Ten years ago, Rori took out her first payday loan. Then 29, she was living in social housing in Toronto and needed a couple hundred dollars.
“In the beginning it was great. It was really easy to get the payday loan when I needed money between paycheques and I could pay them back on my next payday,” said Rori, whose last name has been omitted to protect her privacy.
A decade later, having had to support her mom who became ill with cancer, her loans from payday lenders have multiplied and ballooned. Now, as someone who was working in the food services industry before the coronavirus pandemic, the former chef and fast-food attendant has found herself suddenly unemployed—and has collection agencies after her for the $6,300 she still owes to three payday lenders.
A payday loan is a cash advance on a paycheque or government assistance like the Canada Emergency Response Benefit (CERB). All you need is a pay stub (or proof of income), an address, and bank account information. It can be done online and can take just a few minutes.
But they are the most expensive credit available. According to the U.S. Consumer Financial Protection Bureau, interest charged on these loans over a year ranges from 260 to 780 percent. A recent report by the think tank Canadian Centre of Policy Alternatives (CCPA) shows that payday lenders charge the maximum they can get away with under provincial laws—up to 652 percent over a year in Prince Edward Island and 391 percent interest over a year in Ontario, Alberta, British Columbia, and New Brunswick.
In the U.S., the short-term loan industry is just as lucrative. In 2015 payday borrowers, often people with bad credit or few options, paid more than $60 billion in fees and interest. Things are even worse under President Donald Trump, who rolled back consumer protections and gutted the federal agency tasked with fighting predatory lending.
Younger people are often more likely to have a payday loan than older debtors. In one survey of Ontarians by the insolvency firm Hoyes Michalos, people ages 18-29 used payday loans more than any other age group. The same survey found that early half of those under 30 who file for bankruptcy or insolvency—meaning they’re broke and have no other financial options—have payday debt.
And now, amid the coronavirus pandemic, consumer advocates warn of a debt storm brewing as millions of financially desperate people look for ways to stay afloat. There’s an opportunity for fast-cash and payday lenders stand to make even more because they’re considered essential services. Unlike banks and credit card companies that have lowered interest rates on loans and credit and are offering deferral options, payday lenders are, for the most part, running their businesses as usual.
Guaranteed Loans in the U.S. is still charging as much as 780 percent interest over a year for a 2-week payday loan. In Prince Edward Island, iCash is still advertising as much as 650 percent interest a year.
The Toronto Star contacted six payday lenders in the Toronto area and found all but one of them were charging the maximum amount of interest allowed.
Money Mart, behind half of all payday loans in Canada, did not respond to VICE’s request for a comment. However, it says on its website, “We know that now, more than ever, people need fast, hassle-free access to cash.”
Cash Money, on the other hand, told VICE that it’s seeing a “significant decrease in new loan applications.” Melissa Soper, Cash Money’s senior vice president of public affairs, said that according to the Canadian Consumer Finance Association (CCFA), which represents the fast-cash lending industry, Ontario payday loan activity for April 5-11 declined 84 percent from the last week of February. VICE could not confirm this decline and the CCFA did not respond to VICE’s request for comment.
Soper said that Cash Money has modified payment for 10,000 customers across Canada who owe money depending on their circumstances, ranging from changing the due date to interest or forgiving fees.
Economist Ricardo Tranjan, who authored the CCPA research, said this may be a slow start to a large-scale personal finance crisis.
For example, Tranjan said renters are four times more likely to use payday loans than homeowners. Right now very few jurisdictions are offering breaks for renters but are giving homeowners mortgage deferral options.
And while banks and credit card companies are slashing interest rates, most payday loan customers are people who don’t have access to cheaper loans like a credit card or line of credit, typically low-income earners and newcomers or people who have maxed out their lower-interest debt options.
“In Canada moderate- and high-income families have access to good and cheap financial products whereas lower-income households have to resort to bad and expensive financial products,” he said.
Donna Borden, a representative from the anti-poverty advocacy group ACORN based in Toronto, said she expects an increase in payday loan applications, especially from people who are suddenly jobless and relying on government aid. This echoes warnings from consumer protection advocates across the U,S.
According to Borden, payday lenders are “like loan sharks” who can benefit from the coronavirus crisis to get more customers.
Borden describes payday loans, which are $1,500 or less, as a gateway to instalment loans of up to $15,000, often offered by the same lenders. These larger loans charge as much as 60 percent annual interest, significantly more than a line of credit or cash advance on a credit card.
Struggling with mounting bills during the 2008 recession, she borrowed $10,000 from a payday lender. “Before I knew it I paid close to $24,000 and they said I still owed $7,000,” Borden said.
Because there are rules limiting a payday lenders’ ability to roll over a loan, people who can’t pay when it’s due often resort to taking out another such loan from a different company. And because lenders don’t require a credit check, you usually won’t be denied a short-term cash advance if you owe money to another payday lender.
According to Doug Hoyes, the founder of Hoyes Michalos, people typically have three or more payday loans by the time they come to his firm to declare bankruptcy. Use of payday services has been climbing for the past eight years and he expects a wave of people going broke and filing for bankruptcy later this year.
“Our return to work will be gradual, which implies that people’s incomes will only gradually increase, leaving less funds available to service debt,” he said. “By the end of summer or fall the courts will be open, collection agents will be calling, and the pressure will build such that bankruptcy and consumer proposal filings will likely spike upwards, perhaps significantly.”
ACORN has started petitions in Ontario and B.C. calling for stricter rules to limit payday lenders during and after the pandemic. Payday loans are currently regulated by provinces but Borden says it’s time for the federal government to step in. ACORN is demanding payment and interest freezes on all high interest loans with no penalty as well as forcing banks to create small dollar loan products for low-and moderate-income people at zero interest during the COVID-19 crisis.
Tranjan said one easy policy fix would be for all provinces to follow Quebec’s lead and cap payday loan interest at 35 percent annually.
Any changes would come too late for Rori. She’s trying to figure out what she’s going to do when her CERB runs out because she doesn’t qualify for Employment Insurance. Because of her current debt, she says she doesn’t qualify for other loans so she’s considering signing up for some essential work, at a grocery store or in food service, even though she has a compromised immune system.
“I am scared financially, because I don’t know when my job will be safe even if things get back to normal,” she said. “I don’t have a security blanket and an emergency fund in case things fall apart.”
Follow Anne Gaviola on Twitter.