Cash-poor families drawn to payday loans
Families with little savings or no credit cards and who are struggling to pay their bills are significantly more likely to have used payday loans than those with more financial options, according to Statistics Canada.
The agency said in a study releasedFriday that families with $500 or less in the bank were 2.6 times more likely to have used payday loans than those with between $2,000 and $8,000.
The short-term loans require no credit check and typically dole out amounts of about $100 to $1,500. They've been criticized for being the most expensive legal way to borrow money.
Charges keep adding up
They come with a range of fees and added charges for clients who keep rolling over loans from week to week and month to month ifthey're unable to pay back the original loan.
Published in the April issue of Perspectives on Labour and Income, the study examines the characteristics and behaviours of payday loans borrowers, using first-ever data on these loans from the 2005 Survey of Financial Security.
Payday loans were dubbed as such for the method of paying them back. When you sign the loan agreement, you leave a cheque, dated for your next payday, which covers the amount of the loan and the fees and service charges.
Families behind in bill or loan payments were more than four times as likely to have used the loans than those who were able to keep up, the study found.
"Concerns have been raised about questionable practices within the payday loan industry, including high borrowing costs, insufficient disclosure of contract terms, unfair collection practices, and spiralling debt loads resulting from loans being rolled over," Statistics Canada said.
Despite a rise in the number of payday transactions, relatively few Canadians use this kind of service. Less than three per cent of families had taken such a loan in thethree years ending in 2005, Statistics Canada said.
Almost half of those families had spending that outstripped their incomes.
Families who had been refused a credit card were more than three times as likely to have had a payday loan than those who had been granted a card, the report said.
B.C. to regulate industry
British Columbia introduced legislation Wednesday to regulate payday lenders and limit the cost of borrowing.
Borrowers would havethe right to cancel a payday loan within a certain time by returning the money.
Persia Sayyari isan organizer with the group ACORN, which pushed for the legislation and has long accused the industry of preying on low-income people.
Shesaid too often, people are getting trapped in long debt cycles they cannot escape from.
She cited one woman whose $500 loan took five years to retire. In the end, she said the woman paid an additional $9,500 in interest and other fees.
Money Mart, which saysit providesthe lowest-cost payday loans in Canada, on Wednesday issued a news release sayingit welcomes legislation that will "balance strong consumer protection with a viable payday loan industry."
B.C.'smove to regulate the industryfollows similar legislation in Manitoba, Saskatchewan and Nova Scotia. New Brunswick is expected to introduce legislation this spring with Alberta, Ontario and other Atlantic Canadian provinces to follow.