Cash-strapped Albertans offered a fairer deal through payday lending practices

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CALGARY – Years after new rules were put in place to protect Albertans from high interest payday loans, a Calgary-based credit bureau says it has made great strides in helping people avoid a vicious cycle of indebtedness.

Recently released momentum a full report on his work to change the unfair practices of many payday lending agencies in the province.

In 2016, the NDP government of the day announced it was taking action on payday loans, financial deals that often resulted in customers paying significantly more than they originally borrowed.

As a result, instead of using them as a method of dealing with immediate financial problems, people often found themselves stuck with huge amounts of interest.

Momentum claims that such loans are detrimental not only to borrowers, but also to communities.

“Beyond the negative impact on individuals, the community-level effects of high-cost credit business consolidation include financial hardship and crime, increased risk of poverty in vulnerable communities, and divestment,” he writes.

The actions of the Government of Alberta, along with Momentum’s advice, have resulted in a number of significant changes, including dropping the borrowing rate from one of the highest in Canada to one of the highest. low.

Besides the reduced rate, the policy also dissolved all the hidden fees and charges and allowed borrowers to repay their loan in installments.

In its report, Momentum says the changes have saved Albertans $ 10 million in fees as well as a drop in the number of borrowers and lenders in business.

“Since the implementation of the (End Predatory Lending Act), the number of payday lending companies in Alberta has declined from approximately 220 stores to 165 between 2016 and 2018,” the report says. .

Despite all that has been accomplished over the past five years, the group says there is still work to be done.

For example, Momentum says traditional financial institutions still need to do more to help low-income people and offer more short-term credit alternatives that would be better suited to their circumstances.

Further research is also needed to understand the high cost credit industry to protect vulnerable people.

“For example, the industry was able to quickly move from offering payday loans to more readily available installment loans or a line of credit,” the report says. “Although the interest payments on these loans are lower, the dollar value is often significantly higher than that of a payday loan.”

The provincial and federal governments also need to help, Momentum says, by including more legislation to force lenders to explore a borrower’s ability to repay a loan and by forcing regulated banks to offer more short-term loans to individuals.

“Momentum’s vision that low-income people have access to safe and affordable short-term credit will require additional system change to be fully realized,” he writes.

“Many low-income people continue to be trapped in a cycle of debt due to the use of payday loans and other forms of high cost credit.”

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