
And not all customers receive their highest rates, say some lenders, because a final rate is assigned once a hard credit bureau check is conducted.
Open loans: 'You can pay it off anytime'
During the Marketplace investigation, journalists were repeatedly told the loan was "open," meaning extra payments could be made to chip away at the debt. The balance could also be paid in its entirety at any time without incurring penalties; interest would be calculated to the date of payoff.
In Barrhead, Alta., Theresa Morton says she had complications closing a loan early with lender Fairstone Financial.
In 2018, she and her husband, Robert, borrowed $20,000 at 27.99 per cent to help cover the expenses of a nightmare renovation after they had maxed out their bank credit, couldn't tap their investment funds and lost her husband's well-paying job in the oil and gas industry.
The interest on the five-year loan, which was secured by property, amounted to $17,374.30, meaning the couple would have repaid more than $37,000 had they not been able to pay off the loan early.
"It was a one-off," Morton told Marketplace of her experience with a high-interest lender. "It was due to totally unforeseen circumstances. We had light at the end of our tunnel [because] we knew we had the means to pay this loan back. Otherwise, we would not have done it."
After 11 months — and $6,855.86 in repayments to Fairstone Financial — the Mortons were able to secure credit from their local bank at a much lower interest rate. They planned to use some of that money to close their Fairstone loan.
Morton said she inquired about the outstanding balance, including interest to the date of payment, then arranged for a cashier's cheque in the amount of $18,314.69.
After submitting the cheque at the Fairstone location, she and her husband were required to pay an additional $180.36 in interest because the bank draft was "subject to check clearing," as indicated in documents supplied to Marketplace.
"We don't close it until you pay that," Morton said she was told by employees.
In correspondence with Marketplace, Fairstone did not provide an explanation for the additional interest charge of $180.36, but did write "we do not charge the customer interest until a cheque clears, under any circumstances."
Morton said she would like to see "more accountability."
- Watch full episodes of Marketplace on CBC Gem.
'Canadians deserve better'
On the hidden camera, all four lenders declined to provide Marketplace with samples of contracts or agreements, with the Money Mart sales agent explaining that documents are provided after the customer has signed "on the dotted line."
"It's very non-transparent, and very shady," said Haditaghi. "It's almost like loan sharking."
Marketplace was able to obtain Fairstone, Easyfinancial and CashMoney contracts from viewers, which Haditaghi read and called "onerous."
Fairstone confirmed to Marketplace that contracts are not available to customers in store prior to a customer consenting to a credit check, but that customers can cancel the loan process at any time, including within a 14-day period after obtaining a signature. CashMoney, Easyfinancial and Money Mart stated they aim for "transparency" in their client interactions. Easyfinancial also said that customers can always request a sample contract by contacting its head office. In correspondence with Marketplace, the company provided examples of an unsecured loan agreement and a loan protection plan agreement.
Haditaghi said the federal government should slash the criminal interest rate and regulate the industry because the companies operate in most provinces throughout Canada. Currently, alternative lenders are regulated provincially for disclosure and consumer protection requirements, creating a patchwork of differing regulations.
Since 2013, Ringuette has sponsored two private member's bills to lower the criminal interest rate to 20 per cent plus the Bank of Canada's overnight rate. Thanks to prorogations and election calls, the bills have died on the table.
"I don't think they realize to what extent this belongs under federal jurisdiction," said Ringuette of her fellow parliamentarians. After watching Marketplace's hidden camera footage, she said she's ready to do battle again.
"Because of COVID, the federal government had to go into [a] large deficit to help Canadians," said Ringuette, "and you know, they foresee that it's OK because they're at a low interest rate. Well, it shouldn't be different for your average Canadian, too."
Ringuette wants the federal finance minister to introduce legislation in the House of Commons now while the pandemic rages and wreaks financial damage on many Canadians.
WATCH | Marketplace's full investigation:
The office of Federal Finance Minister Chrystia Freeland declined Marketplace's request for an on-camera interview but suggested "Canadians considering unconventional lenders for additional financial support should consult their province's consumer affairs office about the associated risks."
Ringuette said some Canadians could face a "dire situation" come spring and summer as the pandemic wears on.
"I believe that we're going to have a lot of horror stories and Canadians deserve better."
If you have information you would like to share on this story or others, please email marketplace@cbc.ca.