New PIAC Report: Enhancing Protection for Payday Loan Users in Canada

OTTAWA – A new research report published by the Public Interest Advocacy Centre (PIAC) shows that many payday loan users remain unaware of their rights, and find it difficult to calculate payday loans’ high interest rates and costs. Repeat borrowing and continuous debt-cycles continue to prevail, with many users uninformed on how to deal with debt cycles, and better manage their finances.

The research indicates that the existing government resources on payday loans, i.e., provincial information websites and complaint filing processes may be underused, as many payday loan users do not know of their existence. “Payday loan users’ lack of awareness about their rights and existing redress systems is concerning, given the alarmingly high interest rates and costs of payday loans, it’s about time that prompt action is taken to address this information deficit,” said Tahira Dawood, Policy and Research Analyst at PIAC.

Other redress mechanisms for addressing payday loan issues, which the Report also studied, remain problematic. Actions such as filing a claim in small claims court is, relative to the amounts involved and the means of payday loan uses, costly, time-consuming and burdensome. Complaints made directly to payday lenders, while helpful to some borrowers, presently lack the transparency and accountability needed to adequately protect the vulnerable users of payday loans. At the time of research, no easily accessible public data was found concerning the number and nature of payday loan complaints made, their response times and outcomes.

“Payday loans are ‘expensive’ for customers because the repayment is due so soon, not just because the interest is high,” said John Lawford, Executive Director and General Counsel, PIAC. “Payday loan customers make better financial choices when this obscure fact is made clear – and they can learn fast and start saving money right away,” he added.

The report’s key suggestions therefore are:

• governments and regulators should adopt a more active role in developing consumer education and awareness initiatives on the risks involved in using payday loans, and their high interest rates and costs. One step towards achieving this could be provision of user-friendly guides to payday loan users at the time of purchase (a sample guide, prepared by PIAC, has been included in the report);
• better publicize existing help resources to payday loan users, especially through organizations that liaise more directly and frequently with lower-income consumers;
• require payday lenders to display more informative posters on payday loan costs and in particular, the extremely short repayment period for these loans;
• standardize and simplify payday loan agreements, that is by requiring all contracts to be drafted in simple and plain language that clearly disclose all applicable costs, length of a loan, when it is due and what costs would arise in case of missed deadlines;
• compile, and make publicly and easily available, databases on payday loan usage and complaints; and
• consider widening the scope of complaints of the Ombudsman for Banking services and Investments (OBSI) to oversee payday loan complaints, violations and disputes.

To see the full report, please see the following link.

To see the sample user-friendly guide prepared by PIAC, please see the following link.

The Public Interest Advocacy Centre has received funding from the Law Foundation of Ontario, under its Access to Justice Fund (ATJF). While financially supported by The Law Foundation of Ontario, the Public Interest Advocacy Centre is solely responsible for all content.

For more information please contact:

John Lawford
Executive Director and General Counsel
Public Interest Advocacy Centre (PIAC)
Tel: 613-562-4002 x 25
jlawford@piac.ca

Tahira Dawood

Policy and Research Analyst

Public Interest Advocacy Centre (PIAC)

Tel: 613-562-4002 x 23
tdawood@piac.ca